Eric died age 59 – funds kept in a spousal Inh IRA…

Submitted by Wendy Mommaerts on Fri, 2024-02-02 17:58

Eric birth date: 8/17/1955
Barbara birth date: 6/4/1951

I have a client, Barbara who inherited her spouses IRA (Eric was 59 at date of death). All this time, Barbara kept the funds in an Inh IRA. Since Barbara is 72 and has the ability to move these funds to her own IRA, would it be beneficial for Barbara to keep these in the Inh IRA or move the funds to her IRA?

If we keep the funds in the Inh IRA and if Barbara should pass away, how does her sole beneficiary treat the RMDs? Would they be on the 10yr rule or would they have to take RMDs based off of Eric’s age?



Submitted by Alan - IRA critic on Sat, 2024-02-03 00:22

  • If Barbara maintains the inherited IRA, her beneficiary RMDs do not start until the year Eric would have reached age 73, which is 2028. If she assumes ownership of the inherited IRA this year, she is treated as the owner for the entire year, and she will have a 2024 RMD due no later than 4/1/2025 based on the 12/31/2023 balance.
  • Other than delaying distributions, there is no benefit from retaining the inherited IRA until 2027. Therefore, if she needs funds anyway, she might as well assume ownership of the inherited IRA now. As her own IRA she would use the Uniform Table, so starting in 2028 her RMDs would be lower if she owned it. So the question is whether she wants to avoid RMDs through 2027 or not.
  • The best way to acquire ownership is assumption of ownership as it does not involve a rollover and is not reported on her tax return. But Secure Act imposes a new deadline for this, which is 2024, the year in which her RMDs would begin at 73. If this deadline passes, she will have to do a spousal 60 day rollover subject to the one rollover limit, and which is subject to a beneficiary RMD if she waits beyond 2027.
  • In no event would beneficiary RMDs be based on Eric’s age since he passed prior to RBD. But if Barbara kept the inherited IRA to avoid RMDs and passed prior to 2028, she would be treated as the owner with respect to HER beneficiary, who could then stretch RMDs if her beneficiary was an EDB, or would be subject to the 10 year rule otherwise. 

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