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Minimum distribution requirements for a deceased husband's IRA
(Posted January 18, 2000)
Question 221: A husband and wife each maintained an IRA, the husband using the single life expectancy table and the spouse using the joint life expectancy table, with recalculation. The husband passed away in 1997, and distributions for 1998 were taken from each IRA accordingly. In 1999, the wife "rolled over" the husband's IRA into her existing IRA. The beneficiaries under the wife's IRA are now children. What life expectancy should be used for the 1999 minimum distribution from the combined IRA?
Answer: This is a complicated question, and can best be answered by addressing it piece by piece. I assume that husband and wife were both past their required beginning dates when husband died in 1997. I also assume that husband and wife each had named the other as beneficiary, on his or her required beginning date (April 1 of the year after which he or she attained age 70-1/2). Finally, I assume that both life expectancies (husband's and wife's) were being recalculated under both IRAs.
The subject of minimum required distributions is discussed in Chapter 5, pages 205 - 282, of The Retirement Plan Distribution Book.
- When husband died in 1997, his life expectancy dropped to zero in 1998. The husband's 1998 required distribution then would be based on the wife's remaining life expectancy. The fact that husband chose to use his single life expectancy (i.e., to take more than required) does not prevent his wife from using her life expectancy if she was named beneficiary as of his required beginning date, as illustrated by Private Letter Ruling 199951053.
- The wife's 1998 required distribution also should have been based on her single life expectancy, because her beneficiary's (i.e., her husband's) life expectancy was recalculated to zero in the year after his death.
- It is not clear whether wife should have taken a 1999 required distribution from husband's IRA before treating it as her own (by rolling it into her own IRA) in 1999. Had it been a true rollover, a 1999 minimum required distribution would have to be withheld from the rollover. But it is not clear if the same requirement applies when a surviving spouse treats the IRA as her own in accordance with IRC 408(d)(3)(C). For an indication that it might not, see PLR 9807029. Nonetheless, it seems prudent to base the wife's 1999 distribution on the sum of her IRA and her husband's IRA as of the beginning of the year, divided by her single life expectancy. (See the next paragraph.)
- In 2000, the year after the "rollover," the minimum required distribution from wife's IRA is governed by the recalculation election and designated beneficiary of that IRA as determined on her required beginning date (Prop. Treas. Reg. 1.401(a)(9)-1, Q&A G-2). Because the husband was the designated beneficiary and recalculation had been elected as of the wife's required beginning date, the husband's life expectancy is recalculated to zero, and only the wife's remaining life expectancy may be used to determine the required distribution. The fact that she has now named her children as beneficiaries does not increase the distribution period. See Prop. Treas. Reg. 1.401(a)(9)-1, Q&A E-5(e)(2).
An interested reader has added the following:
"It seems to me that in Q221 a separate accounting should be done for the rollover amount, allowing the wife to take distributions based on her children's life expectancies. I believe the IRS regulations require a separate accounting if an IRA owner rolled over one of his IRAs into an IRA that had younger beneficiaries after the RBD, but requires that if the IRA rolled over to has older beneficiaries then the shorter life expectancy must be used."
My response is this: I think this situation presents a close call, but a strict reading of Prop. Reg. 1.401(a)(9)-1, Q&A G-2(a), requires that all distributions from wife's IRA be based on her remaining life expectancy. That is because the cited regulation does not really talk about basing distributions on any beneficiaries' life expectancies. Rather, it simply says that, unless paragraph (b) applies, in computing required distributions after the rollover, the account balance is increased by the amount of the rollover. So the IRA is stuck with its pre-rollover life expectancy. The exception in G-2(b), which requires separate accounting, only applies if the "designated beneficiary" has a longer life expectancy, and refers to Q&A E-5 for changes in designated beneficiaries. Under E-5, when husband died, wife became required to use her single life expectancy. For an even closer situation, see Question 229 of this column, where my conclusion, under those facts, is that separate accounting is required.
- The joint life expectancy of the wife and her children (modified by the MDIB Rule of the proposed Treasury regulations) could have been used in the husband's IRA after his death if the wife had "rolled over" the husband's IRA to a separate IRA instead of rolling it into the one she already had that was stuck with a single life expectancy.
After this question was originally answered, I became aware of PLR 199948039, under which the IRS allowed the surviving spouse to correct this unfortunate situation by rolling over the original rollover out of her old IRA and into a new IRA, provided (i) the first rollover had not yet been commingled with the old IRA, and (ii) she completes the second rollover no later than December 31 of the year following the year of her spouse's death.
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