Inherited IRA

Submitted by Michael Wargula on Fri, 2019-10-25 01:15

Spouse inherited IRA from husband who died in 2017 at age 68 yrs.+ 2mos. Spouse at time of death was also 68yrs. 3 mos.
Spouse elected to continue husband’s plan and Single Life Table was used and RMD divisor used was 17.0.
Spouse attained age 70 1/2 on 9/30/19. Spouse now wishes to convert original pan to her own IRA prior to year end 2019. Applying Uniform Life Table with 17.0 divisor. 2019 withdrawal to date are $ 47,000., applying RMD divisor of 17.0
Applying uniform life RMD divisor of f 27.4, withdrawal for 2019 would be $ 29,000. She over withdrew $ 18,000. Is there anything she can do before year to change to her own IRA and deal with the over withdrawal ? Are there any IRS penalties that may apply if she switches in 2019. Thank you
Michael A. Wargula, Esq.
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Submitted by Alan - IRA critic on Fri, 2019-10-25 03:29

  • The usual process in this situation would be to have the surviving spouse make the election of ownership BEFORE taking a distribution in 2019. The IRS Reg 1.408-8 QA 5 then clearly states that the spouse will be treated as the owner for the entire year with the RMD for that year being calculated for an owner using the Uniform Table.
  • However, in this case the surviving spouse took a beneficiary distribution from the inherited IRA that will be coded as such (Code 4) on the 1099R. An RMD cannot be rolled over. However, 1.408-8 suggests that the owner’s RMD is the RMD for the entire year and there are no limitations with respect to when the spouse makes the election. Therefore, I think that the excess of 29,000 does not have to treated as an RMD and is eligible for rollover.
  • However, you did not state the date of the beneficiary distribution. A rollover of any amount must be completed within 60 days of receipt of the distribution. Is she within the 60 day time limit?  Similarly, a surviving spouse is subject to the one rollover limit per 12 months for all IRAs including beneficiary accounts, so has she rolled over a prior distribution from ANY of her IRAs in the 12 months prior to this year’s distribution?
  • If she clears both of the rollover limitations, I would recommend that she does rollover the excess of 29,000. There are risks that the IRS might not see it this way, however it is probably worth a try. If the IRS contests the rollover, that would create an excess IRA contribution for the contested amount, but that could be corrected using the usual methods.

Submitted by David Mertz on Fri, 2019-10-25 12:52

  • I think the “excess” being referred to here is $18,000.  (I’m guessing that the 12/31/2018 balance was about $800,000).  I agree that 1.408-8 A-5(b) indicates that it’s permissible to roll over the $18,000 provided that the 60-day rollover deadline and one-per-12-months limit allow.
  • The $18,000 “excess” is only an excess in the sense that it is a distribution of more than required if ownership is elected; there is no penalty for taking a distribution of more than is required.

Submitted by Michael Wargula on Sat, 2019-10-26 02:54

Thank you for your response. I’ll have to review if she had any roll overs during the year 2019. and advise

Submitted by Alan - IRA critic on Sat, 2019-10-26 04:07

That seems to infer that she is still within 60 days of the distribution. The one rollover limit is measured from the distribution date, not the rollover contribution date and runs without regard to a calendar year.. Therefore, you must determine the distribution date of the 47,000 then count back 12 months into 2018 for any other distributions that were rolled over.

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