60 day rollovers for spousal inherited IRAs

Submitted by Richard Fritts on Wed, 2022-09-21 15:04

I have a client who’s wife passed this year (2022). She had an IRA annuity that had a benefit feature which enhanced the death benefit payable to her beneficiary, if the payout is taken over a 5 year period (first payment is immediate). She was 61 when she passed and her spouse (the primary beneficiary) is 62. The custodian will only send the distribution checks made payable to the beneficiary if the payout option is elected. Can the beneficiary do a 60 day rollover into his own personal IRA as the payments come in this year and the next 4 years after that?



Submitted by Alan - IRA critic on Wed, 2022-09-21 17:27

  • Because his beneficiary RMDs do not start until the year deceased spouse would have reached 72, all distributions made to him before that year are eligible for rollover. That said, one complication to doing an annual rollover is the one rollover per 12 month period limit per taxpayer. If the insurance company issues the second check on the same date (or sooner) next year, the second check will not be rollover eligible to an IRA. A direct transfer arrangement would eliminate this problem, but insurance companies typically do not cooperate with a direct transfer arrangement of periodic distributions.
  • And even if client could assume ownership of the inherited IRA, the 5 year payout checks would still create an on going rollover problem. 
  • There are two Plan B possibilities. First, if client is still working and has a 401k that will accept IRA rollovers, client could roll over the taxable portion of the distribution checks. If wife had IRA basis however, the non taxable portion could not be rolled to the 401k. Client would have to keep the non taxable portion, if any. Second option is for the client to roll the annual payout to a Roth IRA, or at least every other annual payout since the Roth conversions will not count toward the one rollover limitation. In other words, year 1 check rolled to TIRA, year 2 check to Roth IRA, year 3 to TIRA, year 4 to Roth IRA, and year 5 to TIRA. 
  • The above Plan B arrangements could be avoided if the insurance company would agree to issuing each check 1 year and 1 day after the prior year’s checks. If so, all 5 could be rolled over to a TIRA with none of the distributions within the 12 month time limit. 

Submitted by Richard Fritts on Wed, 2022-09-21 18:13

That is how you answer a question☝️!!! Thank you for the amazing insight and detailed suggestions. The Roth IRA option seems like a great idea as we are  converting as a part of our overall plan. We will plan for the conversion every other year. Logistically, the client recieves the funds and deposits them into their bank account. Then writes a check to their Roth IRA custodian and indicates upon submission of funds that this is a Roth conversion, correct?Thank you again!

Submitted by Alan - IRA critic on Wed, 2022-09-21 18:54

Yes, that is correct. 

Submitted by David Mertz on Wed, 2022-09-21 20:32

Regarding the rollover limitation, distributions made on the same day and month year after year could be rolled over because the limitation period is the one-year period ending on the date of the distribution being considered for rollover.  For example, for a distribution made on November 1, 2023 that period would run from November 2, 2022 to November 1, 2023, so a November 1, 2022 distribution would be outside of that limitation period.  However, there’s a good chance that some distributions would occur less than a year apart due to the  one of the regular distribution dates falling on a weekend and that distribution being made a day or two early or late.

Submitted by Alan - IRA critic on Wed, 2022-09-21 21:41

Agree, the key to that point is that any one year period starts on the calendar date a day later than it ends, eg a calendar year is 1/1-12/31 and any other one year period also ends on the day before the same date reoccurs. In this particular situation we are actually dealing with received dates, not distribution dates but that does not alter the concept. The received date is not normally well documented and is affected by weekends, holidays, USPS inconsistency etc.  Compliance with both the 60 day rollover and the 1 rollover per 12 months rules is largely left to plan custodians, creating further interpretation variances. With good documentation, you could probably navigate these annual rollovers without incident barring an IRA custodian with highly restrictive requirements. Very few would ever ask a taxpayer to document received dates, distribution dates etc. That said, an alternate year conversion would eliminate the 12 month timing issues altogether. 

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