Question: My husband died and I am named as the beneficiary of his IRA. Is it more beneficial for me from an income tax standpoint to remain as the beneficiary of his IRA or to rollover his IRA into my own?
Answer: Minimum required distributions for a surviving spouse who makes a decedent’s IRA her own IRA will always be less than if she remains as a beneficiary. Accordingly, from a tax deferral point of view, if the goal is to take smaller distributions and defer more tax, it will be better for a spouse to take the IRA rollover.
The reason for this is that lifetime minimum required distributions or (“MRD”s) from a spouse’s IRA are calculated using a table known as the Uniform Lifetime Table, which is a joint life expectancy table using the IRA owner’s age and a hypothetical beneficiary who is 10 years younger. The Uniform Lifetime Table factor is a longer life expectancy factor. The result is that when you do the math to calculate the lifetime MRD, that MRD will be less than if the spouse beneficiary’s shorter single life expectancy factor was used to calculate the MRD. Comment: The IRS has recently allowed a surviving spouse to avoid the so-called 5- year rule by making her spouse’s IRA her own, even though the decedent’s estate was named as the beneficiary of the IRA. Naming an estate as a beneficiary of an IRA is generally not a good idea because if the IRA owner dies before he turns 70 ½, the IRA benefits through the estate must be withdrawn over 5 years (a much accelerated withdrawal).
As always, if you have questions or would like to know more about estate plans and estate administration please contact Steven E. Shane at:
firstname.lastname@example.org | 301.575.0313.
Steve provides strategic counseling to clients in need of estate administration, charitable giving and business continuity planning while minimizing estate, gift, and generation-skipping transfer tax exposure. He offers legal guidance to clients on asset protection and the proper disposition of assets in accordance with the client’s objectives, while employing tax planning techniques such as the use of irrevocable trusts, life insurance planning, lifetime gifts and charitable trust. He is also experienced with drafting documents for business planning, the incorporation and application for exemption for Private Foundations and the administration of decedents’ estates.