client died-moving assets to spouse IRA questions

Submitted by John Foster on Fri, 2021-05-14 21:37

69 year old client passed away-wife is 74.
Approximately 700k in qualified accounts-95% in husband’s.
Any reasons not to rollover the money into a spousal IRA? If so, alternatives?

Client will be receiving about 600k in life insurance benefits which could be used to pay
for needed living expenses during the 2 year transition to individual rates which could facilitate
Roth conversions during that time.

Other assets include about 250k in investment accounts and 900k in net real estate-primary and rental.

Thank you,

Scott



Submitted by Alan - IRA critic on Fri, 2021-05-14 22:04

If the sole surviving spouse does not need or want beneficiary distributions or RMDs on the inherited balance, the employer plan could be left in place as inherited since beneficiary RMDs from that account are not due until client would have reached 72. The spousal rollover could be done then. This will leave more tax headroom to convert before single tax rates kick in, which would be in 2022 unless wife is a qualified widow. 

Submitted by John Foster on Sat, 2021-06-05 00:15

The qualified money is all in an IRA on the husband’s side. What makes the spouse a qualified widow? And again any disadvantages to her rolling the money into and IRA in her name? Other alternatives to consider?Thank you,Scott

Submitted by Alan - IRA critic on Sat, 2021-06-05 00:35

Qualified widow status for 2 years after the year spouse passed requires having a child for whom an exemption can be claimed. The child must have lived in widow’s home the entire year and the widow must have paid over half the cost of maintaining the home. Perhaps not likely at these ages. 
The only disadvantage of assuming ownership of the inherited IRA is having to start RMDs for the year after death instead of being able to delay 3 years until spouse would have been 72. There are no other advantages, and if the surviving spouse needs to take distributions anyway, she might just as well assume ownership of the inherited IRA often referred to as the “spousal rollover”.
Only other option that might apply if she is still working and her plan will accept an IRA rollover is to do the spousal rollover, then roll that IRA into the employer plan. That would avoid RMDs until she retires.
Either way, she needs to name her own beneficiary, who under the Secure Act will usually be subject to the 10 year rule at her death. But there are exceptions, if she has a disabled child or left the IRA to a sibling not more than 10 years younger than her.

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