Beneficiary Ira for Younger Spouse

Submitted by Brian Bishop on Wed, 2016-12-07 21:36

I recently met an individual who has a Beneficiary IRA from her deceased husband. The husband passed-away several years ago and the account was established as a Beneficiary IRA instead of her assuming it as her own (age was not an issue as she was already older than 59.5). Is it too late to make that adjustment – for simplicity purposes, adding it to her own IRA would be ideal rather than keeping it as a Beneficiary IRA.

Thanks



Submitted by Alan - IRA critic on Wed, 2016-12-07 22:05

  • The spousal rollover option never expires. In fact if the surviving spouse failed to fully distribute any beneficiary RMD during this period, she has become the IRA owner by default in a process referred to as assumption of the IRA. She would have had to take annual beneficiary RMDs no later than the end of the year in which her husband would have reached 70.5 or she already owns it in the eyes of the IRS even if the title does not reflect that. Now assuming that she HAS completed all her RMDs as beneficiary, due to her age she should roll have it retitled as owner and then immediately transfer it directly to her owned IRA account. If she has not taken an RMD year to date, by doing this she will lower the RMD by being able to use the Uniform Table on the balance of the inherited IRA on 12/31/2015 rather than the single life table producing a higher RMD.
  • There is only one possible exception to the above. If her husband was considerably younger than her and would NOT yet have reached 70.5 had he lived, she could continue to avoid RMDs until that year if she left it alone. If she wants to delay all RMDs on the inherited account then she would wait to do the rollover until he would have been 70.5.
  • Finally, note that continuing to maintain an inherited IRA after RMDs begin can wipe out the stretch for her own beneficiaries because they are only successor beneficiaries to her and must continue her RMD schedule when she passes. Conversely, if she rolls it over to her own, they become designated beneficiaries who can use their own life expectancies for RMDs greatly increasing their stretch.

Submitted by Brian Bishop on Sun, 2016-12-18 21:26

Hey Alan – thanks for the excellent explanation.  Just waht I needed and hoped for!!

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