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Email Guidance – Deceased Spouse’s Roth IRA Becomes Roth IRA of Surviving Spouse

Posted by James M. Carlson
Mar 06 2019

Q-1 We have a customer who had a Roth IRA. She passed away and the husband (beneficiary) did not transfer to him before he passed away. She passed away in 2016 and he passed away this week (2019). Do we go ahead and transfer to him/estate or do we transfer to contingent beneficiary.

A-1 You indicate the Roth IRA owner died in 2016.

There are two reasons her Roth IRA became his Roth IRA.

First, if he did not take his RMD from the inherited Roth IRA in 2017, then he is deemed to have elected to have the inherited Roth IRA become his own Roth IRA. This happens as a matter of law whether or not he or the bank changed any records.

Second, we have written the Roth IRA plan agreement to provide that her IRA became his Roth IRA if he made no election of the five year rule or the life distribution rule by 9/30/2017.

Did he have his own Roth IRA? Hopefully he did and he had named a beneficiary.

Did he designate a beneficiary with respect to this Roth IRA?

The bank should have established for him in 2017 either an inherited Roth IRA or his own Roth IRA.

Although he may not have wanted to act with respect to this inherited account, he needed to and the bank also needs to.

Under IRS reporting rules, the bank was required to prepare a 2016, 2017 and 2018 Form 5498 for him showing the FMV of the Roth IRA. If the Form 5498 reporting was done for her, this is incorrect.

When did she open her Roth IRA? If she had met the 5-year rule, each and every distribution to a Roth IRA beneficiary will be tax-free.

If she had met the 5-year rule, so had he and so has his beneficiary.

If he did not designate a beneficiary, his beneficiary is his estate. You should establish an inherited Roth IRA, the John Doe estate abo John Doe's Roth IRA.

Because his estate is the beneficiary, the 5-year rule must apply and the life distribution rule is inapplicable. As such, the five year rule will apply to the estate and the Roth IRA must be closed by 12/31/2025.

Had he designated a beneficiary this inherited Roth IRA would have earned tax free income for,the life expectancy of the beneficiary. This is a situation which should be avoided.

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