Rollover after death

[Bruce Steiner]

Decedent, unaware of the Section 691© deduction available to her beneficiaries, withdrew her entire IRA just before she died, to remove the income tax from her estate. The issue is whether her executors or the beneficiaries of her IRA can put the money back into the IRA, since the benefit of the stretchout would probably far outweigh the fact that the Section 691© deduction applies only to the Federal, but not the state, estate tax.

Gunther, 573 F. Supp. 126 (W.D. Mich. 1982) says yes. Rev. Proc. 2003-16 (which lists death as an example) and the temporary regulations under former Section 4981A suggest yes. But the IRS said no in PLR 200415011.

If the financial institution will let the executor put the money back (within the 60 days), and if the beneficiaries of the IRA are the same as the beneficiaries of the estate, the executor could put the money back, and then either seek a ruling (and take the money back out if the ruling is unfavorable), or run the risk of the excess contribution penalty. But if the financial institution won't let the executor put the money back, she'll need to get a ruling both on the rollover after death and the waiver of the 60 days. Even if the executor puts the money back without calling attention to the IRA owner's death, the financial institution may spot the issue when the beneficiaries set up their beneficiary IRAs.

Does anyone have any thoughts, other than having the executor move to the Western District of Michigan? Was anyone in this group involved in PLR 200415011?

[Appleby]

Bumping this up a notch to see if anyone has any suggestions/comments

[mbozek]

I think there is a distinction in the facts of the two cases that results in a different answer. In Gunther the executor, as fid, was held to have the power under the IRC that the decedent would have to open an IRA account and rollover the funds to the IRA. However in the plr the decedent died after receiving the distribution from the IRA. Under most custodial IRAs the rights of the owner are transferred to the IRA beneficiary at the death of the owner so the executor, as the personal rep of the owner has no rights under the IRA to transfer the distribution back to the IRA custodian after the owner's death. Hence this language in the PLR: "... taxpayer A who was the individual on whose behalf IRA X was maintained, died prior to the date of the action of Executor E referenced above".