IRA Rollover and death of owner | Ed Slott and Company, LLC

IRA Rollover and death of owner

A month ago my father was preparing to come home from Rehab and we needed to prepare him for MA Health. The coordinator and lawyer had us cash in his IRA ( withheld taxes) so my MOm could spend down for services. My father passed away last monday. My mom has the money and the funds to replace the witheld taxes. What are the rules at this point? Can she, as POA, open an IRA after his death to replace the distribution and taxes to minimize tax impact this year? Can she put into her own IRA as a beneficiary? It seems he had the right within 60 days to rollover the funds. How can my mom manage this. We dont need to funds liquid and want them back in the IRA. Please help! Thanks in advance.

Sorry to hear of your loss. I am sure that there have been prior IRS letter rulings allowing the surviving spouse to roll over a distribution taken by the deceased spouse within 60 days, but it may depend on the circumstances. Is your mother the sole beneficiary on this IRA?  Is she the executor of his will and also sole beneficiary per his will?  Was any part of the distribution an RMD for your father?  Note that the POA is void upon your father's death, so no longer applies.

Thank you.  My mom is the primary beneficiary and the executor of his will.  Would we need a PLR to accomplish this?  WE have about a month left at this point.  None of the distribution was RMD as he was 68 when he passed.  They didnt need the income. This was all done per instructions of the medicaid planner and attorney who have absolutely no idea what are options are now.  If my mom draws from this over her lifetime as needed, taxation will be limited.  With the full distribution, it would be considerable. So trying to undo the tax consequence, obvioulsy.  Thanks for your help and any further advice on what to do before the 60 days is up would be MOST appreciated.  

Even if I can locate an applicable PLR (no luck so far), they technically only apply to the applicant. It may be difficult to find an IRA custodian to accept a rollover without your mother securing her own PLR if they knew the circumstances. The costs of a PLR have recently been increased considerably, so would probably run at least 16k with legal fees. There is some risk trying to do this without the ruling, even though your mother's circumstances are very favorable for a positive decision from the IRS. What is she planning for the remainder of the IRA with respect to rolling it over?  As beneficiary, she does not have to start RMDs until the year your father would have reached 70.5 and could take penalty free distributions if she is under 59.5. So both their ages should be considered. If she were allowed to roll over this distribution into her own IRA, that would not require her to roll over the remainder of the IRA as well until it was beneficial. If she is between 59.5 and 68 she should roll over the remainder of the IRA ASAP and ask the custodian if they will accept the addition of the already distributed amount. If they refuse without a PLR, then there is a tough decision to make.

Some of the PLRs that I've read where the rollover was permitted on behalf of the deceased hinged partially on whether or not the deceased had intended to complete a rollover prior to death.  In this case it seems that no rollover was planned, in fact the intent was the opposite, so that would tend to reduce the chances of a favorable PLR ruling that would allow a rollover.

On second thought, the original intent may be irrelevant since the change in intent has occurred within 60-days of the distribution.

My father was 68. Mom 66 in August.  Our plan was to protect the funds, but when it appeared he was going to be in hospital longer due to recent decline we wanted to put back in IRA but he passed away.  So yes, original intent was protection for my mom but within 60 days he had that right to change mind and rollover.   98k was distributed.  70k came home less taxes.  Her intent is to draw from over time.  The tax consequences will be much less over time vs total distribution.  Seems a shame.  They are not wealthy people.  Should she place the 70k into IRA in his name or hers?  Really appreciate the guidance.  Thanks. 

I don't see how these assets could have been "protected" in the first place. If you mean placing them in a trust to qualify for Medicaid, I think there is a 5 year look back period, and this would not have worked. I understand this is immaterial at this point, but it appears that the distributions never needed to be made in the first place unless they were needed to pay already incurred medical expenses. To your question, there is no clear answer regarding whether a PLR request is worth it to save the stretch on 98k at a PLR cost of 16k with a chance of success that I would guess to be 75% as a wild estimate. The other option is to just roll it over without a PLR if you can find a custodian to accept the rollover. It would go into your mother's IRA, the only choices being an inherited IRA or an owned IRA. At age 66 she should roll the remaining IRA into her own IRA. And she should probably open a new IRA account to hold the 98k to have the funds separated in the event there are future issues with the IRS over the rollover. This would be gamble with no guarantee of success, but if you decide to go that way, I would at least make a copy of at least one successful PLR authorizing the surviving spouse to do a rollover of decedent's distribution within 60 days. That would give you at least some downside protection against more severe IRS penalties such as underreporting a large amount of income. Sorry, but there is no clear and easy answer to your question. I will continue to search for a successful PLR on an analgous application, but no luck so far. NOTE: The letter ruling fee is 10k, and I estimated at least 6k for legal fees. The legal fees could be more. And it would probably take a fairly long time to get the ruling, perhaps a year, so a request to extend the 60 days to rollover would have to be part of the PLR Request, if you decided to seek one.

