Roth ROE for a deceased individual

Submitted by Laura Davitt on Wed, 2020-02-19 19:18

I hope you are well! I have a client where my clients (husband and wife) funded current year Roths on 2/11/2019. The husband passed away unexpectedly in December 2019 at the age of 56. At tax preparation, it was discovered that he earned more in 2019 than he had in prior years so they weren’t eligible to fund the Roths in 2019. His MAGI was significantly higher in 2019 than it had been in previous years because of a change in jobs and payout of vacation/sick pay. His Roth has already been moved into hers as she assumed it as her own. I believe that the excess is supposed to come out even though he’s passed away. Is that correct? Based on a forum post from 2010, that appears to be the case. Assuming it does need to be withdrawn, the custodian has advised that there is no way for them to process because the assets have already been moved out of his account and into hers. Do you have any thought as to an alternative remedy? Initially I considered her taking a withdrawal of the contribution plus earnings to satisfy the spirit of the ROE but she would be penalized because she is under 59.5 and the first Roth contribution was made less than 5 years ago. I’m not sure that this would be the right route to go. As an aside, I will be processing the ROE for her. She will not have income in 2020 that would enable her to make a future Roth contribution. Any guidance is appreciated!



Submitted by Alan - IRA critic on Wed, 2020-02-19 22:59

  • The custodian should process the excess removal from the wife’s account because the husband no longer has an account from which to make the distribution. Custodians are free to improvise in these situations, and it should be fairly simple if husband’s account was with the same custodian. Otherwise, wife may need to provide current custodian with the opening balance (or approximation thereof) of the other account.
  • Has wife’s own excess contribution already been removed? Both of them could be processed together if wife’s has not been removed yet. Any earnings returned will be taxable on their final joint return for 2019, so it causes problems if the current custodian resists addressing this rather rare excess situation.
  • The IRS might not pursue decedent’s for the excise tax, but since there is no statute of limitations and ownership of the husband’s account was elected by the wife, it’s preferable to eliminate the excess so this does not come up later on. Basically, to do the earnings calculation all the custodian needs to do is to add together the adjusted opening balance of both accounts on 2/11/19 after the contributions were made and use that total with the current combined closing balance on the date the removal is done. If husband had a different custodian, wife would have to try to determine that opening balance from the other custodians records or Feb, 2019 month end statement.

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