Spouse as "sole" beneficiary?

[Guest renzo]

Client names spouse and 2 children as beneficiaries of his IRA. Upon death, can the spouse roll her share of the IRA to her name or does she lose that option because the IRA designates non-spousal beneficiaries? In other words, does she have to be the "sole" beneficiary of the IRA in order to roll the IRA to her name? Do seperate accounts solve the issue? Thanks.

[Mary Kay Foss]

The spouse has to be the sole beneficiary to do the rollover, but separating the accounts on a timely basis will solve the problem. Beneficiaries are determined on September 30 of the year after the death and accounts are supposed to be separated by December 31 of the year after the death.

If I were you, I'd try to separate the accounts by September 30 and do the rollover (after taking an RMD) between then and December 31.

[Guest reg_h2b]

Mary Kay, why can't the spouse just take her/his share as a distribution and then do a "60-day rollover" into her/his IRA before 9/30? Seems simpler to me, and it doesn't involve separate accounting.

My memory was that the "sole bene"/ "non-trust" bene restriction in the new final regs refers only to the "deemed spouse election" (i.e. treating the owner's IRA as the spouses by not taking a timely MRD as bene, or for the spouse to contribute to the owner's IRA, etc.).

In fact, it was my understanding that if the spouse cashes out her/his share before 9/30, the spouse is no longer considered the designated bene at the 9/30 "date of determination" and thus the children do not need to use the spouse's expected lifetime for their MRD (assuming spouse has the smallest LE).

Then for the children to use their separate LE (as opposed to just the eldest children LE) you would need separate accounting.

Is that your read on the new regs?

[Mary Kay Foss]

You are correct. The "spouse as sole beneficiary" is mentioned in the regs as a requirement for the deemed election, for use of the joint rather than uniform table and for the delay until decedent would be 70.5 for starting RMDs. A spouse can roll over an actual distribution within 60 days of receipt whether or not he or she is the sole beneficiary.

In this case, the spouse can take a distribution and roll it over before the 9/30 cutoff leaving just the children as beneficiaries at the determination date. Alternatively, the account could be split by 9/30 and the spouse could roll over his/her share at any time after that.

[Guest reg_h2b]

Agree.

Rule of thumb: spouse as bene always has the time to rollover (but once roll-over is completed spouse can't revert back to bene status).

So Renzo you have two options. If it were me I'd go for the simplier option (pre-9/30 rollover).

BTW, what does "separate account" mean?

Does a separate account actually have to be physically separated from the accounts of the other bene's in order to use separate LE's (i.e. separate custodial accounts) under 401(a)(9)-8 Q&A-3?

The final regs say to use separate LE's you must have separate accounts "established" by 12/31 of the year following Dod and you must allocate gain/losses/contributions/distributions in a prorata basis since Dod. But this begs the above question. What does "established" mean?

The IRS's employee plans technical division told me over the phone that it was sufficent for each bene to separately and individually receive their MRD on or before 12/31 in order for the bene's to "establish" separate accounts. Separate custodial accounts were not needed.