Wife as beneficiary on IRA

I have a client whose deceased husband was over age 70 1/2 and had previously taken RMDs as required from an IRA inside an annuity. He died this year, 2012, before he took his 2012 RMD. The surviving spouse rolled over the entire amount of the IRA into an IRA of her own. I understand she should have taken his RMD for 2012 first, correct? We have been able to get that figure from the previous custodian. We can request she take that amount as a distrubution from new IRA in her name with the new custodian immediately. Will that resolve the problem? She is also over age 70 1/2, dob 12/02/1937. Will the distribution of what would have been her husband’s RMD count as her RMD also for 2012 from this account, or will she have to then take her own 2012 RMD based on her age as well? The 12/31/11 value of husband’s IRA account prior to death was $54,718.52. A death benefit was payable to the surviving spouse when she rolled over to her IRA. The total amount she transferred to her IRA was $90,932.55. Does this have any bearing on her 2012 RMD if she is required to take an additional one of her own after taking out what would have been her husband’s RMD for 2012. I searched through the forum but can’t find this specific example. Thanks.



Jhowardsc,

The deceased has a requirement for a 2012 RMD based on his age and IRA balance as of December 31, 2011. The surviving spouse has a requirement for a 2012 RMD based on her age and IRA Balance as of December 31, 2011.

Taking his 2012 RMD will not count as her RMD.

Was the death benefit eligible for an IRA?



Yes a death benefit was payable when the surviving spouse transferred the money from deceased husband’s IRA to her IRA. That amount was larger than the account balance. That is why she transferred, because the custodian would not give her access to the death benefit if she left it there as spousal continuation, or renamed as her IRA at that same custodian.



No one would have double RMDs on the same amount.

In this case, since she rolled over the benefit in the year of husband’s death, the RMD that applies is the amount he would have had to take out had he lived. Technically speaking, she HAS taken that RMD, however she then rolled it over into her own IRA and rolling over an RMD is not allowed. She has an excess IRA contribution equal to the RMD amount which needs to be corrected.

Here is where it gets confusing. In many cases, the beneficiary will simply take the RMD from the new IRA account she owns, and IRS will not say anything. However, since the RMD amount is actually an excess contribution to her IRA, it should be corrected as such. This is not costly, but is a hassle to report since you must tell the IRA custodian the amount to be treated as an excess contribution. The custodian then calculates any earnings and distributes the adjusted amount. Earnings are taxable and the 1099R is coded as a corrective distribution.

Form 1040 would only show the net rollover allowed with the RMD taxable on line 15b. There is a separate 1099R showing the corrective distribution and only the earnings from that form will also go on 15b.



Alan-oniras,

Would the death benefit be qualified to be transferred to her IRA?
Or would that be part of the excess contribution to her IRA?



The death benefit can be rolled over to the surviving spouse’s IRA, or to an inherited IRA if the surviving spouse chose to maintain an inherited IRA. Only the RMD would be an excess contribution.

This may sound good, but there are charges for death benefits that are taken out of the IRA annuity every year. Insurors typically reinsure the death benefits with other insurance companies for their exposure to bear markets. With two bear markets in the last decade, the cost of this reinsurance has increased substantially and this cost is passed on to annuity investors in the form of higher fees whether in an IRA or outside.



Thanks alot.



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