Contribution limits for spouse inherited IRA treated as own
Client and spouse have been funding their IRAs for the year on a monthly basis. $100 per month. Spouse dies in June. Contributions were made in July and August before the decedent’s IRA was re-registered to the client. I believe the $200 of July and August may be excess contributions and would need to be removed. Is this true? Then, once the client took it as his own, do the prior contributions of spouse’s IRA (Jan – June $600) count against the client’s annual contribution limit or is it added to his annual contribution limit? – m
Permalink Submitted by Alan - IRA critic on Wed, 2016-08-24 22:42
This happens occasionally when monthly contributions are automatically transferred from decedent’s checking account. There is so specific template to resolve this, and a decedent cannot make a contribution. However, if the checking account was joint, the surviving spouse may want to maintain that since they inherited the checking account by operation of law and a contribution was made to an inherited IRA, the first of these contributions established ownership of the IRA by the surviving spouse. In that case, the contributions would come from the surviving spouse’s contribution limit. The other solution is for the IRA custodian to return the contributions to the estate under the assumption that the automatic deposit instructions are voided on the date of death because an estate cannot make a contribution. In that case, the contributions made prior to death would come from the deceased spouse’s contribution limit. Apparently, neither spouse would have reached 70.5 this year or excess contributions come into play. The IRA custodian may have procedures to address this situation which would probably eliminate the first option above. This should be discussed with senior staff at the IRA custodian and Form 5498 reporting the contributions should also be addressed. That is the what the IRS will be looking at in conjunction with the tax return.
Permalink Submitted by [email protected] on Thu, 2016-08-25 15:32
So, would you expect that the $600 contributed prior to death would be contributions to the decedent’s IRA and subject to their contribution limit, while the $200 post death COULD be counted as spouses contribution and subject to their own contribution limit (your option 1 above). In this case avoiding the need to remove as excess contribution from the now survivor spouse’s IRA (since he rolled it into his own)
Permalink Submitted by Jose Morales on Thu, 2016-08-25 17:03
I don’t see any IRA custodian being willing or able to accomodate this plan, at least not in a way that doesn’t require a few steps to get there which include removing the $200 as an excess contribution before applying it to the surviving spouse’s IRA as a contribution. Unless the Custodian manually generates all tax reporting, I don’t know of any way to make any core platform that I have seen simply shuffle the contributions from one person to another. If you are dealing with a bank or large brokerage it’s very unlikely that they can accomodate this.
Permalink Submitted by Alan - IRA critic on Thu, 2016-08-25 17:06
Yes, that is possible. The 5498 issued by the custodian next May will assign all these contributions. While the pre tax contributions are definitely those of the decedent and no doubt will be reported on a 5498 with decedent’s SSN, the post death contributions will depend on how the custodian chooses to handle them (return as voided, return as excess, or accept as sole beneficiary surviving spouse’s contributions to inherited IRA). If the surviving spouse prefers one of these possibilities over another, they might present their case to the IRA custodian. Again, if the checking account was not joint, that would likely eliminate the post death contributions as those of the surviving spouse.
Permalink Submitted by [email protected] on Thu, 2016-08-25 17:40
thanks, all. -m