Spouse not the sole beneficiary of Roth IRA

Submitted by PHILIP AMATO on Wed, 2016-08-31 17:00

Both parties are in their 80’s and both have Roth IRS’s over 5 years.

In Publication 590-A on Page 20 (Chapter 1 Traditional IRA’s) there is a paragraph that states “However, if you receive a distribution from your deceased spouse’s IRA, you can roll that distribution over into your own IRA within 60-day limit, as long as the distribution is not a required distribution, even if you are not the sole beneficiary of your deceased spouse’s IRA”. Is this paragraph applicable also to Roth IRA’s with the rollover not being subject to RMD’s?

If so,what IRS backup, Code, Regulation, Procedure, Guidance, etc. initiated the paragraph? I need the backup in addition to Publication 590-A to present to the Vanguard Group whose printed options are only Assume, Inherit, and Disclaim. Thank you.



Submitted by Alan - IRA critic on Wed, 2016-08-31 19:28

The rules for Roth IRA distributions follow those for TIRA distributions EXCEPT where stated otherwise. There is no exception stated for Roth IRAs, and therefore Roth IRA rollover options follow suit per the quoted sentence from Pub 590A. This is also reiterated in Pub 590B for Roth distributions in paragraph “Distributions after owner’s death”.  The general rule here is per Sec 408A(a):

(a) General rule

Except as provided in this section, a Roth IRA shall be treated for purposes of this title in the same manner as an individual retirement plan.

Submitted by David Mertz on Wed, 2016-08-31 20:11

  • Is the concern about whether or not the surviving spouse must establish a separate account prior to receiving a distribution, or about whether or not a surviving spouse can roll over a distribution?
  • I suspect that, for the purposes of accurate tax reporting, Vanguard requires that the surviving spouse explicitly make an election to treat the account as the surviving spouse’s own or to treat the account as an inherited account before Vanguard makes any distribution.  Taking a distribution directly from the deceased spouse’s IRA without making an explicit election would imply that the surviving spouse is taking the distribution as beneficiary, not owner; setting up the new account (or re-titling the old account if the surviving spouse was the sole beneficiary) as an inherited account first simply allows Vanguard to capture the information needed for preparing Form 1099-R for the distributions.
  • If the concern is whether on not a distribution to the surviving spouse (as beneficiary or owner) can be rolled over to the surviving spouse’s own IRA within 60 days, Alan provided the answer.  It can be rolled over (subject to the one-rollover-per 12-months rule).

Submitted by Alan - IRA critic on Wed, 2016-08-31 21:45

  • Yes, this may be simply a procedural question with VG since assumption cannot apply when there are other beneficiaries.  “Inherit” may need to be selected before VG can accept any direction from the spouse, then the spouse’s share can  be distributed or transferred into their own Roth IRA. If the person already has an owned Roth with VG and VG will not allow a rollover or transfer into that account even after the Roth is re titled as inherited, then VG is incorrect.
  • Since A ROTH was inherited, there cannot be a year of death RMD due. Another stated TIRA provision that applies to Roths starting the year following the year of death is that the surviving spouse would have no beneficiary RMD due because in the year of a spousal rollover to their owned IRA their RMDs are based on Sec 401(a)(9)(A) ownership rather than as a beneficiary. But since a Roth obviously has no ownership RMD requirements, there would be no  RMD of any type due for the year of the spousal rollover.

