Successor Beneficiaries and IRA Rollovers: Today’s Slott Report Mailbag
By Sarah Brenner, JD
Director of Retirement Education
Follow Us on X: @theslottreport
Question:
I am struggling to find an answer to my situation. My wife’s 82-year old father passed away about 8 years ago and he was taking IRA distributions. A portion of his IRA was inherited. Since then, my wife had been taking RMDs based on her life expectancy as an old stretch IRA. My wife passed away on 10/1/20 at 57 after the SECURE Act was passed. I am currently 59 and have now become a successor beneficiary to this IRA, but I have not found clear guidance on whether I need to take RMDs in years 1-9 (which I haven’t so far) or simply need to drain the account within 10 years.
Answer:
The rules for successor beneficiaries can be a little tricky. As a successor beneficiary, you are subject to the 10-year rule. The 10-year period began in the year of the original beneficiary’s (your wife’s) death. In your case, that would mean that the inherited IRA would need to be emptied by 2030.
As far as annual RMDs in years 1-9 go, there is a lot of confusion in this area. IRS proposed regulations do require successor beneficiaries to continue taking RMDs if the original beneficiary was already taking them, as your wife was. However, recent IRS guidance has excused these RMDs for 2021, 2022, and 2023. So, this year you do not need to take anything. The rules in future years remain unsettled. Hopefully, the IRS will clear these issues up soon.
Question:
I have a Thrift Savings Plan that I would like to transfer to a traditional IRA at a brokerage. I also have a separate Roth IRA with a broker that I would like to merge with a larger Roth. Can I roll over both in the same year?
Answer:
It is important to understand the distinction between an IRA rollover and an IRA transfer. With a rollover, the funds are distributed to you and then within 60 days you deposit those funds back into an IRA. With a transfer, the funds move directly from one IRA custodian to another IRA custodian.
Transfers are the best way to move funds between IRAs because you avoid issues with both the 60-day rule and the once-per-year rollover rule.
The once-per-year rollover rule prevents you from doing a 60-day IRA rollover of a distribution that occurs within 12 months of a prior distribution that was rolled over. This rule only applies to IRAs. It does not apply to plans. Therefore, your rollover from your Thrift Savings Plan would not prevent you from doing a 60-day rollover with your Roth IRA.
Transfers between IRAs are not subject to the once-per-year rollover rule. You can do as many transfers as you want during a 12-month period.