Inherited Spousal IRA RMD


R

Retired

My stepfather died in 2008, and we setup his IRA to go to my mother as
an inherited spousal IRA. When I called the brokerage company where
this was done, to inquire about the RMD that had to be taken before
Dec 31 2010, I was told that because it was an inherited spousal IRA
that there was no RMD. She didn't take one in 2009 because of the
waver. Is it true that she will never be required to take an RMD from
this account?
Phil
 
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J

JoeTaxpayer

My stepfather died in 2008, and we setup his IRA to go to my mother as
an inherited spousal IRA. When I called the brokerage company where
this was done, to inquire about the RMD that had to be taken before
Dec 31 2010, I was told that because it was an inherited spousal IRA
that there was no RMD. She didn't take one in 2009 because of the
waver. Is it true that she will never be required to take an RMD from
this account?
Phil
Sorry for your loss. There are two choices for IRAs inherited by spouses.

A) She transfers it to her name and treats it as her own. It can be
mingled with her other IRA money, it's her IRA. In this case, her RMD
begins when she turns 70-1/2.

B) She treats it as an inherited account, in which case her RMDs must
start the year your step-dad would have turned 70-1/2. This is different
than if a non-spouse inherited the IRA.

So - to answer this exactly, how old is Mom and how old would step-Dad
have been now? How is the account held? I don't recognize "inherited
spousal IRA" - what is the exact title of account?

Note - if it's A, there is the choice to convert to Roth IRA, partial or
full amount after the year's RMD if any are taken. If Step-Dad were
younger, B helps hold off initial RMDs.
Absent any dates, I can tell you "because it was an inherited spousal
IRA that there was no RMD" is not correct. They mis-spoke, you
mis-heard, I don't know. Roth IRAs have no RMD, Traditional IRAs do. All
inherited IRAs do.

Please clarify the question above and you'll get some more help here.
And, I would ask the broker to respond in writing to your RMD question.
Always good to have the paper trail, just in case.
Joe
 
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I would also like to ask if the children of the spouse would also have a benefit for the agreement? Even if they are not related by blood. But they are still a family even if the deceased is not their biological father.
 
A

Alan

My stepfather died in 2008, and we setup his IRA to go to my mother as
an inherited spousal IRA. When I called the brokerage company where
this was done, to inquire about the RMD that had to be taken before
Dec 31 2010, I was told that because it was an inherited spousal IRA
that there was no RMD. She didn't take one in 2009 because of the
waver. Is it true that she will never be required to take an RMD from
this account?
Phil
The direct answer is easy: She will be required to take mandatory
distributions. As to when your mother must take them and how much must
be taken will depend upon what happened after she inherited the IRA.
Assuming she was the sole beneficiary, she had two choices. 1. Treat the
IRA as if she was the owner or 2. Treat the IRA as a beneficiary.

Your use of the phrase "inherited spousal IRA" is somewhat confusing and
I can't tell exactly what happened. There are 3 ways a surviving spouse
can treat the inherited IRA as her own. A. Have the broker rename it.
E.g., John Smith IRA gets renamed Jane Smith IRA. B. Have the broker
roll it over into an IRA already owned by the surviving spouse. C. Leave
the name as is (never a recommended approach) and actually treat the IRA
as if she was the owner. E.g., make annual contributions or take
distributions that are not beneficiary RMDs. If this is what happened,
then your mother starts to take RMDs when she turns age 70 1/2.

If the above did not happen and the IRA is now named something like John
Smith IRA f/b/o Jane Smith or Jane Smith IRA as Beneficiary of John
Smith, then your mother does not have her own IRA. She has a beneficiary
IRA. As such, mandatory distributions are required. As to when and how
much will depend upon such variables as whether or not your stepfather
had already reached his required beginning date (age 70 1/2) and whether
the IRA specified which of two optional rules must be used to calculate
RMDs or whether the beneficiary elects to empty the account within 5 years.

Therefore, please reply and tell us whether the IRA she inherited is a
Beneficiary IRA or your mother is treating as her own IRA.
 
J

JoeTaxpayer

She has a beneficiary
IRA. As such, mandatory distributions are required. As to when and how
much will depend upon such variables as whether or not your stepfather
had already reached his required beginning date (age 70 1/2)
Alan - for a non-spouse beneficiary how does the deceased's age come
into play? Aren't RMDs required from year 1 regardless?
 
S

Stuart A. Bronstein

JoeTaxpayer said:
Alan wrote:

Alan - for a non-spouse beneficiary how does the deceased's age
come into play? Aren't RMDs required from year 1 regardless?
A non-spouse beneficiary, even if under 59 years old, must take a
minimum distribution based on his age, starting the year after the
date of death, as I recall.
 
