Reply To: Spouse as sole beneficiary of TIRA

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#4901
Alan S.
Participant

Bruce,
1) You are correct. If sole beneficiary spouse takes distributions in years before deceased spouse would have reached 70.5, these are not RMDs, just distributions. Correct that these distributions have no minimum or maximum limit.

2) Correct. With second option starting when deceased spouse would have reached 70.5 (12/31 of that year), there is the RMD minimum but no maximum distribution. All distributions from the inherited IRA are coded 4 on the 1099R and therefore have no 10% penalty regardless of age.

3) The beneficiary’s recalculated age (enter Table I each year) is used in this case. The decedent’s non recalculated age would only apply if they passed after the RBD and was younger than the beneficiary spouse. This would produce a lower distribution and therefore would be the RMD as long as it remained lower.

4) Yes, the surviving spouse can do the spousal rollover (best done by electing to assume ownership) anytime they wish, but this is an irreversible decision. In any year AFTER the year of owner’s death, if a spousal rollover is done, the RMD for that entire year is calculated from the Uniform table, making the RMD for that year much lower than a beneficiary Table I RMD. A beneficiary RMD does not have to be done first and in fact the election of ownership is best done prior to taking a distribution for that year. If a beneficiary distribution (Code 4) is taken PRIOR to assuming ownership and exceeds the Uniform Table RMD, the amount in excess of the Uniform table RMD can be rolled back if done within 60 days, to reduce the distribution to the Uniform table amount. While an RMD cannot be rolled over, the act of assuming ownership effectively recalculates the RMD for that year to the lower amount. But to avoid this confusion and using up the one rollover allowed, it is preferable to not take any distribution in the year of ownership election until after the IRA is owned. That avoids the code 4 1099R.

I think we have discussed before another way to accomplish the spousal rollover, and that is failing to take the full beneficiary RMD in an RMD year. That IRA then defaults to ownership status, effectively reducing the RMD for that year. But this should also be avoided if possible because it leaves the IRA titled differently than it’s ownership status and also causes confusion.

In summary, there are various ways to do the “spousal rollover”, but the best is to elect ownership first to avoid a 1099R with a code 4 and also avoid using up the one 60 day rollover permitted. At the time of the election, the custodian will usually transfer the balance to an owned IRA. Then the Uniform table RMD can be taken by the end of the year if the beneficiary has reached 70.5. Most spousal beneficiaries will elect ownership after 59.5 and not wait until the deceased spouse would have been 70.5.

It is interesting that an IRS study released this week in conjunction with the recommendation of new RMD tables starting in 2021 found that only 20% of IRA owners limited their distributions to the RMD amount after 70.5. That means that 80% take out more than their RMD, so the reduced RMDs from the new tables (down 5.5-6%) will not help 80% of older IRA owners. It will only help the 20% with higher incomes that for which only the RMD is enough.