New Surviving Spouse
I just read in IRA Answer Book (circa 2004) that if spouse A dies, and surviving spouse B rolls over A’s IRA to a spousal rollover IRA, remarries and names new spouse C as bene, that C cannot do a spousal rollover at B’s death (Treas Reg Sec 1.401(a)(9)-3, Q & A 5). Is this true? How would the IRS know?
Permalink Submitted by Janine Janine on Thu, 2008-10-16 16:26
I am curious as to how Surviving Spouse B gets to roll-over Spouse A’s IRA. Were there no children with Spouse A, etc. ?
Permalink Submitted by Al Fry on Thu, 2008-10-16 17:20
A and B were legally married under federal law. A dies, leaves his IRA to B. B rolls it to herself and meets C on the internet. After a long courtship of 4 weeks, B marries C and names him bene of the rollover IRA. I’m not sure what children have to do with it. These internet courtships are far stronger than blood relationships (or some seem to think).
Permalink Submitted by Janine Janine on Thu, 2008-10-16 19:49
That speculation is as bizarre as mine concerning the IRA owner who leaves his IRA to his son as primary bene and names his wife as contingent bene. Out of guilt, empathy or whatever, son wants to disclaim a portion so that wife (his mother??), the secondary beneficairy, will receive assets. Much as we would like to think otherwise, it is quite difficult to control our assets from the hereafter!
Permalink Submitted by Al Fry on Thu, 2008-10-16 20:18
There is a multitude of married couples living in FL and AZ, many on 2nd or 3rd spouses, that have named each other benes of their IRAs. Not very bizarre, in my experience. Everone THINKS their surviving spouse will follow their wishes and name the kids benes on their IRA, but things change a lot after one spouse dies.
Permalink Submitted by Alan Spross on Thu, 2008-10-16 23:18
Al,
I believe that the Treas Reg you cited in your original post refers beneficiary treatment accorded to the first surviving spouse but not to additional surviving spouses. It does not restrict any of them from doing a spousal rollover.
Example: IRA owner passes at 65 and survivor age 58 does not have to start RMDs under an inherited IRA for 5 years, regardless of survivor’s age. Survivor then re marries and passes at 62 but still is treated as the owner with respect to the new surviving spouse. However, if that new suriving spouse then passes, they are NOT treated as the owner and their beneficiary must be treated as a successor beneficiary using the remaining life expectancy of the first surviving spouse.
The net effect is that through a succession of marriages, RMD cannot continue to be based on the age of the smost recent deceased spouse. This can only be done with the very first surviving spouse.
Permalink Submitted by Al Fry on Fri, 2008-10-17 02:46
I wonder who tracks this? It could be years later and several custodians later.
Permalink Submitted by Janine Janine on Fri, 2008-10-17 03:21
Touché, Al!
Permalink Submitted by charles lore on Fri, 2008-10-17 05:21
Alan I take issue with your example. Your first sentence has surviving spouse in the role as beneificiary of the ira which is why rmd starts when he would have been 70 1/2. But in the second sentence I believe it is incorrect to say she is still treated as owner. Surving spouse was never the owner , only beneficiary. Yes she has the right at any time to say” I no longer want to be a beneficairy but I want to be an owner.. I will role the benficairy ira into an ira in my name and it will be treated as I was owner all along”
Then she assumes role of owner and all the benfits of ownership.
Permalink Submitted by Al Fry on Fri, 2008-10-17 16:57
And her new spouse has no rollover rights.
Permalink Submitted by Alan Spross on Fri, 2008-10-17 21:56
Chuck,
It is difficult to paraphrase an IRS regulation that takes several takes to understand in the first place. This provision is one of them. In my example, I was referring to the RMD treatment that spousal beneficiaries receive, or in the case of “surviving spouses of surviving spouses”, treatment that they lose out on. The following is the IRS Reg we have been trying to understand:
>>>>>>>>>>>>>>>>>>>
Q–5. If the employee’s surviving spouse is the employee’s sole designated beneficiary and such spouse dies after the employee, but before distributions have begun to the surviving spouse under section 401(a)(9)(B)(iii) and (iv), how is the employee’s interest to be distributed?
A–5. Pursuant to section 401(a)(9)(B)(iv)(II), if the surviving spouse is the employee’s sole designated beneficiary and dies after the employee, but before distributions to such spouse have begun under section 401(a)(9)(B)(iii) and (iv), the 5-year rule in section 401(a)(9)(B)(ii) and the life expectancy rule in section 401(a)(9)(B)(iii) are to be applied as if the surviving spouse were the employee. In applying this rule, the date of death of the surviving spouse shall be substituted for the date of death of the employee. However, in such case, the rules in section 401(a)(9)(B)(iv) are not available to the surviving spouse of the deceased employee’s surviving spouse.
>>>>> >>>>>>>>>
First, note that this provision has nothing to do with rollover options, but rather how RMDs are handled. Note that if the first surviving spouse dies, they are treated as they had been the employee (or IRA owner per Pub 590, p 37) for RMD provisions for their beneficiary. Again, this does not mean that they are treated as the owner in all respects, but only that their beneficiary is not treated as a successor beneficiary, but rather AS IF they had inherited from the owner using the survivor’s date of death. But what this Reg is saying is that this provision cannot apply to the surviving spouse of a surviving spouse, that when they pass their beneficiary is treated as a successor beneficiary in all respects.
Granted, this Reg is very complex and most difficult to understand unless you put it in context of the code section in which it appears.
Permalink Submitted by charles lore on Fri, 2008-10-17 23:38
Alan once again you.ve fleshed out all the issues. Thank you!