IRA Form 8606 Tax Returns When One Spouse Survives

Submitted by Harold Leslie on Tue, 2022-05-31 20:06

My wife & I are in our late-80s. We each have individual IRAs with a different basis for each. The surviving spouse can treat the inherited IRA as their own, My question is: How is this handled when filing the tax return?

Thanks



Submitted by David Mertz on Tue, 2022-05-31 20:43

  • I assume that each is the sole beneficiary of the other.  Form 8606 for the deceased spouse is prepared as it normally would be except that the date-of-death value of the deceased spouse’s traditional IRAs is used in place of the year-end value.  The IRA custodian is supposed to issue two Forms 5498 for each of these IRAs, one to the deceased spouse showing the date-of-death value for FMV and the other to the surviving spouse showing the actual year-end value for FMV.  The instructions for line 6 of Form 8606 say to unconditionally use the December 31 value, but that makes no sense when the original IRA now belongs to the surviving spouse (either as beneficiary, if still in inherited form, or participant) and has perhaps even been moved to an IRA that the surviving spouse’s already had.  The IRS is going to expect the amount on line 6 of Form 8606 to match the individual’s Form(s) 5498.
  • In the year that the surviving spouse treats the inherited IRA as their own, the surviving spouse includes the deceased spouse’s remaining basis on the surviving spouse’s own Form 8606 line 2 with explanation and prepares the rest of the surviving spouse’s Form 8606 as normal, with line 6 including the year-end value of the IRA treated as the surviving spouse’s own (since as of year-end it is their own).

Submitted by Harold Leslie on Tue, 2022-05-31 23:35

Thanks for your response.  This sounds complicated to me.  The beneficiries are as follows: the spouse is the primary beneficiary & our 3 children are the contiongent beneficiaries.

Submitted by Alan - IRA critic on Tue, 2022-05-31 20:58

  • The time of year the first spouse passes is largely unpredictable. If that spouse took their RMD or additional distributions before passing, their final 8606 will determine the taxable amount, and their total IRA value on line 6 of that 8606 will be the value of all non Roth IRAs of that spouse on the DOD, not as of year end as usually applies. That 8606 will show the remaining basis post death on line 14.
  • Once surviving spouse elects to assume ownership of the inherited IRA, if this occurs in the same year, for the surviving spouse’s 8606, the year end value will include the assumed IRA in addition to their original IRA, and the line 14 remaining basis (see above) from deceased spouse will be added to line 2 of the surviving spouse’s 8606. 
  • If the deceased spouse has a higher basis % and did not complete their RMD, the surviving spouse has the option of completing that RMD from the inherited IRA using the higher basis %, before assuming ownership of that inherited IRA. But this adds complexity and an inherited IRA 8606, and given that the year of death is the last year the couple can file jointly with it’s lower marginal tax rate, having a little more taxable income in that year rather than later may be beneficial and not worth the added complexity of taking a distribution from the inherited IRA. Completing the year of death RMD for deceased spouse can be taken from the assumed and combined IRA with less complexity.
  • Of course, many older taxpayers complete their RMDs early in the year to reduce the chance that the beneficiary will have to deal with a year of death RMD.

Submitted by Harold Leslie on Tue, 2022-05-31 23:38

Thanks for yourresponse. As mentioned, seems quite complicated to me.  I’ll have to look at the 8606 again so maybe I’ll be able to understand better.

Submitted by David Mertz on Wed, 2022-06-01 11:55

Good suggestion on considering whether to distribute any remaining portion of the deceased spouse’s year-of-death RMD before or after assuming ownership.  If deceased spouse had already taken only part of the year-of-death RMD and the surviving spouse takes the remining portion from the inherited IRA before assuming ownership, there would be three Forms 8606 to deal with since a separate one would have to be prepared to determine the taxable amount of the remaining portion of the year-of-death RMD.  The question becomes what value to use for the year-end value on the Form 8606 that is used to calculate the taxable amount of the distribution from the inherited IRA if the subsequent transfer also occurs during the year of death.  It seems sensible to me that one would used the value on the date of the transfer to the surviving spouse’s IRA since that’s the last date on which the inherited IRA would have a value.

Submitted by Harold Leslie on Wed, 2022-06-01 17:05

Thank you.

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