Inherited IRA – Community Property State

Submitted by Richard Donahue on Tue, 2016-08-23 17:12

When listing beneficiaries for an inherited IRA, does a spouse in a community property state have rights to that inherited money?

i.e. Jane & Bill live in a community property state. Jane inherits her father John’s IRA. Does her spouse Bill have rights to that money? Can Jane list her children without Bill’s written spousal consent?



Submitted by Alan - IRA critic on Tue, 2016-08-23 18:51

Inherited property is NOT community property, it is considered the separate property of Jane. As such, Jane can name anyone she wants as successor beneficiary on her inherited IRA.



Submitted by Bruce Steiner on Sun, 2016-08-28 02:07

In some community property states, income from separate property is separate property.  However, in other community property states, income from separate property is community property.  In which community property state do Jane and Bill live?



Submitted by Gary Williams on Thu, 2017-02-09 17:59

In TX income from seprate property is community property, and presumably this is generally true for income from inherited seperate property as well?  But is this true for income within an Inherited Roth IRA (where only one spouse is a named primary beneficiary)?  Seems like income from such an Inherited Roth IRA should not be Community Propoerty, since it generates no joint (or other) tax liability, either while retained in the Roth IRA, or when (eventually) distributed?



Submitted by Alan - IRA critic on Thu, 2017-02-09 19:59

Amounts subject to tax upon distribution is not a factor in determining whether a spouse has any vested CP interest when they are not the named beneficiary.



Submitted by Gary Williams on Fri, 2017-02-10 14:32

That sounds right (thanks).  But how then could/would a spouse ever establish a vested CP interest in an Inherited Roth IRA?  It seems to me that they couldn’t, since:1. The other spouse doesn’t actually own the Inherited Roth IRA (they are just the beneficiary, and free to name successor beneficiaries),2. Although income from inherited property is theortically CP in TX, I think that this “general rule” is based on the “theory” (or logic) that the couple are (most likely) sharing the tax burden on that income (assuming they file joint returns)?  But if there is no tax burden on income (ever, because it is Roth IRA) then why would there be a CP interest?  And if there is (by law, becasue the IRA “income” is CP) , the how is the CP interest determined, e.g.:1. Is it 50% of all interest and dividends earned (over time) within the IRA (whether or not distributed), and how then would one split each future distribution (whether RMD or otherwise) and the remaining IRA balance between CP & SP?2. Is it 50% of all distributions (I doubt that) which would then imply a CP interst in the inherited principle (as well as income), and might then require spousal consent for the appointment of successor beneficiaries (other than the spouse), which I understand is not requiredIt seems to me (logically) that there should be no CP interest in an inherited Roth IRA (is it really even “inherited propoerty”?), but I’m no attorney, and I know that the law isn’t always logical.  Does nyone have any further experience or insights on this subject?



Submitted by Gary Williams on Sat, 2017-02-18 13:44

I did a bit more on-line digging into this.  The articple attached is a good summary of TX Marital Property Law by a local Austin attorney.http://www.btjlaw.com/index.php/articles/texas-marital-property-law-101Assuming this all applies to Inherited IRAs in TX (which I presume it does, I know if no explicit exception), then it seems pretty clear that you could have a mixture of Community Property Interests and Seperate Prpoerty Intersts within an inherited IRA in TX, unless care is taken to periodically distribute the interest and dividends on IRA investments out of the IRA and into a Community Property Account.  It looks like the burden is on the IRA owner to make and document such distributions if he/she wishes to maintain the Inherited IRA as Seperate Property, or alternately to monitor and document the accumulation of interest and dividends within the Inherited IRA in order to ascertain what a spouses Community Property in the Inherited IRA actually is.  Otherwise, there would appear to be a risk that commingling could occure, which might (at least theoretically) cause much or all of the Inherited IRA to be deemed Community Property, via the Community Presumption?In my specific case, and considering the Community Out First Rule, the non-spousal RMDs alone have been enough to sweep all interest and dividends from the Inherited IRA, and preserve it as 100% Seperate Propoerty — but all of this must still be documented.  Also a similar concern exists (under TX law) for the Taxable Seperate Property account that I depostit RMDs into.  Unless I periodically distribute the CP interests comming into this account (from the the Inherited IRA) plus any interst and dividends earned within this account to a joint (Community Property) account I will have a mixture of CP and SP interests in this taxable Seperate Property Account.  So comprehensive records of CP interests flowing in, interest & dividend earnings within, and CP distributiions from this account must also be kept, to either ascertain the CP interest within this account, or demonstrate that there is none.  Otherwise, this account too coould be deemed Community Property by the Community Presumption?I’m not a layer or a CPA, and don’t know if there is any case law on this, but this would seem (to me) to what the TX law implies.  Any thoughts or comments?



Submitted by Ben Meyer on Sun, 2016-08-28 13:36

Many IRA custodians require the consent of the spouse when a non-spouse primary beneficiary is named for an account holder residing in any of the community property states. On the other hand, many don’t. Apparently this is a cautionary measure, regardless of how the particular community property state treats income from separate property.

It can easily become a complex matter to account for all income that has been added to principal over the course of many years of marriage, when the account predates the marriage.



Submitted by Bruce Steiner on Sun, 2016-08-28 19:46

You can also have community property in a common law state if you earned it while living in a community property state and then moved to a common law state.



Submitted by fairira on Sat, 2017-02-11 06:04

To bsteiner:   Re your post on Sat, 2016-08-27 in which you noted that “In some community property states, income from separate property is separate property.  However, in other community property states, income from separate property is community property.”  Could you please advise which is the case in Califorrnia.  Thank you. 



Submitted by Gary Williams on Sat, 2017-02-18 13:54

https://www.irs.gov/pub/irs-pdf/p555.pdfIRS Publication 555 identifies Idaho, Texas, Lousiana & Wisconsin as the only Community Property States where “income” from Seperate Propoerty is considered to be Community Property.  Income from Seperate Propoerty is Seperate Propoerty in CA.



Submitted by robert axelrod on Fri, 2017-06-16 05:01

I am dealing with this as well, in WA state (community property). TIAA is requiring spousal consent to make my children primary beneficiaries of a recently inherited traditional IRA. While I suspect my wife will consent, it makes for an awkward conversation I’d rather not have. Most of our assets are at other custodians and if it weren’t for the promise of the TIAA traditional investment I wouldn’t even bother. I’m sure Vanguard does not require this because I’ve already designated my children primary beneficiaries of an inherited TIRA at Vanguard. So is it worth giving up access to the TIAA Traditional to avoid this conversation?



Submitted by Alan - IRA critic on Sat, 2017-06-17 02:44

To make that decision you would have to know exactly what your options are with the TIIA inherited IRA, particularly if it has been annuitized, as that could affect your transfer option to another inherited IRA custodian. Once you know your options including how your RMDs will be handled, you can determine whether getting the signed waiver is something you want to pursue.



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