Spousal Inherited IRA

My mother (76) passed away in July. She and my father (77) each had IRAs at their bank that contained a CD with a good interest rate that isn’t due until 2011. The bank wanted my father to liquidate my mother’s IRA and they would rewrite a new CD at a lower rate to then rollover into my father’s IRA. Why can’t my father (as the spousal beneficiary)just rollover my mother’s IRA as it exists into his account? My CPA feels this action by the bank would trigger a taxable event. At this point the bank has backed off and we have left everything intact, but we know that there will be an RMD for mother and for dad at year end. The bank says that we have i year to decide how to handle mother’s IRA. Why would this type of an investment vehicle (CD) with the bank as custodian be treated differently than other types of investments? The IRS regulations seem pretty straight forward and shouldn’t that be the ultimate criteria? Thank you for this site…I am at wit’s end.



Unfortunately, the IRS provisions do not address the provisions within various proprietary investment products such as transferability and when/if the bank charges early withdrawal. The bank cannot stop the rollover of the IRA or even maintaining it in inherited status, however they do have full authority to terminate the current interest rate, unless they are in violation of the provisions for their own products.

This makes one wonder if the interest rate were BELOW market, would the bank waive the early withdrawal penalty to encourage maintaining the below market rate?

I do not understand what you state your CPA indicated. A surviving spouse can take a withdrawal at any time and roll it over within 60 days to their own IRA without a taxable event. Again, the IRS rules determine taxation and RMDs, but do not regulate investment products. One thing to check here is what happens if your father decides to maintain the CD IRA in inherited status? This might be an option if he needs to take out more than the RMD anyway, because inherited RMDs require higher RMDs in most cases than owned or assumed IRA accounts.

Elderly people with CDs need to ask these questions before committing to various investment products. In addition, they need to be sure any bank products do not levy a penalty to meet RMD obligations.



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