Client passed away 55 years old, Spouse bene 55 years old – Bene IRA or IRA
Hello.
A 55 year old client passed away. She has a Rollover IRA. Her spouse is the beneficiary, and is 55 years old as well. In case he needs to distribute money before 59.5 years old, would it be best to have him claim her IRA into a Beneficiary IRA for him, to avoid the 10% early withdrawal penalty, and convert to a traditional IRA after 59.5 years? Thanks!
Permalink Submitted by Alan - IRA critic on Wed, 2023-10-04 18:40
Definitely, it should be maintained as an inherited IRA until the beneficiary reaches 59.5, after which he can elect to assume ownership of the inherited IRA. He does not have to take annual beneficiary RMDs in the meantime.
Permalink Submitted by Julie Brangenberg on Thu, 2023-10-26 17:16
In setting up the client’s beneficiary IRA, should the spouse use 10 year, 5 year, or life expectancy method? If chooses life expectancy, how does he avoid taking RMD’s each year before he assumes ownership at 59.5 years old? Thanks!
Permalink Submitted by Alan - IRA critic on Thu, 2023-10-26 18:16
He should elect life expectancy. But with a sole spousal beneficiary, if the deceased spouse passed prior to RBD, beneficiary RMDs are not required until the year the deceased spouse would have reached RMD age, 75 in this case. Therefore, there will be no beneficiary RMDs required for 20 years, and the client will elect to assume ownership in about 5 years and therefore there will never be a beneficiary RMD actually required.