Wife’s basis in deceased husband’s Roth
40 year old husband died with a Roth IRA consisting of $2,000 of contributions and earnings of $500 for a total value of $2,500 at the date of death. Wife elected to make this Roth her own after his death. Shortly thereafter, she needed money and withdrew the entire $2,500 claiming that her basis was stepped up at the date of death. It doesn’t seem correct that a qualified plan would have a step up in basis and I cannot find anything conclusive to say that there is. Therefore, I am assuming that there is no step up in basis. My conclusion is that $2,000 was return of contributions and $500 is earnings, therefore subject to tax and penalty. Can someone please confirm this situation?
Thanks!
sgarrison
Permalink Submitted by Edward Czapor on Tue, 2010-05-18 21:03
You are correct, there is no stepped-up basis. If she planned on withdrawing the account, she should have kept the IRA in beneficiary form. She then could have saved $50 of penalty. Since the IRA is now her’s, she will owe tax on the earnings and the penalty as you have determined ( unless she is over 59/1/2 tears old). At least the amount involved is small.