By Andy Ives, CFP®, AIF®
IRA Analyst
In the October 26 Slott Report entry (“Beneficiary RMDs: Calculation Basics”), we discussed the required minimum distribution (RMD) calculation rules for non-spouse IRA beneficiaries. Spouses, on the other hand, are a special type of beneficiary with different options available. Here, we discuss the basic RMD rules governing spouse beneficiaries.
Year-of-Death RMD. It does not matter who an IRA beneficiary is. When an IRA owner is subject to lifetime RMDs, the year-of-death RMD cannot be avoided. This is true whether the IRA owner died on the first day of the year or the last. If any portion of the year-of-death RMD was not taken prior to death, it is the responsibility of the beneficiary to take whatever remains by December 31 of the year AFTER the year of death. This is also true for spouse beneficiaries. There is no special calculation using any of the beneficiary’s information for the year-of-death RMD. It is simply the RMD amount (or whatever remains) that the deceased IRA owner would have taken had he survived.
Spousal Rollover. The ability to move inherited IRA funds from a deceased spouse’s IRA into the surviving spouse’s own IRA is only available to spouse beneficiaries. After a spousal rollover, the assets are treated as if they belonged to the surviving spouse from the very beginning. Yes, the year-of-death RMD must still be taken, but it can be taken after the spousal rollover from the surviving spouse’s own IRA. Going forward, any RMD calculations are based on the surviving spouse’s own age using the Uniform Lifetime Table. Like normal, the surviving spouse recalculates the annual RMD each year by going back to the Uniform Lifetime Table and using her own age to determine the applicable factor. Caution: a spousal rollover cannot be reversed. For young spouses who may need access to the inherited funds, a better choice would be to do an inherited IRA first (discussed next) to avoid a 10% early withdrawal penalty.
Inherited IRA. When a surviving spouse is under age 59½ and needs access to the inherited IRA dollars, choosing to do an inherited IRA is recommended. Dollars from the inherited IRA can be withdrawn for any reason, and the 10% penalty will not apply. Then, after the surviving spouse turns age 59½, she can do a spousal rollover with the inherited IRA. This is true even if the surviving spouse does not turn 59½ for decades.
An additional benefit to a spouse who chooses an inherited IRA is that RMDs do not apply to the account until the deceased spouse would have been RMD age. While non-spouse eligible designated beneficiaries (EDBs) must start taking distributions in the year after the year of death, spouses can delay those withdrawals. This rule can benefit young spouses whose partner died many years before RMDs were to begin. It can also benefit older surviving spouses who lost a young spouse and want to delay RMDs on the inherited funds for as long as possible. And when those RMDs do begin, there are certain situations when a surviving spouse could use the Uniform Lifetime Table on the inherited IRA, which can result in a lower RMD. Ultimately, the RMD rules try to be as favorable as possible to spouse beneficiaries.
If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.
https://irahelp.com/spouse-beneficiary-rmds-calculation-basics/