Beneficiary IRA to IRA Rollover
A client’s husband died in 2009 and her previous advisor recommended rolling over her deceased husband’s retirement account into a Beneficiary IRA. The downside is she is taking annual RMDs of almost $20,000 per year. She since has remarried, does not need the liquidity, and prefers not to take the RMD and create the tax liability. If I understand beneficiary IRAs correctly, she is now 55, the RMDs are mandatory for beneficiary IRAs even for a spouse. Can she rollover the beneficiary IRA to her own IRA under the spousal exemption at this point, avoid current and future RMDs including for 2015, and only lose now having to pay the 10% tax penalty plus income taxes if she was to take a distribution prior to her age of 59 1/2? Are there any other benefits or consequences of doing this to avoid the RMDs? Thank you.
Permalink Submitted by Alan - IRA critic on Tue, 2015-06-16 19:10
She can roll over the inherited IRA to her own IRA anytime, but once she does she cannot go back to an inherited IRA. If she does the rollover this year, it will eliminate her 2015 RMD since she is deemed to have owned the IRA the entire year. I wonder if she even needed to take these past RMDs because if she was the sole beneficiary on the retirement account her beneficiary RMDs do not begin until the year her deceased husband WOULD HAVE reached 70.5. So unless he was considerably older than the client, there might not have been RMDs due.
Permalink Submitted by Todd Martin on Tue, 2015-06-16 22:25
Thank you as always Alan. To make certain I understand, we could leave the money in the beneficiary IRA in the event she may want some of the money prior to 59 1/2. Any distribution would be taxable but not penalized with the 10% penalty. As long as her deceased husband would not have been 70 1/2 if he were still alive, she could maintain the beneficiary IRA status and does not need to take the RMDs as her previous advisor and CPA has told her she had to take. Is that correct? Do you know what IRS publication I can go to for that information to provide to her CPA? Thank you again for your expertise.
Permalink Submitted by Alan - IRA critic on Tue, 2015-06-16 23:45
Yes, you could leave the funds in the inherited IRA and distributions taken would be subject to tax but not the penalty. She can also leave SOME of the funds in the inherited IRA as a safety margin and roll over the rest to her own IRA if she wishes. As for the RMD from the inherited IRA not applying to SOLE spousal beneficiaries, the following is copied from IRS Pub 590 B, p 9:
Permalink Submitted by Todd Martin on Wed, 2015-06-17 18:44
Thank you Alan. I am grateful for your knowledge and exepertise and sharing it with me.