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Surviving Spouse Options


Guest ptpnthr
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Guest ptpnthr

I have searched similar questions and answers on this message board but I am still confused about a surviving spouse's options. Assume the IRA owner (male) dies and the surviving spouse (female) was 50% beneficiary and another party was 50% beneficiary. Assume the IRA owner had not reached RBD by date of death.

What are the results of the following on (i) the date distributions must commence, (ii) the period, life or joint lives over which the distributions must be made, and (iii) the ability of the surviving spouse to name a new beneficiary?

1. The surviving spouse elects to keep her interest in the same IRA.

2. The surviving spouse elects to rollover her interest into a new IRA.

Assume that instead of the above scenario the surviving spouse is the sole beneficiary? What effects do the following have on (i) the date distributions must commence, (ii) the period, life or joint lives over which the distributions must be made, and (iii) the ability of the surviving spouse to name a new beneficiary?

3. The surviving spouse elects to keep her interest in the same IRA.

4. The surviving spouse elects to rollover her interest into a new IRA as a spousal beneficiary.

5. The surviving spouse elects to treat the IRA as her own.

It may be that 4. and 5. are the same.

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In your first fact pattern the suviving spouse was a beneficiary for 50% of the benefit. When more than one beneficiary is named, the beneficiaries may split the account by December 31 of the year following the death. Beneficiaries are determined as of September 30 of the year after the death, so it's more straight forward to split the account by September 30 of the year after the death.

The surviving spouse can always use her life expectancy for inherited benefits. If she keeps her interest in the same IRA, benefits can commence as late as Dec 31 of the year the deceased spouse would reach age 70-1/2. Distributions could be taken before that time on a voluntary basis. No penalty would apply for a survivor under age 59-1/2 because the distributions are from an inherited account. She could name a beneficiary to receive the benefits if she does not live to the life expectancy per the IRS tables, but no *stretch out* of benefits is available. The single life table in the 1.409(a)(1) regulations is used for distributions. The table is also available in Pub. 590.

If the surviving spouse of a decedent who had not reached the RBD rolls over her benefit, she can name new beneficiaries. The account will be treated as if it had always been hers. A 10% penalty will apply on distributions before age 59-1/2 unless one of the exceptions in 72t (other than death) applies. Distributions must begin based on her RBD; no later than April 1 of the year after she attains age 70-1/2.

If the decedent had passed the RBD and the surviving spouse elects to keep her interest in the same IRA, benefits must commence by 12/31 of the year after the death. As with a pre-RBD death, a beneficiary can be named but the benefits cannot be extended beyond the survivor's life expectancy as measured by the single life table in the year after the death.

If the surviving spouse does a rollover, the same rules apply as if the death occurred before the owner's RBD. It's less likely that she'd be under 59-1/2 so the 10% penalty is not a major threat.

I hate the phrase "treat the IRA as his/her own." I think that all beneficiaries should take some action (like a rollover) if they want the account treated as theirs. How do you distinguish between someone *treating the account as their own* or taking payments as a beneficiary? In rulings, IRS sometimes says that the survivor has treated the account as their own when they would be otherwise penalized for not taking a distribution. I always look upon this tactic as an excuse rather than an action. Sorry, had to blow off some steam about it!

Mary Kay Foss CPA

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