postumous correction of surviving spouse election to be beneficiary instead of owner

[Guest icuncrt]

My dad was a CPA who specialized in tax work before he retired and continued to do a little tax work until he died this year at age 86. It is hard to believe that he screwed up the handling of my mother's traditional IRA when she died in 2007 at age 79. As surviving spouse and sole beneficiary he had the option of rolling her IRA into his own, or setting up an inherited IRA with himself as beneficiary. He chose the inherited IRA/beneficiary option. However, in 2008 and 2010 he made RMDs from that account calculated as if he were owner not beneficiary. I (as one of his beneficiaries) would like the maximum stretch and would like to have his inherited account treated as if he were owner rather than beneficiary.

I have reviewed the regs, and see in section 1.408-8 A.5(b) the statement: "a surviving spouse eligible to make the election [to treat the deceased spouse's IRA as his own] is deemed to have made the election if, at any time, either of the following occurs . . . (1) Any amount in the IRA that would be required to be distributed to the surviving spouse as beneficiary under section 401(a)(9)(B) is not distributed within the time period required under section 401(a)(9)(B)"

I read this to mean that by not making the proper beneficiary RMD in 2008, he is deemed to have elected to treat the IRA as his own. I have made this point to a guy in the Scottrade compliance dept, who believes that that rule does not apply where, as here, my father affirmatively elected to set up the inherited IRA as a beneficiary acct (it is titled "Scottrade, Inc. Custodian FBO [dad] Inherited IRA Bene of [mom] IRA"). Before making a more formal request to Scottrade, I am looking for additional authority to support my position.

[Bird]

He must have taken out more than would have been required if he had done the calcs as beneficiary and not owner, right? So he did take out what was required, and then some; that statement from the regs would be applicable more typically where the surviving spouse just didn't take any money out at all. That, plus the titling of the account, makes me think that it is what it is titled as. Sorry.

[Guest icuncrt]

He must have taken out more than would have been required if he had done the calcs as beneficiary and not owner, right? So he did take out what was required, and then some; that statement from the regs would be applicable more typically where the surviving spouse just didn't take any money out at all. That, plus the titling of the account, makes me think that it is what it is titled as. Sorry.

No. As owner he could use his life expectancy and the joint life table. As beneficiary, he was required to use the single life table. The RMD is lower as owner than as beneficiary.

[masteff]

Just to be devils advocate... if Scottrade isn't raising red flags, aren't you simply overthinking it?

[Guest icuncrt]

Just to be devils advocate... if Scottrade isn't raising red flags, aren't you simply overthinking it?

Well, maybe you are right. My dad had his own IRA account there too, and I started out on this with Scottrade saying I needed two new IRAs, both with the same trust as beneficiary, and I needed two EINs for the two accounts. I have since persuaded them that I don't need two EINs but they still say I need two separate accounts because there are two different life expectancies involved. I would rather have one account, but if Scottrade is not making calculations of RMDs and reporting those to the IRS, perhaps I could just carry on as if it was an owner account and the trust is the first beneficiary and calculate the trust's RMDs accordingly and deal with the issue if it is raised later?

[Belgarath]

FWIW, it seems fairly clear that this was, in fact, an inherited IRA, given the affirmative election to title it this way. So what has happened is that your father didn't take enough for RMD's, and therefore it needs to be corrected and a penalty is due. And you can't treat the IRA as being owned by your father.

That's what is "right" in my humble opinion. Lots of folks may think my opinion is remarkably stupid. As to what you can do, interpret another way, or get away with, I have no opinion. I guess it depends upon your assessment of risk/reward. It's reasonable to ask IRS to abate the penalty tax, particularly if there were extenuating circumstances, and they very well might be reasonable about it.