Submitted by PHILIP AMATO on Tue, 2016-09-06 22:13

First, thank you all for your comments. Allow me to outline how VG deals with the Subject. Because of NJ’s Estate Tax exemption dollar amount, I allocated a percentage of my Roth to a Trust for the benefit of my wife via VG’s website. I was aware that the Trust would have RMD’s but not the beneficiary according to a simple and understandable Guide that appeared on Schwab’s website. Shortly after the above action, I received a (more than likely, computer generated) letter. The synopsis of that letter states that since she is listed as a 90% benefiiciary she currently cannot assume the Roth IRA, and it also states “If you desiginate your spouse as 100.00% beneficairy,she can assume the Roth IRA in the year of your passing, and not be subject to the required minjmum distribution (RMD). The letter never offered any other options, such as, she may take her share as a distribution and roll over the assets into your Roth IRA within 60 days. I located in the “Inherited from Spouse” section of Pub 590A the 60-day time limit applicable to a spouse who is not the sole beneficiary which I have cited above. I called VG and discussed the treatment allowed by the IRS, explaining that since the distribution is not a required distribution (it’s a Roth IRA), my wife does not have to be the sole beneficiary, so RMD’s are not required. The Associate stated that she would have to discuss this paragraph with her main office. I then received the same computer letter from VG with the added paragraph, “Based on current IRS guidelines in Publication 590-B, it is possible for a spouse who inherits an IRA, to take a distribution from that IRA and roll it over into the spouse’s own IRA. This is allowed if done within a 60-day limit and if the distributionis not a required distribution”. Do you believe that, they just reiterared the paragraph. I expected them to state in a letter dealing specically with my Roth IRA, and that if my wife was not the sole beneficiary she would have to take her share as a distribution and roll over the assets into her own Roth IRA within 60 days and the VG procedure to accomplish that. My concern is that their computer driven system will default to an RMD account when the spouse is not the sole beneficiary, resulting in a check to be posted in Column 11 on Form 5498 to the IRS. I intend to write VG spelling out clearly what is allowed. In addition to Pub 590A and Pub 590B I would want to include the specific IRS Codes applicable to the stated paragraph.You have already given me Sec 408A(a). You also cited Sec 401(a)(9)(A). I’m at a lost about the connection of this Section to Spousal Roth Inhertance since this Section has to do with Qualified Pensions, etc.Thank you     

Submitted by Alan - IRA critic on Wed, 2016-09-07 03:36

  • Inherited Roth IRAs RMDs do follow the same rules as inherited TIRAs with respect to beneficiary RMDs. That said, since these Roths apparently do not have SOLE spousal beneficiaries, a spousal rollover done AFTER the year of death can only be for amounts in excess of the beneficiary RMD for that year. Therefore, I was incorrect in stating that there is no beneficiary RMD in such a year, although the surviving spouse can rollover the remainder of the distribution in excess of the RMD.
  • Reg for Roth IRA RMDs follow those for TIRA RMDs with respect to beneficiary RMDs, and TIRA RMDs generally follow the rules for qualified plans except where stated otherwise. IRS Reg 1.408A-6 contains a paragraph on Roth RMDs where any exceptions to the TIRA rules are stated. Of course, the main exception is that no RMDs apply to account owners. Another is that any Roth owner is deemed to pass PRIOR TO the RBD. See Q&A 14 in these Roth IRA distribution Regs:    https://www.law.cornell.edu/cfr/text/26/1.408A-6
  • For years after the  year of death, VG should not check Box 11 of the 5498 since that box only applies to participants, so is inapplicable to Roth IRAs. They should allow a rollover to an owned IRA of the surviving spouse except for the annual inherited Roth IRA RMD for that year. This conforms to what Pub 590 B indicates for spousal rollovers. To avoid any RMD whatever, the spousal rollover would have to be done by the end of the year of death.
  • Not sure if all your questions have been addressed yet. If not, please advise.

Submitted by David Mertz on Wed, 2016-09-07 12:55

I believe that that ability of the surviving spouse to roll over a distribution from an IRA that passes through a trust relies the IRS’s consistent rulings in PLRs which include the following statement:

  • The Preamble to the “Final” regulations provides, in relevant part, that a surviving spouse who actually receives a distribution from an IRA is permitted to roll that distribution over into his/her own IRA even if the spouse is not the sole beneficiary of the deceased’s IRA as long as the rollover is accomplished within the requisite 60-day period. A rollover may be accomplished even if IRA assets pass through a trust.

Given that this statement is not in the regulations themselves, it’s not surprising that Vanguard does not include the option in its guidance.  I suspect that the final paragraph under “Inherited from Spouse” section in Pub 590-A relies on the same statement as appears in the PLRs.

Submitted by Ben Meyer on Thu, 2016-09-01 07:01

At the time of the distribution to the surviving spouse, VG would have no way of knowing that the intention was to perform a 60 day rollover and not merely keep the funds.  They will code the distribution to the SSN of the surviving spouse, since it will previously have been ‘assumed’ from the decedent and retitled in the name of the surviving spouse.  Then, within 60 days, the surviving spouse will make a rollover contribution to his/her own Roth IRA at VG or elsewhere.  Assuming that the check was written on the account of the surviving spouse, VG would again have no idea which specific Roth IRA disbursed the rollover.  VG should have no objection to either the distribution or the deposit as a rollover.  But it would be preferable to do this as a direct transfer since it would not use up the permitted once-per-year indirect rollover.

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