Inherited IRA’s vs. Rollovers : Spouse ,Blended Family & IRS Treatment, Proper Planning ?

Submitted by Jim Moran on Fri, 2022-09-16 10:57

Male Client ,age 83, died in January 2022. Has a surviving spouse, age 74, and a Blended family

A) Broker #1 on his large IRA rolled his full IRA to a new IRA under spouse’s name. ALL OK.

B) Broker #2 holds his other Large IRA with three (3) Benes: his son #1, his son #2, and the Spouse who all are to receive 1/3 each. The Broker and back office created three(3) Inherited IRA’s and titled Spouse’s account as an Inherited.

Questions on Broker #2:

1) Broker #2 represents that Spouse’s inherited IRA does not need to be disbursed over 10 years per SECURE ACT because she is the spouse who can simply take RMD’s. Is this correct ? Will the IRS have problems with this if she just takes RMD’s ?

2) Should the Broker #2 be instructed now to re-title this account as Spouse’s IRA directly like they should have done in the first place (my opinion) ??

3) Upon future death of spouse, it would seem that if the IRA is in her name (not an Inherited) that it would be easier for her to control now via Beneficiary designations. Any comments or suggestions here ?

Thank You.



Submitted by Alan - IRA critic on Fri, 2022-09-16 14:28

  1. Broker 2 is correct that as an EDB she could take LE RMDs as a separate inherited IRA was created for her.
  2. Yes, spouse should elect to assume ownership of this inherited IRA and her RMDs will be much lower starting in 2023 as the owner. The custodian needs to be clearly asked to do this as some beneficiaries want to maintain an inherited IRA, but there is no advantage to that in this case. The assumption should be done as a direct transfer because the one rollover rule applies to inherited IRAs of a spouse as well as her own and she might already have used up that one rollover. 
  3. She should name her own beneficiary regardless of how the IRA is titled. Prior to Secure Act it made a large difference if a child was named as a designated beneficiary of spouse’s owned IRA compared to being a successor beneficiary, but in most cases the child would end up under the 10 year rule either way. On the other hand, if she names an EDB as her beneficiary, perhaps a sibling not more than 10 years younger, that sibling could stretch the IRA if inherited from the spouse’s owned IRA, but if that sibling inherited from a beneficiary IRA, the 10 year rule would apply because the sibling would not be an EDB in that case. They would be a successor beneficiary. 

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