By Sarah Brenner, JD
Thanks for all your work on the retirement frontier. I have a question…we have married clients who are age 70 (he) and 62 (she). Both clients have IRAs. The 62-year-old client just passed away. I know that the surviving spouse can rollover the decedent’s IRA into his IRA and the RMDs will begin (on the combined funds’ value) once he reaches 70.5. I also know that he can create an inherited IRA for the decedent’s IRA funds and does not have to begin taking RMDs until she would have been 70.5, but then has to take them according to the Single Life table if left in the Inherited IRA account. Is it possible for him to create an inherited IRA, receive his wife’s funds, allow them to grow for 8.5 years until she would have been 70.5, then roll them into his IRA account and use the Uniform Life table factor for future RMDs with the combined funds? It seems if this is possible, this would be the best strategy. Thanks for your help clarifying this issue.
Your strategy works! The regulations say that if a spouse is the beneficiary, and the IRA owner dies before her required beginning date (April 1 of the year following the year she would have been 70 ½), the spouse can delay RMDs until December 31st of the year the IRA owner would have turned 70½ years old. Because your client died at age 62, she died before her required beginning date. Her surviving spouse would not need to take RMDs until the year she would have reached age 70 ½. As you mentioned, that is approximately 8.5 years in the future. At that time, he could do a spousal rollover and use the Uniform Lifetime Table to calculate RMDs. There is no deadline for doing a spousal rollover, so delaying it until this point makes a lot of sense if the client’s goal is put off RMDs for as long as possible.
My mother recently inherited my father’s IRA. His RMD is not large (about $3,800) but it’s enough of an income boost to affect her tax liability now that she’s a widow. I’m wondering if contributing the RMD to her grandchildren’s 529 plans will render them tax exempt. (I think maybe she’ll still owe federal taxes but not state since they are OH plans and we live in OH.) If 529 plans are not the right shelter, is a charitable contribution our best strategy? Mom currently doesn’t have enough income to owe taxes and I’d like to keep it that way (as she lives very comfortably.)
Unfortunately, depositing an RMD into a 529 plan will not make it tax exempt. However, your idea of contributing the IRA to charity is a good one. If your mother is over age 70 ½ she would be eligible to do a Qualified Charitable Distribution (QCD). With a QCD, the $3,800 RMD amount could be directly transferred tax-free from her IRA to an eligible charity of her choice. This would satisfy her RMD requirement, but would keep the RMD out of her income for the year.
Question: Dear Ed, Thanks for all your work on the retirement frontier. I have a question…we have married clients who are age 70 (he) and 62 (she). Both clients have IRAs. The 62-year-old client just passed away.