Inherited IRA as spouse but not sole beneficiary

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
Post Reply
Topic Author
chrisvt
Posts: 4
Joined: Thu Jun 06, 2024 8:26 am

Inherited IRA as spouse but not sole beneficiary

Post by chrisvt »

My spouse recently passed away and I'm working on sorting out her Roth and Traditional IRAs. She was in her early 50s and had not yet begun taking RMDs.

Roth: I'm the sole beneficiary, and will be rolling it over.
Traditional: Three beneficiaries named, including me and my spouse's two sisters.

The wiki (and other sources) provides three general options when an IRA is inherited from a spouse:
1. Treat it as your own IRA by designating yourself as the account owner.
2. Treat it as your own by rolling it over into your traditional IRA, or to the extent it is taxable...
3. Treat yourself as the beneficiary rather than treating the IRA as your own.

I was planning to roll over my portion of the Traditional IRA but the sidebar in the wiki mentions the following: "You will only be considered to have chosen to treat the IRA as your own if...You are the sole beneficiary of the IRA...".

I haven't been able to find any information on my options given that I am not the sole beneficiary. Any advice from this forum on how to proceed?
User avatar
Raybo
Posts: 2262
Joined: Tue Feb 20, 2007 10:02 am
Location: San Francisco
Contact:

Re: Inherited IRA as spouse but not sole beneficiary

Post by Raybo »

Since you are not the only beneficiary, you can't do option 3 (Spousal beneficiary option). I believe you have 2 options. One is to transfer it into your name (make it your own) or deplete in 10 years.

From the IRS (https://www.irs.gov/retirement-plans/pl ... eneficiary):

The spouse of the account owner has more options than non-spouse beneficiaries, if they're the sole beneficiary.

Death of the account holder occurred in 2020 or later
Spousal beneficiary options

If the account holder's death occurred prior to the required beginning date, the spouse beneficiary may:

Keep as an inherited account
Delay beginning distributions until the employee would have turned 72
Take distributions based on their own life expectancy
Follow the 10-year rule
Roll over the account into their own IRA

If the account holder's death occurred after the required beginning date, the spouse beneficiary may:

Keep as an inherited account
Take distributions based on their own life expectancy, or
Rollover the account into their own IRA

Non-spouse beneficiary options These are your options

In 2020 and later, options for a beneficiary who is not the spouse of the deceased account owner depend on whether they are an "eligible designated beneficiary." An eligible designated beneficiary is

Spouse or minor child of the deceased account holder
Disabled or chronically ill individual
Individual who is not more than 10 years younger than the IRA owner or plan participant

An eligible designated beneficiary may

Take distributions over the longer of their own life expectancy and the employee's remaining life expectancy, or
Follow the 10-year rule (if the account owner died before that owner's required beginning date)

Designated beneficiary (not an eligible designated beneficiary)

Follow the 10-year rule

Beneficiary that is not an individual

Follow the rules described above as if the account owner died before 2020 (because the SECURE Act changes only apply to beneficiaries who are individuals)
No matter how long the hill, if you keep pedaling you'll eventually get up to the top.
Alan S.
Posts: 12892
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Inherited IRA as spouse but not sole beneficiary

Post by Alan S. »

chrisvt wrote: Thu Jun 06, 2024 8:47 am My spouse recently passed away and I'm working on sorting out her Roth and Traditional IRAs. She was in her early 50s and had not yet begun taking RMDs.

Roth: I'm the sole beneficiary, and will be rolling it over.
Traditional: Three beneficiaries named, including me and my spouse's two sisters.

The wiki (and other sources) provides three general options when an IRA is inherited from a spouse:
1. Treat it as your own IRA by designating yourself as the account owner.
2. Treat it as your own by rolling it over into your traditional IRA, or to the extent it is taxable...
3. Treat yourself as the beneficiary rather than treating the IRA as your own.

I was planning to roll over my portion of the Traditional IRA but the sidebar in the wiki mentions the following: "You will only be considered to have chosen to treat the IRA as your own if...You are the sole beneficiary of the IRA...".

