Spousal Inherited IRAs

Husband was sole beneficiary of wife’s IRA. She died in 1993 when both were age 72. Her account was retitled as a beneficiary IRA, but he elected to treat as his own and took RMDs for all years based on the uniform table. There was no advantage to not transferring to his IRA, but for his own reasons he wanted to keep “her” IRA separate. He passed away in 2010. He had taken his RMD for that year before his death. His 3 children were named as beneficiaries of both his and his wife’s IRA. I realize that each of them can establish a beneficiary IRA for their 1/3 of father’s IRA and begin taking RMDs based on their single life expectancy. Is the same true for mother’s IRA since father had elected to treat as his own? If not, how do they proceed.



This is a tricky scenario.

He started out at 72 treating the inherited IRA as such. However, the RMD for an inherited IRA is HIGHER THAN the RMD if he had assumed ownership. As long as he took this higher RMD using the single life table (can use the actual divisor each year rather than reducing by 1.0 each year) the status remains. However, the first year he failed to take the full inherited IRA, the account by default is treated as if he owned it even though he did not re title it. That would then reduce his RMD divisor from that point on to the same divisor he uses on his own IRA.

Now the children can only hope that both of two things occurred:
1) He named them as successor beneficiaries after his wife died instead of just leaving them on as contingent beneficiaries.
2) The IRA defaulted to owned status per the above paragraph.

If both apply, the children are designated beneficiaries on both IRAs and can use their own life expectancies. But if the IRA remained as inherited because he met the inherited RMD requirement, the children are then only successor beneficiaries and can only continue the RMD schedule he was using except that they will have to use the 1.0 reduction and would have to drain the account within about 6 years.

Note that if the children cannot use their own life expectancy per the above, they can still create separate accounts (if they are in fact the beneficiaries), but cannot combine these with their separate accounts from the other IRA he owned because the divisor will be different. They would have a much longer stretch from the IRA he owned than the one he maintained as inherited.

If you find that husband defaulted to ownership per above rules, please let me know because they need to keep documentation of what happened in case the IRS inquires.



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