J

JoeTaxpayer

A non-spouse beneficiary, even if under 59 years old, must take a
minimum distribution based on his age, starting the year after the
date of death, as I recall.
Agreed. I was curios why Alan was referencing the age of deceased. How
that would make a difference. (Aside from his own RMD being due for year
of passing)
 
A

Alan

Alan - for a non-spouse beneficiary how does the deceased's age come
into play? Aren't RMDs required from year 1 regardless?
See page 35 in Pub 590. It explains the RMD rules for the non-spouse
beneficiary if the owner died before the RBD or died on or after the RBD.
 
R

Retired

See page 35 in Pub 590. It explains the RMD rules for the non-spouse
beneficiary if the owner died before the RBD or died on or after the RBD.
It is an inherited IRA. My step dad was 76 when he died and my mom
is 91. While I was playing poker the another nite( I live in Las
Vegas) I was told that because it was setup as an inherited IRA and
not mingled with my moms regular IRA, we can use my step dads age when
he died and we would decrease the (basis??) by 1 every year after
that, needless to say I'm confused.
Phil
 
D

D. Stussy

Retired said:
It is an inherited IRA. My step dad was 76 when he died and my mom
is 91. While I was playing poker the another nite( I live in Las
Vegas) I was told that because it was setup as an inherited IRA and
not mingled with my moms regular IRA, we can use my step dads age when
he died and we would decrease the (basis??) by 1 every year after
that, needless to say I'm confused.
Phil
Please note that the method above is mathematically invalid. When one
outlives the life expectancy, the formula causes division by zero in the
year where one crosses the expectancy age.
 
A

Alan

It is an inherited IRA. My step dad was 76 when he died and my mom
is 91. While I was playing poker the another nite( I live in Las
Vegas) I was told that because it was setup as an inherited IRA and
not mingled with my moms regular IRA, we can use my step dads age when
he died and we would decrease the (basis??) by 1 every year after
that, needless to say I'm confused.
Phil
Your information is correct. He had already reached his RBD and his life
expectancy was greater than the beneficiary life expectancy. Therefore
to compute the 2009 RBD (this one did not have to be taken), she would
have looked at Table I in Pub 590 Appendix under the owner's age (76) in
2008 and found a factor of 12.7. The 2009 RBD would have been the
12/31/08 FMV divided by 11.7 (12.7 -1). The 2010 RBD is FMV at 12/31/09
divided by 10.7.
 
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A

Alan

Retired said:
Please note that the method above is mathematically invalid. When one
outlives the life expectancy, the formula causes division by zero in the
year where one crosses the expectancy age.
You got the ages backward. Decedent was younger than the survivor. As
such, one uses the decedent's life expectancy because it is greater than
the beneficiaries life expectancy. See my reply to "Retired".
 
J

JoeTaxpayer

Your information is correct. He had already reached his RBD and his life
expectancy was greater than the beneficiary life expectancy. Therefore
to compute the 2009 RBD (this one did not have to be taken), she would
have looked at Table I in Pub 590 Appendix under the owner's age (76) in
2008 and found a factor of 12.7. The 2009 RBD would have been the
12/31/08 FMV divided by 11.7 (12.7 -1). The 2010 RBD is FMV at 12/31/09
divided by 10.7.
Right. Now if mom were to retitle the account and treat it as her own,
at 90 her divisor is 11.4 and instead of dropping by 1 each year, she
gets to use the table and at 91 it's 10.8. She also has the option to
convert to Roth. If you looked at her taxable income and determined that
adding $1000 to it had her stay in the same bracket, some converting may
be recommended.
Joe
 
J

JoeTaxpayer

Please note that the method above is mathematically invalid. When one
outlives the life expectancy, the formula causes division by zero in the
year where one crosses the expectancy age.
D - The OP was still a bit confused on the calculation, but the
'subtract one' for a beneficiary IRA is accurate. The table is consulted
for the initial divisor, and that's it.
I see your point, if the divisor happened to be a whole number, we get
to 1 eventually and the prior 12/31 balance is taken out, but any gain
since then is still in the account, when you hit divide by zero.
So, the 70 yr old who has an initial divisor of 17 will hit that if he
lives to 87, didn't withdraw all funds by then, and had some gain prior
to the final RMD being taken.

The potential divide by zero in my opinion is to be ignored, the balance
withdrawn. Game over.
 
D

D. Stussy

JoeTaxpayer said:
D - The OP was still a bit confused on the calculation, but the
'subtract one' for a beneficiary IRA is accurate. The table is consulted
for the initial divisor, and that's it.
....But as one subtracts 1 each year, one eventually hits zero.
I see your point, if the divisor happened to be a whole number, we get
to 1 eventually and the prior 12/31 balance is taken out, but any gain
since then is still in the account, when you hit divide by zero.
So, the 70 yr old who has an initial divisor of 17 will hit that if he
lives to 87, didn't withdraw all funds by then, and had some gain prior
to the final RMD being taken.

The potential divide by zero in my opinion is to be ignored, the balance
withdrawn. Game over.
....And if the initial divisor has a fraction (i.e. non-integral part), then
in the last year of the expected life, one must computationally withdraw
more than 100%. ;-)
 
A

Arthur Kamlet

...But as one subtracts 1 each year, one eventually hits zero.