I haven't been able to find any information on my options given that I am not the sole beneficiary. Any advice from this forum on how to proceed?
For the TIRA you can make yourself the sole designated beneficiary under the separate account rules, by creating a separate inherited IRA for yourself (no later than 12/31/2025). This is a non reportable transfer. Right after the separate inherited IRA has been created you should be able to elect to assume ownership of the inherited IRA, which is also a non reportable transfer. The basis for sole beneficiary treatment of the separate account is derived from IRS Reg 1.401(a)(9)-8, QA 2:

https://www.ecfr.gov/current/title-26/c ... 01(a)(9)-8

The IRS has never clarified this question regarding sole beneficiary status for ownership assumption purposes, so it's possible that your IRA custodian may not accept your election to be treated as the owner of your separate inherited IRA, which would then force you to take a reportable distribution (decline withholding) which is subject to the one rollover limitation in a 12 month period and deposit the distribution into your own IRA as a rollover contribution. Clearly, assumption of ownership is the preferable method if the custodian will comply.

Of course, if you are not yet 59.5 you should keep the IRA as an inherited IRA so that you could take distributions without penalty. Note that if you continue the inherited IRA the above IRS Reg also clearly allows you to delay beneficiary RMDs until the year your spouse would have reached age 75 by treating you as the sole beneficiary, but at that point your RMDs will be much larger than they would have been as the owner, therefore you should assume ownership or do the 60 day rollover before that year.

Would help to know your age.
Topic Author
chrisvt
Posts: 4
Joined: Thu Jun 06, 2024 8:26 am

Re: Inherited IRA as spouse but not sole beneficiary

Post by chrisvt »

Thanks for the responses so far.
Alan S. wrote: Thu Jun 06, 2024 10:44 am
For the TIRA you can make yourself the sole designated beneficiary under the separate account rules, by creating a separate inherited IRA for yourself (no later than 12/31/2025). This is a non reportable transfer. Right after the separate inherited IRA has been created you should be able to elect to assume ownership of the inherited IRA, which is also a non reportable transfer. The basis for sole beneficiary treatment of the separate account is derived from IRS Reg 1.401(a)(9)-8, QA 2:

https://www.ecfr.gov/current/title-26/c ... 01(a)(9)-8
Do all beneficiaries need to take this same approach in order for it to apply to me, or can each make their own decision for their share? I'm assuming the latter.

Spouse was 51 when she passed, I'm 46 1/2.
Alan S.
Posts: 12892
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Inherited IRA as spouse but not sole beneficiary

Post by Alan S. »

chrisvt wrote: Thu Jun 06, 2024 11:14 am Thanks for the responses so far.
Alan S. wrote: Thu Jun 06, 2024 10:44 am
For the TIRA you can make yourself the sole designated beneficiary under the separate account rules, by creating a separate inherited IRA for yourself (no later than 12/31/2025). This is a non reportable transfer. Right after the separate inherited IRA has been created you should be able to elect to assume ownership of the inherited IRA, which is also a non reportable transfer. The basis for sole beneficiary treatment of the separate account is derived from IRS Reg 1.401(a)(9)-8, QA 2:

https://www.ecfr.gov/current/title-26/c ... 01(a)(9)-8
Do all beneficiaries need to take this same approach in order for it to apply to me, or can each make their own decision for their share? I'm assuming the latter.

Spouse was 51 when she passed, I'm 46 1/2.
Yes, the latter.

Nonetheless, if a sister is an EDB by not being more than 10 years younger than your spouse, failure to create separate inherited IRAs by the deadline if the other sister is not an EDB would cost the EDB sister their EDB status and they would instead be subject to the 10 year rule.

But if they don't act, it will not affect you as long as you create your own separate inherited IRA account.

Since you are far short of age 59.5, you should not assume ownership until that date so you can take any beneficiary distributions without penalty. Since the penalty disappears at 59.5, you should elect to assume ownership at that time.

Be sure to name your own successor beneficiary ASAP.

For the inherited Roth IRA:
1) If spouse first contributed over 5 years ago, the inherited Roth is now qualified and tax free, again with no beneficiary RMDs until she would have reached 75. All distributions you need will be tax free.
2) But if you elect to assume ownership of the inherited Roth, it will not be qualified until you reach 59.5 and therefore if you withdrew more than the contributions she made (took out gains), those gains would be taxable and subject to penalty. As such you may also want to maintain the Roth as inherited until 59.5.

