July 17, 2020 at 7:16 pm #7466richard2Participant
Husband takes RMD from his IRA. He then dies. Wife is the beneficiary of the IRA and transfers the contents into her IRA. She would like to roll the RMDs back into the IRA (that is, into her IRA). The IRA custodian will allow this rollover. It will not allow any transactions in the husband’s IRA.
Would it be a risky move? It is not quite what is contemplated by https://www.irs.gov/pub/irs-drop/n-20-51.pdfJuly 17, 2020 at 9:47 pm #7470Alan S.Participant
Yes, there is some risk because the 1099R and 5498 will not match up in IRS computers when the rollover is reported. There has been former PLRs allowing a decedent’s distribution to be rolled over to an inherited IRA (in one case with the estate as beneficiary), and the surviving spouse is then able to secure the balance by assigning the IRA as executor to herself, and finally to assume ownership of it).
It is surprising the custodian is willing to bypass all these steps as well as assuming these PLRs can be applied to this client. I doubt that many custodians would allow this. The mismatch mentioned above could be avoided by the custodian allowing the rollover back to the inherited IRA so that the 1099R and 5498 would conform. If they conform, the IRS will assume the rollover was actually completed by the decedent and the account numbers would also match up as required by Notice 2020-51.July 18, 2020 at 9:19 am #7481richard2Participant
Would it be a large risk? The rollover would be worthwhile, but not if it provokes an audit. I realize it’s hard to give useful odds when there isn’t much precedent.
In the former PLRs, did the 1099R and 5498 conform?
Unfortunately, the custodian won’t allow any transactions in the old IRA (other than moving the assets into wife’s IRA), so it will not allow a rollover back.
July 19, 2020 at 2:46 pm #7497Alan S.Participant
- This reply was modified 2 years, 2 months ago by richard2.
As you indicated, it is not really possible to determine if the IRS will catch this, but if they do the consequences are not that bad. The RMD would be taxable as it currently is, plus there would be an excess contribution to her IRA that would have to be returned with earnings. Once the due date for her return passes and the IRS takes no action, but catches this later on, instead of the excess removal including earnings, there would be a 6% annual excise tax for each year that the disallowed rollover remained in her IRA. It is not likely that this would trigger an audit involving the entire return, rather it would just require an excess contribution correction.
Perhaps some of former PLR 1099R and 5498 matched up, but not others where the rollover might have been made to the surviving spouse’s IRA.
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