50/50 split and spousal transfer

Submitted by [email protected] on Tue, 2008-07-29 14:08

Hi,

Someone died and their spouse was not the sole beneficiary of the IRA. Instead, him and his daughter were both designated as 50% primary beneficiaries. The paperwork from the custodian shows that if he was not the sole beneficiary, he cannot do a spousal transfer and treat his portion of the IRA as his own. Is this true? Must he now follow the same path as the daughter and roll his portion out to an inherited IRA and maintain a separate distribution schedule for this account based on his single life expectancy (he takes RMD’s from his own IRA) ?

I thought that he could assume the 50% as his own until I saw the wording on this form.

Thanks for the help!



Submitted by Alan Spross on Tue, 2008-07-29 22:53

It is true that he cannot assume ownership of the inherited IRA because he was not the sole beneficiary. However, he CAN take a distribution of his 50% share and roll it over to his own IRA. He cannot roll over any portion that is an RMD, but can roll over the rest of his interest.

It is even more important that his daughter establish a separate account by the deadline, otherwise she will have to take RMDs using her father’s age and that would cost her much of her stretch.



Submitted by [email protected] on Tue, 2008-07-29 23:02

Thanks Alan! A few follow-up q’s:

1) There are about 10 funds and three individual bonds in the decedent’s IRA. Do these need to be liquidated before the assets are split? Or, the assets be transferred in-kind to the two beneficiaries?

2) The deceased passed after she turned 70.5 but before her RBD, which is April 1, 2009. I am assuming that no RMD’s for 2008 need to be taken because of this.

When you say the surviving spouse can take a distribution of his 50% share, wouldn’t that be taxable? Can he roll his 50% portion directly over to his existing IRA?

Thanks again



Submitted by Alan Spross on Wed, 2008-07-30 00:52

1) They do not need to be liquidated. They could be split 50-50 or if the beneficiaries stipulate a breakdown that amounts to equal total value, an entire investment could be sent to a particular beneficiary and perhaps none of another investment. As long as the value is equal, it is OK. But since values change either daily or by the second, this is tough to do without a cash balance to serve as a buffer amount.

2) Correct.

3) It would only be taxable if it was not rolled over within 60 days to his own IRA . If the rollover is completed on time, it would be reported as a non taxable rollover on line 15 of Form 1040.



Submitted by [email protected] on Mon, 2008-08-04 18:05

Hi Alan,

The way I see it, there are two ways of going about this:

1) Liquidate the existing funds/individual bonds and have the spouse receive a distribution for his 50% share. Then roll these funds over into his existing IRA. This way, he can use the Uniform Lifetime Table for RMD’s instead of the Single Life Expectancy table for Inherited IRA’s. The daughter will have her 50% stake placed into an Inherited IRA and she will use the Single Life Expectancy table that will not be re-calculating.

2) Transfer in-kind by splitting up the existing funds/individual bonds and have the spouse establish an Inherited IRA (and daughter). But, if this were to happen, wouldn’t the spouse be required to use the Single Life Expectancy (re-calculating) for Inherited IRA’s? The life expectancy used to determine his RMD for 2009 would be 14.8 in this case vs. 24.7 from the Uniform table. If this is true, he can reduce his RMD’s by performing the rollover in #1. Am I missing something here?

Thanks again!



Submitted by Alan Spross on Tue, 2008-08-05 00:57

1) Yes, that would work but it need not require investment liquidation. IF there is a way the beneficiaries can agree on an asset split, the investments can be transferred in kind to each of their separate accounts, an inherited IRA for the daughter and his own IRA for the surviving spouse. Then, they each would get to use the lowest possible RMD factor for life.

2) Would not be good for the RMD reasons you mentioned. There is also no need for the surviving spouse to first establish another inherited IRA account when he can transfer his interest to his own IRA. The decedent’s IRA is first re registered as an inherited IRA account of each beneficiary. The separate accounts must be established by the end of the year following the year of death to protect the daughter’s ability to use her own non recalculated life expectancy.

The succeeding IRA accounts here are not dependent on whether the investments are sold prior to transfer or not.



Submitted by [email protected] on Wed, 2008-08-06 02:47

Thanks for the response Alan.

One final question. I was talking with an accountant today who mentioned something to the effect that if the daughter using the single life expectancy table (non-recalculating) for her inherited IRA but at some point decides to take more than the minimum amount, then she must take no less than that higher amount for future years. Is this true? For example, her share is $250k at 12/31/2008 and single life expectancy is 35.1 since she turns 49 in 2009. She needs to take $7,122 based on these numbers. If she takes say, $10,000 in 2009 can she still go back to the single life non-recalculating table for 2010 and use 34.1 for her expected life?

Thanks again!



Submitted by Alan Spross on Wed, 2008-08-06 03:06

No, it is not true. The beneficiary can always take more than the RMD in any particular year, and then return to only the RMD thereafter. The only rule is to not take out LESS than the RMD for any particular year.

Also, by taking out 10,000 in 2009, she does not get any carryover credit for later years, but taking out more does reduce the account balance at year end and therefore results in lower dollar RMDs in the future. The divisor keeps going down by 1.0 to 34.1 then 33.1 etc.



Submitted by [email protected] on Wed, 2008-08-06 12:57

Thanks for clearing that up Alan. I appreciate your help!



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