What Are The Spousal Roth IRA Beneficiary Rules?

By Beverly DeVeny and Sarah Brenner
Follow Us on Twitter: @theslottreport

It’s time for another edition of The Slott Report Mailbag, where we answer consumer questions on required minimum distribution (RMD) procedures with IRA annuities, The Roth conversion conversation and the Roth IRA beneficiary rules for spouses. As always, we stress the importance of working with a competent, educated financial advisor to keep your retirement nest egg safe and secure. Find one in your area at this link.

1.

Can the RMD withdrawals for annuity IRAs (not annuitized) be combined with traditional IRAs, and can all of the RMDs be taken from one or the other?

Regards, 

Wayne Kaplan

Answer:
Generally, IRA owners are allowed to aggregate their RMDs and take the total amount from one of their IRAs. When you add annuities into the mix, things get a little more complicated! If your IRA annuity is in deferred status – in other words, it hasn’t been annuitized – then it is essentially treated as a non-annuity IRA and aggregation may be possible. To aggregate your RMDs, you will need to be able to calculate the individual RMD amounts. For this, you will need the fair-market value of the annuity contract as of the prior year-end, and valuing certain deferred annuities can be tricky. You can ask the insurance company issuing the annuity to give you the fair-market value. They must provide this as part of their annual reporting to the IRS.

2.

Hello,

I recently retired at age 63. I have elected to take Social Security benefits, and I receive income from two pensions. Among other investments, the bulk of my retirement money is in my local government 457(b) plan. My wife and I each have a Roth IRA with the same custodian. The IRAs are separate from the 457(b). As a retiree, I can no longer contribute to the 457(b). However, I can continue to contribute to the IRAs. Since I can no longer take advantage of benefits of contributing to the 457(b) plan, would this circumstance play a moderate or major role in deciding to convert 457(b) funds to the existing Roth IRA? Can I convert 457(b) funds to a Roth IRA belonging to my wife?

I have sufficient assets to pay the tax should I decide to convert.

Thanks for all your hard work,

Stephen DeCarlo

Answer:
You may not convert your 457(b) plan to your wife’s Roth IRA. However, you can convert that plan to your own Roth IRA. Should you? There are a few questions that anyone considering a conversion to a Roth IRA should ask themselves. One of these questions is where will the money to pay the tax on the conversion come from? You have already answered that one. Having sufficient outside funds to pay the taxes on the conversion is an important factor that strengthens the case for converting. Another question to consider is when will you need the money? You will want at least a 10-15-year time horizon. Also, take into account what your future tax rates will be compared to your current ones. Keep in mind that conversion is not necessarily all or nothing. You might choose to convert just part of your plan. There are many considerations. It’s best to discuss your situation with a knowledgeable financial advisor.

3.

I am hoping you can please clarify something for me. My mom’s financial advisor was not sure and the IRS publications weren’t exactly clear.

According to the 2012 Ed Slott’s Retirement Decisions Guide I purchased on public TV, page 13, #19 it seems to state that my mother can roll over my deceased father’s Roth IRA into her own Roth IRA and doing so would allow her to avoid having to take a distribution. My father was over 70 ½ and so is my mother. I never took an RMD for them from their Roth account, and my mother would prefer to not touch it now, either.

The only mention I could find in the code was in 5305-R Article V 3, which stated if the grantor’s surviving spouse is the designated beneficiary, such a spouse will then be treated as the grantor. My father’s Roth was not a trust account, and my mother is not inheriting it in a trust account, so I really don’t even know if this pertains. My hope is that this can let us conclude that my mom is now the grantor of my father’s account, and since he did not have to take a distribution, then my mom, as the grantor of the account, does not need to either.

Thank you so much for your consideration during this very emotionally difficult time.

I look forward to watching the updated public TV show and purchasing your newest edition. 

Regards,

Jolie

Answer:
Good news! Your mother can roll over your deceased father’s Roth IRA to her own Roth IRA and she will not have to take distributions during her lifetime. The general rule is that while Roth IRA owners are not required to take RMDs during their lifetimes, Roth IRA beneficiaries must take RMDs from inherited Roth IRAs. Spouse beneficiaries, like your mother, get a break though. A spouse beneficiary who rolls over the funds to her own Roth IRA does not have to take any RMDs during her lifetime. You can probably find this information right in the Roth IRA agreement in the section on distributions to beneficiaries.