Inherited traditional IRA by Spouse where spouse is not the sole beneficiary

Submitted by James Yanacek on Wed, 2019-01-23 20:00

When my Dad passed away this past August, one of his IRA’s (with Vanguard) had my Mom as a beneficiary along with 5 grandkids. We established 6 different inherited IRA accounts with Vanguard. Her account (she is 87 years old) is an inherited account which would appear to require the use of Table I for RMD calculations. I would rather her be able to assume the IRA as her own, which would let us use Table III for the RMD calculations. We asked Vanguard to make this change, but they have not complied (or gotten back to us). I assume that the tricky part is that she was not the “Sole Beneficiary.” The RMD factors are very different if we have to use Table I (6.3) instead of Table III (12.7). Anyone run into this before and know if it can be changed?



Submitted by Alan - IRA critic on Wed, 2019-01-23 23:56

  • First, for purposes of your question, I am assuming that your parents were married at the time of Dad’s death. If so, you are correct about the “sole beneficiary” determination issue being the key to this question, and the IRS has not clarified whether the sole beneficiary status is fixed at death or is subject to re determination under the “separate account rules” outlined in IRS Reg 1.401(a)(9)-8, Q 2. Vanguard may not be willing to consider the latter interpretation, however they have no authority to force out the higher distribution amount.
  • Pub 590 B also does not clarify the “sole beneficiary” determination on p 5 relative to the separate account rules.
  • Obviously, an inherited IRA cannot be assumed by the surviving spouse if there are other beneficiaries since the other beneficiaries cannot become owners. Only the surviving spouse can.
  • IRS Reg. 1.408-8 addresses RMD rules for spousal beneficiaries. 1.408-8 Q 1 states the all the IRS Regs in 1.401(a)(9)-1 through 1.401(a)(9)-9 apply to IRA RMDs except as otherwise provided, but does not clarify the sole beneficiary determination question.  Note that 1.401(a)(9)-8, Q 2 states that a separate account for a surviving spouse considers that spouse a sole beneficiary that can delay RMDs to the year the deceased spouse would have reached 70.5 under the separate account rules. This means that the spouse not being the sole beneficiary on the date of death did not prevent the separate account from getting sole beneficiary treatment. Therefore, I think that in your case, your Mom is able to elect ownership of her separate inherited IRA in 2019 and determine her 2019 RMD using the Uniform Table. If VG will not retitle the IRA, she could either transfer it to another custodian, or roll it over. The rollover is not ideal since it will be treated as a distribution from the inherited IRA and the 1099R will show Code 4 as a beneficiary distribution subject to the single life table divisor and only the amount in excess of the beneficiary RMD could be rolled over. Another problem with a distribution and rollover to her own IRA is the one rollover limit per 12 months that applies to any IRA distribution under her SSN (owned or inherited IRA). She does not even have such a rollover available if she did one in the prior 12 months.
  • If Dad did not complete his 2018 RMD before passing, completion of his RMD is a joint responsibility of all beneficiaries. This should have been done by 12/31/2018, but if not please advise.
  • Would really appreciate it if you would post back here what Vanguard indicates and if they are suggesting a rollover to get her funds into an owned IRA. That would of course result in 2019 using the higher divisor, the first year that she is filing single with higher rates.


Add new comment

Log in or register to post comments