Spouse beneficiary rollover to Roth

[Guest proyce]

IRS Notice 2008-30 Q&A 7 states that a nonspouse beneficiary that is ineligible to make a qualified rollover contribution to a Roth IRA may recharacterize the contribution pursuant to §408A(d)(6). Presumably, this recharacterization would go to an inherited traditional IRA. The notice then states that "a surviving spouse who makes a rollover to a Roth IRA may elect either to treat the Roth IRA as his or her own, or to establish the Roth IRA in the name of the decedent with the surviving spouse as the beneficiary". The Roth IRA would be similar to an inherited IRA.

My questions is: What happens if the spouse beneficiary was ineligible to make a qualified rollover contribution (MAGI greater than $100,00)?

The Notice only allows recharacterization for ineligible participants or nonspouse beneficiaries. If a spouse beneficiary is ineligible, does that mean the rollover becomes a regular contribution? If so, is the spouse then deemed to have made the election to treat the Roth IRA as his/her own Roth IRA, by virtue of making a contribution [Treas. Reg. 1.408-8 Q&A 5]? Is the wording in the Notice an oversight, and would the spouse be allowed to recharacterize to a traditional IRA established in the name of the decedent with the surviving spouse as the beneficiary? If so, how does this fit with §402©(11) and Notice 2007-7, both of which clearly state that only a nonspouse can roll to an inherited traditional IRA? The definition of inherited IRA is found in §408(d)(3)© and specifically states that an IRA shall be treated as inherited if such individual is not the surviving spouse.

Another question: If a spouse beneficiary rolls to a Roth IRA established in the name of the decedent with the surviving spouse as the beneficiary, how is the distribution period determined under the life expectancy rule?

Notice 2008-30 refers us to Notice 2007-7, which says that the rule for nonspouse beneficiaries applies. That means that life expectancy payments would be required to start the year after death. However, we have a spouse beneficiary, and a spouse beneficiary would have the option of waiting until the year the decedent would have attained age 70 1/2 to begin payments [iRC §401(a)(9)(B)(iv)]. Which rule applies?

[masteff]

My questions is: What happens if the spouse beneficiary was ineligible to make a qualified rollover contribution (MAGI greater than $100,00)?

Another question: If a spouse beneficiary rolls to a Roth IRA established in the name of the decedent with the surviving spouse as the beneficiary, how is the distribution period determined under the life expectancy rule?

If the distributee is ineligible, then per Notice 2008-30 Q&A-5 the distributee can recharacterize pursuant to sec 408A(d)(6). This would still apply where the distributee is a spouse bene.

Notice 2007-7 pertains only to new provisions for non-spouses and can't be extrapolated to spouses. The rule for spouses continues as before 2007-7. As per IRS Pub 590: "If the sole beneficiary is the spouse, he or she can either delay distributions until the decedent would have reached age 701/2, or treat the Roth IRA as his or her own."