Time limit for spousal inherited IRA

Submitted by MARK CLELAND on Wed, 2020-01-22 20:35

New client is a widow. Her husband died six years ago. He had a retirement account with wife named as the only beneficiary. Now the brokerage firm wants to know how she wants the distributions handled. Is it too late to transfer the assets into her account or must it go to his estate first? I have not seen this issue addressed in the literature. RMD is not yet an issue. Thanks for any help.

Mark

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Permalink Submitted by Alan - IRA critic on Wed, 2020-01-22 21:17

As the sole IRA beneficiary, her beneficiary RMDs do not start until the year her husband would have reached 70.5. Perhaps 2020 is that year and explains why the brokerage has contacted her. If she has reached 59.5, she should elect to assume ownership of the inherited IRA. She will then be treated as the owner for the entire year of 2020, and will not have a 2020 RMD unless she reached 70.5 by the end of 2019. If she is still not 70.5, her first RMD year will be the year in which she reaches 72.
His estate is not a party to this, and was never the beneficiary of this IRA.
Electing ownership is a non reportable, non taxable event, but the custodian will probably transfer the balance to a new owned IRA account. If she wants to change custodians at that point, it should be done by a direct trustee transfer, also non reportable. She should also be sure that her own beneficiary is currently who she wants to be beneficiary.