5 Things You Can NOT Do With Your IRA

Friday, October 10, 2014

By Beverly DeVeny, IRA Technical Expert
Follow on Twitter: @BevIRAEdSlott

The “I” in IRA stands for individual. Here are 5 things you 100% can never do with your IRA.

  1. If you are married, you cannot treat the IRA as a joint asset – even if you live in a community property state. Contributions must be made on an individual basis. Spouses cannot add their contribution amounts together and then allocate the contribution between their respective IRAs.
     
  2. Required distributions (RMDs) must also be taken on an individual basis. Spouses cannot add their RMDs together and then take the total amount from just one of their IRAs. Each spouse can contribute up to their maximum to their own account and must take their full RMD amount from their own account.
     
  3. You cannot transfer your IRA to your spouse – unless you are divorcing and the divorce decree provides for this type of transfer. If you transfer your IRA to your spouse without it being mandated by a divorce decree, you have a distribution that is taxable to you and your spouse does not have an IRA. And, just in case you were wondering, you cannot transfer your IRA to anyone else either.
     
  4. Your IRA cannot be transferred into your trust and still remain an IRA. An IRA can only be owned by an individual, and the trust, even if it uses your Social Security number, is not an individual. A transfer of the IRA into the name of the trust is a taxable event. You will owe income tax on the entire taxable amount of the IRA and your trust will end up holding assets that are no longer IRA assets.
     
  5. You can name your trust as the beneficiary of your IRA, but the trustee of your trust needs to also know that the inherited IRA cannot be transferred into the name of the trust. Again, this would be a taxable distribution. Instead, an inherited IRA for the benefit of the trust should be set up. The only IRA money that should go into the trust is the annual RMDs.

Bottom line: Your IRA is yours and yours alone. You can’t “share” it with anyone else, can’t co-mingle it with your spouse’s IRA, can’t gift it or transfer it during your lifetime. The ownership of an IRA can only change through a divorce decree or your death. I’m not sure which is more painful.

 

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