Spousal rollover from inherited IRA
Client inherits an IRA from his wife and settles to an inherited IRA (for no good reason) and starts taking RMDs from the inherited IRA. He gets remarried and names his 2nd wife as beneficiary on the inherited IRA and then dies in short order. Can his new wife rollover to her own IRA or does she need to maintain an inherited IRA and take distributions based on that schedule?
Permalink Submitted by Alan - IRA critic on Thu, 2021-12-09 18:48
The new wife can elect to assume ownership of the inherited IRA, but there are multiple RMD implications based on DOBs and DODs of these 3 parties. Until the RMD requirements can be identified the new wife should not be taking any distributions from the inherited IRA, because they could be RMDs and not eligible for rollover. Please advise those 6 dates if you can.
Permalink Submitted by Sten Lindquist on Thu, 2021-12-09 21:42
This is a unique one. 1st wife was born in 1928 dies in 2018. Husband who was born 1950 settled to an inherited IRA and takes an RMD in 2019 and dies in 2019. 2nd wife who was born in 1969! now has an inherited IRA and has yet to take anything out.
Permalink Submitted by Alan - IRA critic on Thu, 2021-12-09 22:53
Yes, there are several different fact patterns to these puzzles. Owner passed well after RBD, and beneficiary husband began life expectancy RMDs in 2019, then passed pre Secure Act. He did not default to ownership of the IRA in 2019 because he passed before year end which was his RMD deadline. No 2020 RMDs required for anyone. 2nd wife is the successor beneficiary, and she can elect ownership at anytime, but since she is only 52, any distributions needed before 59.5 would be subject to penalty so she should not elect ownership until then unless she is very sure she will not need distributions until age 59.5. If she does assume ownership she will have no RMDs for the next 20 years.
Therefore, she will probably continue the IRA as successor beneficiary, and will have to take beneficiary RMDs each year continuing the RMD schedule of deceased husband. Divisor for deceased husband would have been 17.8 in 2019, would have been 17.0 in 2020, but no 2020 RMD, and therefore 16.0 in 2021. Divisor needs to be reset for the new tables in 2022 to what the divisor would have been for 2022 had the new tables been in force all along. Since the 2nd wife is a successor beneficiary and not a designated beneficiary, instead of entering the table each year for the new divisor, the 1.0 annual reduction will apply starting in 2021. These beneficiary RMDs will be higher than usual since the husband was so much older than the 2nd wife.
To reduce these beneficiary RMDs for the next 7 years if they are not needed, the second wife could roll part of the inherited IRA over to her own IRA to stop the RMDs on that portion. She would have to project how much she would need without penalty from the inherited portion and leave enough as inherited to fund such distributions.