48 year old wife inherites 68 year old husbands IRA
What are her options. unlikely she will need liquidity but given she is 10 years younger, i am trying to interpret her options!
I tried to search as I am sure this has been asked, but i do not see a forum search feature.
thanks in advance.
Permalink Submitted by Alan - IRA critic on Wed, 2024-05-29 15:31
She should NOT assume ownership or roll it over to her own IRA before reaching 59.5 as that would result in a 10% penalty on all distributions. She should maintain an inherited IRA until then. Her RMDs would not start until the year husband would have reached 73, so there will be about 6 years of beneficiary RMDs based on her single life expectancy (her ages 53-59.5), after which she can elect to assume ownership because the penalty is gone after she is 59.5. As the owner, her RMDs will not start until she is 75.
Permalink Submitted by John Jawor on Wed, 2024-05-29 15:50
TY very much.
Permalink Submitted by BruceM on Wed, 2024-05-29 22:10
Alan
If memory serves, for a spousal inherited IRA, there are 3 or 4 choices…
Roll it over into the surviving spouse’s own IRA and treat it as theirs. Any RMD not yet removed must be withdrawn first
Hold the inherited IRA in the name of the deceased spouse and wait until the first RMD year of the decedent at which time the surviving spouse would have to begin RMDs based on their life expectancy
Stretch IRA over surviving spouse life expectancy
If death occurred before the decedent’s RBD, the 5 year rule may be used.
My question is on option #4. After 2019, did that remain 5 years or did it go to 10 years?
Permalink Submitted by Alan - IRA critic on Wed, 2024-05-29 22:38
Bruce, limiting this answer to a sole spousal beneficiary, the spouse is now an EDB, which means stretch beneficiary RMDs just as in the past. If death was pre RBD, that surviving spouse could opt out of EDB treatment and into the 10 year rule (not 5 year rule), but that would rarely be beneficial. And as before the beneficiary RMDs for a sole spousal beneficiary do not begin until the deceased spouse would have reached RMD age, which is the year prior to their RBD. The default rule still applies that makes the surviving spouse the owner in the first year they fail to complete a beneficiary RMD. Finally, if the surviving spouse passes before their beneficiary RMDs, for purposes of their own beneficiary, they are treated as the owner and that might help their beneficiary in a few situations.
The proposed Secure Act RMD Regs include a new restriction that places a time limit on when the surviving spouse can elect to be treated as the owner, and this applies to the default rule as well. The time limit is the later of the end of the year after spouse’s death or the year the surviving spouse reaches RMD age. A 60 day rollover to the spouse’s own IRA is still permitted without time limit but such a rollover has disadvantages compared to assuming ownership.
These disadvantages are that the spouse might not have a 60 day rollover available, the rollover would produce a 1099R and have to be reported on the 1040, and the RMD for that year that could not be rolled over would be the higher beneficiary RMD instead of the lower owner’s RMD. Such restrictions for spouses is unprecedented, the IRS does not mention this in the latest 590 B, and the financial press has ignored this. Like some other Secure measures, this seems like overkill and will hurt widowers and widows. The IRS probably does not like this, but I think Congress will have to amend Secure to delete it.
Permalink Submitted by BruceM on Thu, 2024-05-30 15:46
I just finished an article for a local retiree newspaper I regularly contribute to. I included much of what has been discussed here and I’ll do an update to include the info you gave on the proposal to limit the time window on the inheriting spouse taking ownership. My bottom line is why is this process of inheriting an IRA so complicated. IRAs are ubiquitous and so most retirees are affected by their rules. Shouldn’t Congress be working to make them simple so the average person can make informed decisions without having to hire a professional tax advisor?
Thanks much for your detailed reply
Permalink Submitted by Alan - IRA critic on Thu, 2024-05-30 20:31
I agree 100%. Congress apparently did not care about simplicity, and the IRS did not either as illustrated by their 2022 proposed RMD Regs. This problem is also playing out with Secure 2.0, which is far more comprehensive. In fact, professionals are having issues with these overly complex rules as well, so the public might get different answers from their IRA custodian, their advisor, and their tax preparer.
I don’t think you want to go into too much detail for the newsletter, so it will be a challenge determining how long and detailed you want the article to be, so most readers would complete it.