This Week’s Q&A Mailbag: SEP contributions, RMDs, and Inherited IRAs

Question:

Thank you,

Lee

Answer:
Yes, the business owner can continue making contributions to the SEP after reaching age 70½.

However, be aware that the owner must also begin taking annual required minimum distributions from the SEP upon reaching age 70½, even when continuing to make contributions to it.

Question:
I have a client who is a surviving spouse of an individual with a 401(k) account – he died in service so no RMDs had begun.  My client rolled the 401(k) balance to an Inherited IRA (the wrong forms were given to her by the IRA custodian).  This occurred with the spouse (beneficiary) was 68 years old (she is only a few months older than her deceased husband). 

Now she is 70½ and has to start drawing funds from the Inherited IRA, and the custodian is using the Single Life Table because it is titled as an Inherited IRA. 

Can she roll over the IRA balance to her own IRA at this point so that she may use the Uniform Life Table?  Can she just correct the title of the IRA?

Thanks much

Buz

Answer:
Yes, an individual with an inherited IRA received from a spouse can always move it into an IRA of his or her own. She can also “treat the account as her own.” She would do this by calculating the RMD as if she were the IRA owner using her own age and life expectancy factor from the Uniform Lifetime Table. The inherited account should still be moved to an IRA in her name. It should be moved as a direct transfer so that any RMD that needs to be taken for this year can come out of the IRA in her own name.