CHEN —- Beneficiary IRA
Female spouse age 57 now, had husband die in 2012. FA advised splitting a $500,000 401k into tow IRS’s, one traditional and one labelled beneficiary IRA. My understanding is the one labelled beneficiary is required to take RMD’s under the single life table for inherited IRA’s? She has NOT taken anything from this account until this year,2018! Is there something I don’t understand about a spouse labeling the account an inherited IRA? I’m stuck!
Permalink Submitted by Alan - IRA critic on Thu, 2018-03-29 01:10
The surviving spouse, if the sole beneficiary, is not required to begin RMDs until the year the deceased spouse would have reached 70.5. What year would that be?
Permalink Submitted by Danny Harlow on Thu, 2018-03-29 21:06
What would be the benefit of splitting into IRA and Beneficiary Inherited IRA.
Permalink Submitted by Alan - IRA critic on Thu, 2018-03-29 23:44
It depends on the age of both spouses. Basically, the surviving spouse would title as inherited until age 59.5, however if beneficiary RMDs would be required due to decedent’s age, doing the spousal rollover will postpone RMDs on that portion, while still providing penalty free distributions from the inherited portion.
Permalink Submitted by Danny Harlow on Mon, 2018-04-02 20:46
Ok, deseased spouse was 50 and survivor is now 57. Was she required to take an RMD under the beneficiary inherited IRA not the inherited traditional IRA?
Permalink Submitted by Alan - IRA critic on Mon, 2018-04-02 23:13
She current has a beneficiary IRA and an owned IRA. RMDs are not required from either. RMDs would begin on the still inherited IRA the year the deceased spouse would have reached 70.5, still roughly 13 years from now. RMDs on the owned IRA start when the surviving spouse will reach 70.5, also about 13 years from now. Therefore, no RMDs must be distributed, but if the surviving spouse needs to take withdrawals to live on, they can be taken without penalty from the beneficiary IRA. She would owe a 10% penalty on distributions from her owned IRA until she reaches 59.5. Therefore, as soon as she reaches 59.5, she should assume ownership of the inherited IRA and then transfer it into the current owned IRA. Then she would just have one IRA, an owned IRA that she could take penalty free distributions from because she will have reached 59.5. RMDs still 11 years away at that point.