Spouse transferring Inherited IRA to Traditional IRA

Submitted by Brian Smith on Thu, 2022-10-06 20:12

Here’s the scenario: Husband dies in 2014 at age 62. His wife (age 67 at the time of his death) is the beneficiary. Wife does an inherited IRA in 2014. The rationale being that she is older, and the rule is she doesn’t have to take an RMD until the husband would have turned 70 1/2. This allows her to wait approximately 5 more years to begin taking RMDs (since she is 5 years older than him). Husband would have turned 70 1/2 in Jan 2022. Can the wife now transfer this Inherited IRA to her own Traditional IRA to take advantage of the lower RMDs? Are there any repercussions/downside relating to the proposed regs or otherwise?



Submitted by Alan - IRA critic on Thu, 2022-10-06 21:11

There are no downsides. Since husband was born after 6/30/1949, wife does not have to take beneficiary RMDs until the year he would have reached 72, which is 2023. Therefore, if she would benefit from avoiding an RMD this year, she should wait until next year to assume ownership of the inherited IRA. As a result of the spousal rollover, she can use the Uniform Table with her attained age in 2023 to determine her 2023 RMD. She should not take that distribution from the inherited IRA, rather from her own IRA after the spousal rollover.

Submitted by Brian Smith on Thu, 2022-10-06 21:39

Thank you!  I appreciate your help and insight.

Submitted by Brian Smith on Fri, 2022-10-07 13:06

Thank you again.  I appreciate your help.  I have a follow-up question as far as the timing of the transfer from Inherited IRA to Traditional IRA in the wife’s name.  You mentioned waiting until 2023.  My thought was to do it in 2022 so the Inherited IRA doesn’t exist in 2023.  If she did the transfer in 2023 (say 1/15/23), would the IRS mandate a RMD from the Inherited IRA since it existed in that tax year?  If she did the transfer in 2022, would she have to take an RMD from the Traditional IRA in 2022 because it now exists and she is 75 (so therefore required to take an RMD).  If it matters, the wife did take money from the Inherited IRA in 2022 (not for RMD purposes, she just needed money this year) that was more than what the Inherited IRA RMD would have been.  Sorry that this is a bit convoluted.  I appreciate your time.

Submitted by Alan - IRA critic on Fri, 2022-10-07 14:54

  • If the surviving spouse does the spousal rollover in any year after the year she inherited, she is treated as owning the IRA for the entire calendar year. Her RMD for 2023 would be as the owner using the Uniform Table, which will be much less than a beneficiary RMD. As indicated above, she should not take a distribution from the inherited IRA which would trigger the inherited IRA RMD, instead she should elect to assume ownership by direct transfer.
  • If she elected to assume ownership in 2022, that would trigger a Uniform Table RMD for 2022 under the above stated rule. But if she waits until 2023, the 2022 RMD is avoided.
  • The distribution she already took this year from the inherited IRA is not an RMD, and neither would it satisfy the Uniform Table RMD for an owned IRA if she elected ownership this year. 

Submitted by Brian Smith on Fri, 2022-10-07 16:12

Thank you!  I really appreciate the insight.

Submitted by Brian Smith on Tue, 2023-01-03 16:45

Happy New Year!  All of the prior information in this thread is exactly the same.  I have a follow-up question.  Now that the beginning RMD age has been increased to 73, would you advise waiting to do the transfer (Inherited IRA to IRA in the wife’s name) until 2024?  2024 is when the deceased husband would have turned 73 (his DOB was 7/17/1951).  If my thinking is clear, this would give the wife another year of not having to take an RMD.  Does this new age 73 RMD rule apply to this situation?  Is there any reason not to wait until 2024, or would you still advise doing it in 2023?  If it matters, the wife will turn age 76 this year.  I appreciate your insight in this matter.

Submitted by Alan - IRA critic on Tue, 2023-01-03 17:56

Your math is correct, she now has an extra year before her beneficiary RMDs would have to begin. The best decision is whether to take distributions in 2023 to level out her taxable income, or defer as long as possible (1 more year in this case) resulting in slightly higher distributions over fewer years. If she elects ownership now and her Uniform Table RMD for 2023 results in a higher distribution than she needs or wants, then she could take a smaller distribution from the inherited IRA and not elect ownership until 2024. Therefore, the amount she should withdraw this year whether she assumes ownership or not would be determined by how much higher her taxable income will be in future years when she has no choice but to take RMDs. The usual strategy is to even out her taxable income over the long run. If she does not need the funds in 2023, she might take a distribution from the inherited IRA, which is not yet an RMD, and roll it over to her Roth IRA if she has one. That would eliminate this distribution from increasing future RMDs and it would generate tax free gains.

Submitted by Brian Smith on Tue, 2023-01-03 18:30

Thank you for your response.  She doesn’t need any money from the account this year (or future years).  So, as long as it’s permissable, my thought was to leave it as an Inherited IRA for 2023 (and she won’t have to take an RMD because the deceased husband would have only been age 72 in 2023) and transfer it to a Traditional IRA in her name in 2024 (where she’ll start taking RMDs according to the Uniform Table).  This will allow her to not have to take a withdrawal (that she doesn’t want or need) in 2023 and start taking Uniform Table RMDs in 2024 (that’ll be smaller than the RMDs from the Inherited IRA would have been).  Is my line of thinking correct?  Is there anything in the old or new rules that wouldn’t let this chain of events occur?  Thank you for your time.

Submitted by Alan - IRA critic on Wed, 2023-01-04 21:22

Yes, you are correct and in compliance with the legal options.

Submitted by Brian Smith on Wed, 2023-01-04 23:44

Thank you, I really appreciate it!

Add new comment

Log in or register to post comments