...And if the initial divisor has a fraction (i.e. non-integral part), then
in the last year of the expected life, one must computationally withdraw
more than 100%. ;-)

If it were not for an exception that says if the IRAs have no more
in them, pay it all out and you're done.


See Pub 590

Begin Quote:

Requirements. If your traditional IRA (or IRAs) inNondeductible
IRAs includes assets other than your affected investment, all
traditional IRA assets, including the available portion of
your affected investment, must be used to satisfy as much
as possible of your IRA distribution requirement. If the
affected investment is the only asset in your IRA, as much
the required distribution as possible must come from the
available portion, if any, of your affected investment.


End Quote

Even had we not been discussing the "reduce the denominator
by "1" each succeeding year" but had made a simple table lookup
and found our IRAs had lost so much of their assets they contain
less than the RMD amount, it is sufficient to pay them down to
zero.
 
R

Retired

If it were not for an exception that says if the IRAs have no more
in them, pay it all out and you're done.

See Pub 590

Begin Quote:

Requirements. If your traditionalIRA(or IRAs) inNondeductible
IRAs includes assets other than your affected investment, all
traditionalIRAassets, including the available portion of
your affected investment, must be used to satisfy as much
as possible of yourIRAdistribution requirement. If the
affected investment is the only asset in yourIRA, as much
the required distribution as possible must come from the
available portion, if any, of your affected investment.

End Quote

Even had we not been discussing the "reduce the denominator
by "1" each succeeding year" but had made a simple table lookup
and found our IRAs had lost so much of their assets they contain
less than the RMD amount, it is sufficient to pay them down to
zero.
Ok you've given me alot info (which I don't know how to use), but I
still don't know how much to withdraw.
Here are the details.
Value of account 12/31/09= 39657.25
Age at death on July 2008= 74
Can you tell me what the RMD should be?
Thanks and happy holidays to all
Phil
 
W

W. Baker

: My stepfather died in 2008, and we setup his IRA to go to my mother as
: an inherited spousal IRA. When I called the brokerage company where
: this was done, to inquire about the RMD that had to be taken before
: Dec 31 2010, I was told that because it was an inherited spousal IRA
: that there was no RMD. She didn't take one in 2009 because of the
: waver. Is it true that she will never be required to take an RMD from
: this account?
: Phil

I am no lawyer, but when my husband died in June his IRA passed to me as
the designated beneficiary. When the financial institution tht holds
these accounts(his and mine) trnsferred his holdings to my account they
took out his RMD, which we usually take on the last of the year, and
transferred it into my regular, non-IRA account. My RMD will be
transferred sometime this week. The new RMD for next yer, I assume will
all be based now on my life expectancy, no longer his, so will be lower as
I am considerably younger.

Wendy Baker
 
R

Retired

: My stepfather died in 2008, and we setup his IRA to go to my mother as
: an inherited spousal IRA. When I called the brokerage company where
: this was done, to inquire about the RMD that had to be taken before
: Dec 31 2010, I was told that because it was an inherited spousal IRA
: that there was no RMD. She didn't take one in 2009 because of the
: waver. Is it true that she will never be required to take an RMD from
: this account?
: Phil

I am no lawyer, but when my husband died in June his IRA passed to me as
the designated beneficiary.  When the financial institution tht holds
these accounts(his and mine) trnsferred his holdings to my account they
took out his RMD, which we usually take on the last of the year, and
transferred it into my regular, non-IRA account.  My RMD will be
transferred  sometime this week.  The new RMD for next yer, I assume will
all be based now on my life expectancy, no longer his, so will be lower as
I am considerably younger.  

Wendy Baker
The broker (Scott Trade) that originally told me that no RMD was
needed, now tells me that they don't figure RMD's on inherited IRAs.
That comes right from the department that handles such things. When I
sent them the form to figure the RMD and transfer it, they never even
bothered to let me know that it they weren't going to do it, I had to
call them to find out. Now I'm scrambling around with less than a week
to figure it out and it get done. Trust me, when this is over I'm
transferring all of our accounts from SCOTTADE.
Phil
 
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D

dpb

Retired wrote:
....
Ok you've given me alot info (which I don't know how to use), but I
still don't know how much to withdraw.
Here are the details.
Value of account 12/31/09= 39657.25
Age at death on July 2008= 74
Can you tell me what the RMD should be?
Thanks and happy holidays to all
Phil
As Alan noted earlier, ...
2009 RBD (this one did not have to be taken), she would have looked
at Table I in Pub 590 Appendix under the owner's age (76) in 2008 and
found a factor of 12.7. The 2009 RBD would have been the 12/31/08
FMV divided by 11.7 (12.7 -1). The 2010 RBD is FMV at 12/31/09
divided by 10.7.
So, from the info given, it the 2010 RBD --> 39657.25/10.7 = 3706.29

I'd recommend going to the IRS web site and reading on Pub 590 to see
how Alan got there. If you're still not comfortable, call a local
professional for advice.

--
 

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