Spouse inheriting IRA

Submitted by BruceM on Sun, 2019-01-06 20:05

When a non-spouse inherits an IRA, the year following the year of death the RMD is determined by taking the value of the inherited IRA as of 12/31 for the year of death and dividing this by the Table I life expectancy of the non-spouse beneficiary as shown in the table next to the beneficiary’s age, with each successive year subtracting 1 from the preceding year’s life expectancy.

It has always been my understanding that when the spouse is the sole beneficiary and elects to treat it as an inherited IRA that the beneficiary spouse will ‘re-enter’ the Table I each year rather than just subtracting 1from each preceding year. But in Pub 590-B, p. 10 under “Figuring the Beneficiary’s Required Minimum Distribution’

“Spouse as sole designated beneficiary. Use the life expectancy listed in the table next to the spouse’s age (as of the spouse’s birthday in 2018). Use this life expectancy even if the spouse died in 2018. If the spouse died in 2017 or a prior year, use the life expectancy listed in the table next to the spouse’s age as of his or her birthday in the year he or she died. Reduce the life expectancy by one for each year since the year following the spouse’s death. “

The last sentence suggests the spousal beneficiary does not ‘re-enter’ Table 1 each year. Is this how you read it?

Thanks

BruceM



Submitted by Alan - IRA critic on Sun, 2019-01-06 20:57

  • Hi Bruce. You were correct in that a sole spousal beneficiary can “recalculate”, which means re entering Table I each year. The 1.0 automatic reduction of divisors does not apply.
  • In the referenced Pub 590 B paragraph all references to “the spouse” are meant to refer to the surviving spouse. So if the surviving spouse died in 2017, the Table I divisor applies to the 2017 RMD as if the survivng spouse lived the entire year, but in 2018 and subsequent the surviving spouse is themself deceased and therefore the 1.0 reduction kicks in for RMDs that now continue to the successor beneficiary. In summary, the recalculation does apply for each year (and partial year) the surviving spouse lives, but stops in later years in favor of the 1.0 reduction.
  • I suspect your question arose from assuming that “the spouse” that died meant the original owner, not the surviving spouse who themself died.

Submitted by BruceM on Sun, 2019-01-06 23:06

Thanks, Alan. Yes, when I read it that way, it does make sense.While I’ve got you might I ask a related follow-up.There are two spousal IRA inheritance situations I can think of where the RMD’s continue as though the deceased spouse were still alive. The first is when the deceased spouse is past the RBD but is younger than the surviving spouse. The second is the deceased spouse has not reached RBD, where the surviving beneficiary spouse may elect to inherit the IRA but defer RMD’s until the deceased spouse would have attained RBD. In both of these cases, is the life expectancy divisor from Table III, the uniform table? And in both cases, if the inheriting spouse dies, the RMD continues to the successor beneficiary….correct, even if the successor is the new spouse of the original surviving spouse? ThanksBruceM

Submitted by Alan - IRA critic on Mon, 2019-01-07 00:30

  1. Situation 1:  Deceased IRA owner passes after RBD and surviving spouse is older. In this situation the surviving spouse would normally elect to assume ownership as the uniform table will produce a lower RMD unless the surviving spouse is MUCH older, perhaps more than 10 years older. If the surviving spouse is that much older and continues with the IRA as inherited, the divisor will reduce by 1.0 each year, much faster than a Uniform Table divisor. Therefore, eventually the Uniform divisor will produce a lower RMD than the decedent’s divisor and once that happens ownership should be elected. Further, the successor beneficiary of an inherited IRA will lose their stretch if the surviving spouse passes while taking inherited IRA RMDs, therefore there is another reason to elect ownership perhaps even if RMDs will be higher for awhile.
  2. Situation 2:   In this situation if the surviving spouse passes before inherited IRA RMDs must begin, the successor beneficiary can still be treated as a designated beneficiary. Once the original IRA owner would have reached 70.5, beneficiary RMDs must begin for the surviving spouse using the single life table each year (no 1.0 reduction), but the age of the deceased owner cannot be used because they passed prior to the RBD. The uniform table never applies until the surviving spouse either elects ownership, rolls it over to their own IRA, or defaults to ownership by failing to take the full RMD as beneficiary. In other words, as long as they remain beneficiary and not owners, Table I applies.
  3. When the surviving spouse passes, the successor beneficiary must continue the RMD schedule of the surviving spouse except the 1.0 reduction will now apply – except when the surviving spouse passes before their beneficiary RMDs must start in which case the successor beneficiary is treated as designated and can use their OWN life expectancy as if they inherited directly from the IRA owner.
  4. Yes, you are correct that the surviving spouse of a surviving spouse is treated as a successor beneficiary unless they inherited after the first surviving spouse actually became the owner. 

Submitted by BruceM on Mon, 2019-01-07 16:53

Thanks Alan, as always…

Submitted by BruceM on Tue, 2019-01-08 21:40

Sorry to revive this, but a question for clarity on Situation 1 above.If IRA owner dies after RBD and the surviving spouse is older and elects not to roll into her own IRA and apply the Uniform Table, but elects instead to withdraw at his rate as though he were alive, are you saying that she must use Table I, entering the table in the year following the year of death with his age had he not died and subtract 1 each year thereafter? If so, then the only time the spouse beneficiary would re-enter Table I each year is if he dies prior to RBD and she elects to inherit it?Second point of clarification. If IRA owner dies prior to RBD and the surviving spouse makes the election to inherit it but defer RMDs to the year the deceased spouse would have attained 70.5….if as you say the life expectancy of a 70.5 year old is not used, then I’d assume the Table 1 life expectancy of the surviving spouse is used. If so and the surviving spouse is older, then it would make no sense to not roll it into hers, as the Table 1 life expectancy is much lower than the corresponding age life expectancy of Table III. But if she’s younger than 59.5 and needs the income, to avoid the 10% penalty she would begin RMDs at the decedent’s year he would have attained 70.5, entering Table 1 at her then age and re-enter the table each year to 59.5 and then roll the balance into hers….correct? ThanksBruceM

Submitted by Alan - IRA critic on Tue, 2019-01-08 22:57

  • In the first situation where surviving spouse is even older to make the deceased spouse’s remaining life expectancy a lower RMD (with a risk to successor beneficiaries), the table is entered to determine the Table I divisor for the year of death, that divisor is not used other than a starting point for beneficiary divisors starting the following year. That divisor is reduced by 1.0 each year starting in the first beneficiary RMD. There is no recalculation because the RMD is being based on the decedent’s life expectancy. But due to the 1.0 reduction, it is very possible for this RMD to eventually exceed the divisor of the surviving spouse electing ownership and then using the Uniform Table. 
  • You are correct, that if the IRA owner passed prior to the RBD, using the owner’s life is not an option. The choice is then between the recalculated LE of the surviving spouse (re enter table each year) or electing ownership and moving to the Uniform Table.
  • Second point of clarification – yes, once decedent would have attained 70.5 the surviving spouse should always elect ownership unless they are under 59.5 because the RMD using the Uniform table would always be lower (or even 0 prior to reaching 70.5)  than a beneficiary RMD using the single life table.
  • Of course we are assuming that the surviving spouse is the sole beneficiary. The code does not define the requirements for being considered the sole beneficiary. Most situations are obvious, but a key question is whether a multiple beneficiary including the spouse can be rescued by the surviving spouse transferring her share to a separate inherited IRA by the end of the following year and depending on the separate account rules for beneficiary RMDs to govern after that. Per IRS 1.401(9)-8, they can be.

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