Split an Inherited Spousal IRA?
A wife (age 54) inherits her husband’s IRA when he died. He was 54 when he passed. She is trying to decide if she wants to keep it as an inherited IRA or transfer it to a traditional IRA. Is it possible to split the proceeds? Can she move a portion to an inherited IRA and the rest into a traditional IRA? As I’m writing this I’m thinking she has to choose one or the other. Thanks!
Permalink Submitted by Alan - IRA critic on Tue, 2019-08-27 21:02
She can split it and more than one time. She can roll over to her own IRA as much as she wishes and can roll over a portion at different times. That said, since her beneficiary RMD do not start until her husband would have been 70.5, she can leave this as inherited until that year if she wishes if she wishes without any downside, but there also is no downside to rolling over the entire amount once she reaches 59.5. I assume they were the same or she was not much younger at his death. Note that once an amount is rolled over to her own IRA that amount can no longer be treated as inherited and would be subject to penalty if she took a distribution prior to 59.5.
Permalink Submitted by Philip Detlefs on Wed, 2019-08-28 15:15
Ok, so she is actually about 6 months older than her husband that passed away. So, I’m assuming she could roll the entire IRA to an inherited IRA and defer any RMD until he would have reached 70.5. In this case, she could then move the inherited to a traditional IRA at her age 59 1/2?
Permalink Submitted by Alan - IRA critic on Wed, 2019-08-28 19:14
First, she submits the death Cert. and other paperwork showing her SSN, address etc and the custodian will do a non reportable transfer to a new inherited IRA. Once she reaches 59.5 she advises the custodian that she wants to assume ownership of the inherited IRA, and from that point on she owns the IRA. Her RMDs as the owner begin in the year she reaches 70.5. and those RMDs will be far less than if she continued with the inherited IRA. Perhaps her husband had basis in his IRA from non deductible contributions reported on Form 8606. If so, she inherits that basis and would file her own 8606 for distributions she takes from the inherited IRA or afterwards when she becomes the owner. This prevents double taxation on amounts her husband had already paid taxes on when the contributions were made.