Multiple Spousal Rollovers

Submitted by Stamatis (Matt) Valaes on Wed, 2018-03-14 22:05

My client had 2 IRA accounts with our firm & passed away in 2017, with his wife as primary beneficiary on both. She created 2 new IRAs in her name & we distributed the respective assets in kind directly to the new accounts. 1099-R forms for 590K & 135K, indicating a distribution code #4 (Death) in box 7, were generated.

Have we inadvertently violated the one-rollover-per-year rule?



Submitted by Alan - IRA critic on Wed, 2018-03-14 23:17

  • Technically, you have. The way to complete the spousal rollover assuming that the spouse is the sole beneficiary is to have the spouse first elect to assume ownership of the IRA then immediately have a non reportable transfer done to a new IRA account or an existing IRA account of the surviving spouse. That avoids the use of any countable rollover. Of course, one 60 day rollover is allowed, but it’s for all IRAs owned. 
  • Ever since the IRS’ change in interpretation of the one rollover rule, I have been expecting this to be a large problem. However, this is the first question that I have seen posted about it, so am not sure what is going on here. IRS enforcement is likely lacking, with the IRS banking on custodians to enforce their rule and it does not appear that custodians are doing this either. There is NO exemption from the one rollover rule for spousal rollovers after change of ownership and therefore these are treated the same as rollovers of IRAs the taxpayer has owned for years. Worse yet, there is NO statutory relief available because the IRS itself has no authorith to waive the one rollover rule as they do for extending the 60 day time limit.
  • If the new IRA custodian has accepted both rollovers, it is very unlikely that the client will be called on this because the IRS has considerable sympathy for widowed spouses. So even though the IRS will see two different AC numbers of the 1099R forms, they will probably look the other way.

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