Year-of-Death RMD and Spousal Rollovers
By Sarah Brenner, JD
Director of Retirement Education
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There are always questions as to the correct way to handle the required minimum distribution (RMD) for the year of death of the IRA owner. This is especially true when a spouse is the beneficiary.
The regulations are clear that even a spouse beneficiary does not get a pass when it comes to the year-of-death RMD. It must be paid out or there will be a penalty. However, a spouse who is doing a spousal rollover by transfer or by treating the account as her own does have some flexibility. The IRS only cares that the year-of-death RMD is taken. It does not care from whose account the RMD is distributed. When a spouse inherits an IRA, she can take the year-of-death RMD from her own IRA. A spouse beneficiary can transfer the entire account to an IRA in her own name or treat the account as her own and then take the RMD from that account. The RMD would be calculated the same way a year-of-death RMD is always calculated – by using the original IRA owner’s age as if he had lived.
If the spousal rollover is being done by a 60-day rollover (which is unusual but does happen from time to time), there is no flexibility -- the RMD must be paid from the deceased spouse’s IRA as a death distribution. Because it is an RMD, it is not eligible for rollover. This is one more reason to avoid 60-day rollovers!
Example: Jake is the beneficiary of his wife Sophie’s IRA. Sophie died at age 78 without taking her 2021 RMD. Jake does a spousal rollover by transferring Sophie’s IRA funds to an IRA in his own name. Later in 2021, Jake can take the year-of-death RMD from his own IRA. If Jake had done a 60-day rollover, he would have had to take the RMD at that time before rolling over the rest of the funds to an IRA in his own name.
Note that since the CARES Act waived RMDs in 2020, there are no year-of-death RMDs to worry about for last year.
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