Proposed Regs Section 1.408-8(c)(ii)

Submitted by David Mertz on Tue, 2022-11-22 23:18

I don’t think I’ve seen it discussed here, but I became aware of this after reading some of Natalie Choate’s recent writings. Section 1.408(c)(ii) of the proposed regulations puts a time limit on a surviving spouse being able to elect to treat a deceased spouse’s IRA as the surviving spouse’s own:

(ii)
Timing of election.
The election described in this paragraph (c)(1) may not be made after the later of—
(A) The calendar year in which the surviving spouse reaches age 72; and
(B) The calendar year following the calendar year of the individual’s death.

With regard to defaulting to ownership, if the surviving spouse fails to take an RMD as beneficiary, defaulting to ownership could not occur after the deadline because defaulting to ownership can only happing if the surviving spouse is otherwise eligible to make the election to treat the inherited IRA as the surviving spouse’s own.

Failing to make the election by the deadline would just force the surviving spouse to take ownership by distribution and rollover. What’s the point in that?



Submitted by Alan - IRA critic on Wed, 2022-11-23 01:04

  • I think I read somewhere that the IRS’ point in limiting these elections was to prevent certain surviving spouses from opting into the 10 year rule to eliminate beneficiary RMDs, then in year 10 assuming ownership. This particular loophole is age dependent since the deceased spouse would have had to pass prior to RBD, the surviving spouse could only delay beneficiary RMDs until decedent would have reached 72, but by opting into the 10 year rule, there would be no RMDs for a decade. However, the price that all surviving spouse’s pay is the elimination of defaulting into ownership upon the first missed beneficiary RMD, having larger beneficiary RMDs to make up to avoid the penalty, being tripped up by the one rollover limit when having to take a distribution, and perhaps other unintended consequences for surviving spouses. I think this provision has been protested by various retirement interest groups, so perhaps the IRS will reconsider it.
  • Did you notice just above this provision on p 253 of the proposed Regs, that the IRS intends to disallow rollovers from ANY IRA account until the RMD for all IRA accounts has been completed. That eliminates the strategy of partitioning IRA accounts in order to convert from one of them before the entire RMD has been completed. In other words, forced aggregation of RMDs. 
  • The IRS has to finalize the proposed Regs before they can “simplify” them into a new Pub 590 B, so we might not see the 2022 590 B for some time.


Submitted by David Mertz on Wed, 2022-11-23 03:06

I had not seen the proposed section 1.408-8(b)(3) requiring the individual’s aggregate RMD to be satisfied before any rollovers or conversions.  That does seem to eliminate all of the ambiguities related to the previous wording.  Thanks for pointing that out.



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