Inherited IRA to Spouse

Submitted by James Arnold on Fri, 2016-08-05 16:29

I have a client whose husband died at age 67 with an IRA. The wife inherited 100% of the IRA and did not make it her own. Now that she is age 70 she wants to start RMDs. He would be age 73 so she missed the RMD for 2014 and 2015. In reading the IRS “What if You Inherit and IRA, it says under Treating it as your own ” You will be considered to have chosen to treat the IRA as your own if: You do not take the RMD for “a” year as a beneficiary of the IRA.” Does this mean she can now convert it to a personal IRA and start her RMD or does she need to withdraw the RMD for 2014 and 2015 and file the IRS form 5329?

Thank You,

Mike



Submitted by Alan - IRA critic on Fri, 2016-08-05 18:28

She now owns the IRA, she just has not had it properly re titled. The IRA became her own when she did not take a beneficiary RMD by 12/31 of the year her husband would have reached 70.5. She had to be the sole beneficiary of the IRA account. No RMDs are required for any of these years, and her first RMD distribution year is the year she reaches 70.5, with the RBD being 4/1 of the following year. But she should have the IRA re titled or rolled over to an owned IRA right away so any mismatch between the default rule and the title will end.



Submitted by James Arnold on Fri, 2016-08-05 19:06

Even if she missed two years she can still do this?  Thank you for the reply.



Submitted by Alan - IRA critic on Fri, 2016-08-05 19:41

  • Yes, for any year after the death of the IRA owner, a surviving spouse beneficiary that acquires ownership of the IRA is treated as if they owned it the entire year. Therefore, the first year that the surviving spouse failed to take the RMD required as beneficiary, they defaulted to ownership. Since she was not yet 70.5 at that time, there was no RMD required as the owner.
  • Sometimes, this default rule saves the stretch for a non spouse successor beneficiary named by the surviving spouse. As successor beneficiary the non spouse beneficiary must continue the RMD schedule of the prior beneficiary when the prior beneficiary passes after beneficiary RMDs begin, but if the prior beneficiary became owner under the default rule by not taking the full beneficiary RMD, the successor beneficiary is instead treated as a designated beneficiary and gets their own stretch.


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