Will My Federal Estate Tax Exemption Transfer to My Spouse?

By Beverly DeVeny and Jeffrey Levine
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This week’s Slott Report Mailbag, proudly sponsored by GoldCo Precious Metals, includes questions on the “age 55” rule and understanding the transfer of the estate tax exemption. As always, we recommend that you work with a competent, educated financial advisor to keep your retirement nest egg safe and secure. You can find one in your area here.


To Whom It May Concern:

When determining the amount of one’s conversion basis (not contribution basis) to be included on the 2014 version of IRS Form 8606, line 24, the table in the instructions for this line includes a footnote #4 that states:

Do not include any in-plan Roth rollovers entered on line 21 of 2010 Form 8606. Why are in-plan Roth rollovers singled out over rollovers from qualified retirement plans to Roth IRAs? Both are included on line 21.

Thanks in advance for your reply.

Without doing an exhaustive analysis of line 21 (the instructions are four pages long), the object of that line is to determine basis in conversions from any type of IRA accounts and conversions from employer plans to Roth IRAs. Form 8606 is generally used to report IRA transactions only. In 2010 it was adapted to report in-plan Roth conversions (employer plan assets converted to a plan Roth) as well so that taxpayers could use the two-year tax deal on their employer plan conversions. The following year, 2011, the form reverted to reporting only IRA transactions again.




I just read with interest the below referenced article from your site:

“Age 55 Rule” For Taking Money Out of a Company Retirement Plan

My question is—does the same opportunity apply to an individual 401(k) plan? Can the plan owner “separate from service” and cash in at 55? What about the spouse who also participates? Same rule or different treatment as a spouse?

Thanks for any insights you may have!


Assuming there is a bona fide business that sponsors the individual 401(k) plan, and assuming that the spouse actually works for the business, the only way the plan owner can separate from service would be for him to close down the business and terminate the plan. Then the owner and spouse could get their funds out of the 401(k) using the age 55 exception. I would not recommend that the owner fire himself, take a distribution, and then hire himself back.



My IRA of approximately $4 million names my spouse as the primary and my adult children as the contingent beneficiaries. We also both have trust assets of approximately $1.5 million each with similar beneficiary designations. Since the current federal estate tax exemption is $5.43 million, am I correct to assume that upon my death, my federal estate tax exemption will transfer to my spouse? Thus, when she dies the exempt portion of her estate will be double the sum.

The transfer of the estate tax exemption works like this. Using your scenario, you die this year with an unused exemption of $5.43 million. That will transfer to your wife. Your $5.43 million will increase her exemption in the year of death. Let’s say she dies five years from now and the exemption has increased to $6 million. Her exemption of $6 million gets combined with your exemption of $5.43 million for a total exemption of $11.43 million.

In order to transfer your exemption to her, a federal estate tax return for your estate must be filed – even though no estate tax will be due.


This week’s Slott Report Mailbag is sponsored by:
GoldCo Precious Metals
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