Spousal beneficiary-IRA

Submitted by ShipsnGiggles on Tue, 2017-12-05 17:08

Traditional IRA owner died years ago before their RBD
Surviving spouse, younger than 59 1/2 sole beneficiary

Unfortunately the spouse receive some bad information-she was told if she remained a beneficiary she would be required to take minimum distributions to year following her husband’s passing. So she has been taking RMDs for a number of years now

Questions
Is she allowed to stop taking required minimum distribution’s even though she started?

In addition since she is still younger than 59 1/2 and will remain a beneficiary until she reaches 59 1/2 Can shename a beneficiary even though it’s in inherited IRA?

If the surviving spouse dies while the account is still an inherited IRA who inherits? Can the surviving spouse name beneficiaries? whose life expectancy is used to determine the stretch payout?

Ideally the surviving spouse is concerned remaining a beneficiary will prevent her children from using their own life expectancy for the stretch should she pass away before 59 1/2 and makes the IRA her own



Submitted by Alan - IRA critic on Tue, 2017-12-05 22:54

  • She could stop taking distributions, but not if husband would have reached 70.5 by now. And once she reaches 59.5 she could do the spousal rollover. Or she could do the spousal rollover now of the portion of the IRA that she knows she will not need prior to 59.5 and that would reduce the beneficiary RMDs on the amount that remains in the inherited IRA before 59.5. Technically, the distributions she has taken are NOT RMDs because they were not required. They are just discretionery distributions.
  • She can and should name her successor beneficiary on the inherited IRA. That beneficiary would then inherit if she passes. Otherwise, the account will go to her estate. 
  • If she passes while holding a beneficiary IRA, her successor beneficiary will get a full LE stretch if she passes before she must take beneficiary RMD. If she passes after her beneficiary RMDs must start, then the successor beneficiary will be limited to the RMD based on her age in the year she passed with a 1.0 reduction each year.
  • The key date for her spousal rollover will be 59.5, but the key date to protect her beneficiaries from loss of the stretch is 12/31 of the year in which her husband would have reached 70.5. If this latter date comes first (she is more than 11 years younger than him), she has to make a compromise between protecting herself from the penalty OR reducing the stretch for the children. This could be addressed with a partial spousal rollover retaining only the amount she expects to need before 59.5 in the inherited IRA.

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