Rollover by Spouse after Death of IRA Owner

[Francis]

An IRA owner died at age 73 and he had been taking required distributions. Just after his death, his spouse beneficiary asked the custodian for a check for the remaining value of his IRA which was about $45,000.

She was hoping to "rollover" the check into an IRA in her name within 60 days. She is age 72. But now her new IRA custodian has told her that she cannot deposit the $45,000 as a tax-free "rollover" because she took a full distribution from her deceased husband's IRA and instead she should have left it there and then had the two custodians handle a "trustee to trustee transfer" of the $45,000 to avoid taxes.

Does the above sound correct? Is there a way for her to "rollover" the funds within 60 days to avoid having to declare the full amount as taxable income?

Thank you for any help you can provide!

Frank1971

[jevd]

She may rollover the funds to her IRA as long as she takes the rmd for the year of death if not already taken. I'd find another trustee if they insist she can't rollover the funds. I would also seek the aid of the trustee's Compliance dept. or a higher level employee than the front line client services. As with the IRS it is often the case that the frontline people don''t know all they need to know. Pursue the higher ups and if no luck try a different trustee.

See below from Preamble to RMD Final Regs: From the Preamble to the final RMD REGS

>Election of Surviving Spouse to Treat an Inherited IRA as Spouse's Own IRA

These final regulations generally retain the clarifications in the 2001 proposed regulations regarding how and when a surviving spouse of a deceased IRA owner can elect to treat an IRA inherited by the surviving spouse from that owner as the spouse's own IRA. The 1987 proposed regulations provided that this election is deemed to have been made if the surviving spouse contributes to the IRA or does not take the required minimum distribution for a year under section 401(a)(9)(B) as a beneficiary of the IRA. Under the 2001 proposed regulations, this deemed election is permitted to be made only after the distribution of the required minimum amount for the account, if any, for the year of the individual's death. These final regulations provide that the election can be made at any time after the IRA owner's date of death, while clarifying that the minimum required distribution for the calendar year of the IRA's owner's death is determined assuming the IRA owner lived throughout the year. These regulations also clarify that the surviving spouse is required to receive a minimum distribution for the year of the IRA owner's death only to the extent that the amount required was not distributed to the owner before death.

Some commentators raised concerns about the other clarifications in the 2001 proposed regulations. The 2001 proposed regulations clarified that a deemed election is permitted only if the spouse is the sole beneficiary of the account and has an unlimited right to withdraw from the account. This requirement is not satisfied if a trust is named as beneficiary of the IRA, even if the spouse is the sole beneficiary of the trust.

SEE HERE

As explained in the 2001 preamble, these clarifications make the election consistent with the underlying premise that the surviving spouse could have received a distribution of the entire decedent IRA owner's account and rolled it over to an IRA established in the surviving spouse's own name as IRA owner.

If the spouse actually receives a distribution from the IRA, the spouse is permitted to roll that distribution over within 60 days into an IRA in the spouse's own name to the extent that the distribution is not a required distribution, regardless of whether or not the spouse is the sole beneficiary of the IRA owner. Further, if the distribution is received by the spouse before the year that the IRA owner would have been 70½, no portion of the distribution is a required minimum distribution for purposes of determining whether it is eligible to be rolled over by the surviving spouse.

[Bird]

The new (non-spouse) rollovers to IRAs must be done by direct transfer, not paid in cash, and I imagine the custodian is confusing this with the spousal rollover rules.

Another mistake by an investment firm. Add it to the list.

[Appleby]

If the surviving spouse wants to rollover the amount to her IRA, she should take the rollover-portion of the amount, along with a signed rollover-contribution form (or whatever instructions they require) and present it to the financial institution with instructions to book it to her IRA as a rollover contribution. They should not ( and will likely not ) ask about the source of the funds, as the responsibility for determining if a rollover is proper rests with the IRA owner. But once you begin to ask them questions....