In Massachusetts. You can spend down to qualify for ma health services.  Legal strategy allowed and encouraged by attorneys .   Any cash assets over 119k, my mom could buy a spia.  Regardless. He died so we didn't need the strategy.  I believe you are saying mom should open IRA in her name for rollover for the after tax distribution of 70k and wouldn't need a PLR to do this?   She would need a PLR to put 100% of distribution back inc withheld tax?  A PLR isn't an option.  It would be too much of an expense to save not much more in taxes.  This is such a shame.  

No, I mean that to be on solid ground she would need a PLR to roll ANY of the 98k into her IRA. If you want to proceed without spending the time and money on a PLR application, the end result is very risky and uncertain. First you would need to find a custodian to accept the rollover, and would probably have to conceal that the distribution date was pre death or they would be highly unlikely to accept it. However, since the 1099R will be issued in father's name, the IRS itself will know that the distribution was taken pre death even though it will be reported on the final joint return as a rollover and the 5498 reporting the rollover contribution will show your mother's name and SSN creating a mismatch between the 1099R and the 5498. You would have to use a new IRA custodian and probably just let them think that the distribution was made to Mom hoping that they would  just assume that the distribution was made post death, and therefore accept the rollover. That of course is not full disclosure, but probably the only way to get this rolled over within 60 days. Then Mom would  not be in the clear for 5 years, since the IRS matching program is so hit and miss and does not even begin for at least a couple years. Since this involves concealing material facts from both the custodian and the IRS, I would not recommend it.

There are a few rulings allowing an executor to complete a rollover.  I obtained the most recent one, PLR 201514020.  The others that I'm aware of are PLRs 200450057 and 201035044.Here is an article that I wrote on this subject in the June 2015 issue of Trusts & Estates which discusses this issue:   

Here is a PLR, albeit very old, that addresses this exact situation; second paragraph copied from Natalie Choate material on history of related rollovers indicating later PLRs. :

6. Maybe the Executor of Decedent. A surviving spouse who was the executor of her deceased husband's estate could create an IRA for her deceased husband and rollover a lump sum distribution received by her husband before his death where the distribution was rolled over within 60 days after the date the husband received distribution. Ltr Rul 8351119 (Sept. 23, 1983).Despite Rev. Proc. 2003-16, however, the IRS for a while permitted post-death rollovers of pre-death distributions only when the requestor was the participant’s surviving spouse. In these PLRs, it usually appears that the surviving spouse had been the sole beneficiary of the plan from which the pre-death distribution was taken. See, e.g., PLRs 2004-15012, 2004-20037, 2004-18045, and 2005-20038. But requests by nonspouse executors were denied, on the grounds that only the participant and the surviving spouse were permitted to roll over a distribution. See, e.g., PLR 200415011

I am a little outside my element here.  It was about 100k, so the cost of a PLR is prohibitive.  But the taxes over her lifetime would be slight, versus significant if the distribution stands.Based upon this 1983 PLR, I think this is the exact scenario I was looking for.  mom rollover distribution into an IRA for my dad.  then retitles to hers as beneficiary.  Can I proceed based upon a ruling that is exactly her scenario?  ?My mother was the sole primary beneficiary and is the executor.  Any advice on how to proceed?Thanks and I cant tell you how much I appreciate your help here. I have 2 CPAs working on this for a few days and noone has gotten back to me. 

PLR 201123048 is one where the IRS declined to allow a rollover to the surviving spouse's own IRA.  That taxpayer probably should have instead asked for a ruling like the one in PLR 201504020 which does not ask for, and received a ruling that does not permit, a rollover to the spouse's own IRA.  In PLR 201504020 the spouse was essentially considered a successor beneficiary to an IRA that went to the estate of the deceased.

LPL Financial, the original custodian of my father's IRA that was distributed before his death has given us favorable resolution.  My mother is opening an IRA, writing a check for the full distributed amount as a rollover.  This, with an additional form as beneficiary of the original account is what we are doing.  Thanks for your help and your info.This is the best possible outcome and certainly more efficient than a PLR.  

Good news. Thank you for posting the outcome.


Find members of Ed Slott's Elite IRA Advisor GroupSM in your area.
We neither keep nor share your information entered on this form.

I agree to the terms and services:

You may review the terms and conditions here.