How to inherit deceased spouses IRA
Deceased spouse died in November 2023 before reaching her IRA RBD which would have been in November 2025 when she would have turned 73. Spouse is the sole beneficiary ( Date of Birth 10/11/1949) and has no traditional IRA. Surviving spouse would prefer taking any RMD from the deceased spouses inherited IRA in 2025. What steps does spousal beneficiary need to take in 2024 to achieve that goal?
Should he:
- Create a Traditional IRA ( this year, 2024) and Move the inherited funds into it in 2024. In that case is an RMD due in 2024? Can he wait until 2025 to create a Traditional IRA and then move the inherited funds to it in 2025 and shift the RMD date to 2025?
- As a spouse beneficiary and an Eligible Designated Beneficiary, can he maintain the inherited IRA funds in a newly created Inherited IRA and postpone taking an RMD until 2025 when his deceases spouse would have turned 73?
Permalink Submitted by Alan - IRA critic on Fri, 2024-11-22 10:23
If the surviving spouse wants to avoid RMDs in 2024, he should maintain the inherited IRA at least until January, because he will not have to take a 2024 beneficiary RMD because spouse would not have reached the applicable age for her RMDs until 2025.
However, in 2025 when high beneficiary RMDs would be due, he should elect to assume ownership of the inherited IRA and he can then use the Uniform Table for 2025 and beyond. Assumption of ownership is not a reportable distribution on a 1099R or on his tax return. The custodian just transfers the balance to an owned IRA.
Far too many surviving spouses continue to maintain inherited IRAs, partly for sentimental reasons, but their RMD are going to be much higher if they do and this will also be negative for their own beneficiaries.
But due to the ages of these clients, to avoid a 2024 RMD entirely, the surviving spouse should wait until 2025 before assuming ownership.
Finally, the Secure Act allows a surviving spouse to avoid RMDs for 9 years if they opt out of EDB treatment and into the 10 year rule. This can be done if the deceased spouse passed prior to RBD, as was the case here. But there is a trap if he planned to assume ownership before the end of the 10 years in the form of “hypothetical RMDs”. These are the RMDs he avoided earlier by electing the 10 year rule and they will have to be calculated and distributed in a single taxable distribution before the remainder of the balance is transferred to his own IRA. Therefore, this option should be avoided in all but unique situations where it might fit well with the spouse’s income patterns.