Inherited Spousal IRA
I have 2 questions. 1. My wife recently passed this year, 2021. I am the sole beneficiary. She was nine years younger than me and I am turning 72 years old in 2022 I plant to take ownership next year 2022. I have not done anything yet and wonder will her Regular IRA be counted this year, 2021 in determining the basis for my Required Minimum Distributions that I have to take in 2022 (I realize that I can wait until April 2023, but don’t want to take two RMDS’s in one year). Or can I switch them over in 2022 and not have to worry about the value for RMDs until next year. OR are there other options to take ownership of my wife’s IRA that I am not considering?
2. My wife also had a 401K, part of which was a Roth. Same question as above.
Any advice is appreciated.
Joe W
Permalink Submitted by Alan - IRA critic on Wed, 2021-12-22 22:57
Sorry for your loss. If you do not need the funds, the best option to avoid RMDs on her balance is to continue to maintain the IRA as inherited. For a sole spousal beneficiary RMDs do not begin until the year the deceased spouse would have reached 72. That would mean 8 years before the inherited balance would generate an RMD for you. Conversely, if you assume ownership this year or next year, your 2022 RMD will be based on the total 12/31 balance. You will be treated as owning the IRA for the entire year.
Same rules apply for the inherited pre tax 401k, although you could do a direct rollover to an inherited IRA and delay RMDs using the same rule. On the other hand, the inherited Roth 401k balance could be rolled into your own Roth IRA as there are no RMDs for owned Roth IRAs. You would have to do a direct rollover of the inherited 401k (both portions) prior to the year she would have reached 72, or you will have a beneficiary RMD due for the year you do the direct rollover.
Of course, you can still take distributions from an inherited IRA anytime you want to, but you can delay RMDs. The inherited 401k plans may not allow partial distributions, and if that is the case and you wanted partial distributions, you could do a direct rollover of the 401k accounts to inherited IRAs where you could take out whatever partial amount you wanted to, and still delay beneficiary RMDs for about 8 years.
Permalink Submitted by Joseph Whitty on Thu, 2021-12-23 19:15
Thank you so much for your thoughts. I appreciate your response, I thought that was the case, that I would be able to use her age before taking RMDs, but I was uncertain with the rule changes after the Secure Act. Is there a simple way, phrase etc. to create/setup an “Inherited IRA” . Thanks so much and Happy Holidays – Merry Christmas if we don’t converse shortly. Sincerely, Joe W
Permalink Submitted by Alan - IRA critic on Thu, 2021-12-23 20:32
Custodians have differing title formats for inherited IRAs. All the IRS requires is that both the decedent and the beneficiary are identified in the title. One common format would be “Joe Whitty as beneficiary of Jan Whitty”. All the custodian titling formats are allowed by the IRS if they have been in business for any meaningful length of time.