Of course, if you prefer to assume ownership anyway for simplicity and maybe to combine it with your own Roth IRA, keep in mind that you should avoid touching any earnings prior to 59.5.
Topic Author
chrisvt
Posts: 4
Joined: Thu Jun 06, 2024 8:26 am

Re: Inherited IRA as spouse but not sole beneficiary

Post by chrisvt »

Thank you, this is incredibly helpful. I really appreciate it.

Re: the inherited IRAs, do those need to be with same custodian as my spouse's accounts, or can I open them anywhere?
Silk McCue
Posts: 9107
Joined: Thu Feb 25, 2016 6:11 pm

Re: Inherited IRA as spouse but not sole beneficiary

Post by Silk McCue »

chrisvt wrote: Fri Jun 07, 2024 7:19 am Thank you, this is incredibly helpful. I really appreciate it.

Re: the inherited IRAs, do those need to be with same custodian as my spouse's accounts, or can I open them anywhere?
Anywhere.

Cheers
Not Law
Posts: 272
Joined: Sun Sep 14, 2014 8:05 am

Re: Inherited IRA as spouse but not sole beneficiary

Post by Not Law »

The time I dealt with a similar situation, the deceased's broker insisted it would only transfer the funds to a beneficiary's newly created inherited account at the same brokerage. I gather so the distribution records were all in house. Each beneficiary then did a roll over to a new matching account at their own brokerage house.
SuzBanyan
Posts: 2081
Joined: Thu Jun 02, 2016 11:20 am

Re: Inherited IRA as spouse but not sole beneficiary

Post by SuzBanyan »

You have already received very good advice, but I wanted to add my condolences on your loss. I’m sure this is a very difficult time for you and your loved ones.
Topic Author
chrisvt
Posts: 4
Joined: Thu Jun 06, 2024 8:26 am

Re: Inherited IRA as spouse but not sole beneficiary

Post by chrisvt »

Not Law wrote: Fri Jun 07, 2024 6:34 pm The time I dealt with a similar situation, the deceased's broker insisted it would only transfer the funds to a beneficiary's newly created inherited account at the same brokerage. I gather so the distribution records were all in house. Each beneficiary then did a roll over to a new matching account at their own brokerage house.
Thank you. Spouse's account is with TIAA CREF. The paperwork they sent allows for a transfer to another brokerage. I'm hoping to setup the inherited IRA with Vanguard (I have most of my accounts with them) but it's less than clear how to do that. Probably time to call them or go with Fidelity who makes it very easy.

SuzBanyan wrote: Sat Jun 08, 2024 8:36 am You have already received very good advice, but I wanted to add my condolences on your loss. I’m sure this is a very difficult time for you and your loved ones.
Thanks. Cancer sucks.
Alan S.
Posts: 12892
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Inherited IRA as spouse but not sole beneficiary

Post by Alan S. »

chrisvt wrote: Mon Jun 10, 2024 8:36 am
Not Law wrote: Fri Jun 07, 2024 6:34 pm The time I dealt with a similar situation, the deceased's broker insisted it would only transfer the funds to a beneficiary's newly created inherited account at the same brokerage. I gather so the distribution records were all in house. Each beneficiary then did a roll over to a new matching account at their own brokerage house.
Thank you. Spouse's account is with TIAA CREF. The paperwork they sent allows for a transfer to another brokerage. I'm hoping to setup the inherited IRA with Vanguard (I have most of my accounts with them) but it's less than clear how to do that. Probably time to call them or go with Fidelity who makes it very easy.

SuzBanyan wrote: Sat Jun 08, 2024 8:36 am You have already received very good advice, but I wanted to add my condolences on your loss. I’m sure this is a very difficult time for you and your loved ones.
Thanks. Cancer sucks.
Once the IRA custodian is notified of the death of an IRA owner, they will freeze the account until the beneficiary provides them with the death certificate and the beneficiary contact info and SSN. They will then transfer the balance to a new beneficiary inherited IRA in house. Once this has been done you can request a transfer to an inherited IRA elsewhere. Therefore, two inherited IRAs will need to be established. This is standard practice, but since TIAA does some things differently from the norm, the procedure there may differ.

Let's hope that TIAA is not one of the few that requires the beneficiary info for all beneficiaries before they will establish inherited IRAs for any beneficiary. This anti consumer policy is also used by a few custodians, and of course causes a problem if any beneficiary procrastinates in providing their info.
Post Reply