RMDs FOR SPOUSE BENEFICIARIES

When a spouse inherits an IRA, he or she has options other beneficiaries do not have. We like to refer to the spouse as the king or queen of beneficiaries. Keep in mind that the spouse must be the sole beneficiary of the account in order to qualify for these options.

Delayed Distributions
If the spouse is the sole beneficiary, and the IRA owner dies before his RBD (required beginning date), the spouse can delay required distributions until December 31st of the year the deceased IRA owner would have turned 70 1/2 years old, regardless of the age of the spouse.

Recalculate Life Expectancy
A spouse who is a sole beneficiary can recalculate life expectancy each year. Take advantage of this by setting up separate accounts.

Treat IRA as the Spouse’s Own
A spouse who is the sole beneficiary can treat the IRA as her own. Take advantage of this by setting up separate accounts.

Spousal Rollover
Only a spouse beneficiary can roll over her share of an IRA into her own IRA. There is no deadline for rolling over the spouse’s separate share. The spousal rollover, though, is best accomplished when the spouse is the sole beneficiary of a separate IRA as opposed to being one of several beneficiaries and having to split out her share after the IRA owner’s death.

PRIVATE LETTER RULING 201047029

"John" took a distribution from his IRA to move the funds to another IRA with a different financial institution. He wanted to invest in a different fund to take advantage of the unique investment offerings.

Before making the transfer, he inquired about the new financial institution’s ability to legally handle and house IRAs. He was told on multiple occasions that the financial institution could indeed hold IRAs. "John" then made arrangements to move his distributed amount to the new financial institution, and he duly noted on the institution’s questionnaire that he wished the funds to be maintained in an IRA.

However, the new account was opened as a standard taxable brokerage account and the distributed amount was deposited into it. "John" soon realized the error, but after the 60-day rollover window, and requested a Private Letter Ruling.

The IRS wavied the 60-day rollover requirement in respect to the contested funds. "John" was granted a 60-day extension from the issuance of the ruling to contribute the funds into an eligible retirement account because he received incorrect information from the financial institution about its ability to house IRAs.

LESSONS TO LEARN:

1. When you open the new account you should receive an IRA agreement as part of your paperwork. If you don’t get an IRA agreement, you don’t have an IRA. Always ask the financial advisor for a copy of the IRA agreement.