Beneficiary IRA using wrong table
I have a client who, when her husband passed away, a beneficiary IRA was set up instead of a spousal IRA. Both husband and wife were over age 70 at the time the beneficiary IRA was set up. When it came time to take required minimum distributions, the uniform lifetime table was used instead of the single life expectancy table. This resulted in a total of $33,471 not being withdrawn from the beneficiary IRA that should have been withdrawn for tax years 2012-2014. The error was discovered now in 2015.
The question is what is the best way to move forward? Can I write a letter to the IRS explaining the situation and asking that the beneficiary IRA be treated as a spousal IRA and thus the withdrawals would be accurate and that we are in the process of correcting this by moving the assets into a spousal IRA. In addition, what I was planning on doing was doing a 60 day rollover from the beneficiary IRA to a spousal IRA. I don’t see any problems doing the rollover with the notable exception of the cash that should have been withdrawn from 2012-2014. Any suggestions for the best way to handle this situation?
Permalink Submitted by Jose Morales on Wed, 2015-07-29 16:59
I would say that by taking her own RMD amount, and therefore not fulfilling the RMD amount for an inherited IRA the default provisions kick in and the IRA is considered the spouses even if she never went through the formal steps of having the account transferred/retitled.
Permalink Submitted by Alan - IRA critic on Wed, 2015-07-29 17:22
This is yet another case of the beneficiary default rules coming into play, which is very helpful for this client. Using the uniform table resulted in the client failing to take her full RMD as a beneficiary, therefore she defaulted to ownership status of this IRA for the year after husband’s death and there is no RMD shortfall. However, the IRA should now be re titled as owner (as it should have been earlier) to reflect the results of the default rule. On a separate note, did she complete the year of death RMD if her husband did not?
Permalink Submitted by Seth Meisler on Thu, 2015-07-30 00:25
So therefore a letter to the IRS would not even be necesary, correct?
Permalink Submitted by Alan - IRA critic on Thu, 2015-07-30 00:48
Correct. No contact with the IRS would be needed unless they have already sent an inquiry.