Spousal Rollovers and the RMD for Year of Death

Friday, June 24, 2011

I had a couple of different questions come up on this topic in the past week. So, here is how it should work under the IRA rules – your IRA custodian may insist on a different procedure.

Let’s say we have a married couple, Laurence and Sarah. They are both age 75 and have required minimum distributions (RMDs) for the year. Laurence died in March and had not taken his RMD of $30,000 yet. Sarah transfers his IRA to an IRA in her own name (she cannot use the funds during this process; they go directly from one IRA account to another). Sarah must make sure that she takes Laurence’s RMD from this new account before the end of the year.

If Sarah does a rollover of Laurence’s IRA to an IRA in her own name (a check is issued payable to Sarah), then she cannot deposit the amount of Laurence’s RMD in her own IRA; she can only deposit the account balance remaining after subtracting out the $30,000 RMD. RMD amounts are never eligible for rollover.

Now we will use the same scenarios but this time Sarah already has her own IRA and her own RMD of $20,000 to take for the year. Sarah moves Laurence’s IRA to her own as either a transfer or a rollover. Now how much does Sarah have to take out for the year? Sarah’s RMD calculation is NOT changed by the addition of Laurence’s IRA balance. Laurence’s RMD calculation is also not changed even though he died. Sarah must take out her own RMD of $20,000 and Laurence’s RMD of $30,000, if that has been transferred into her account. For the following year, Sarah will have only one RMD. It is calculated on her new account balance that includes Laurence’s IRA and she uses her own life expectancy factor.
 

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