Can the Surviving Spouse Roll Over an IRA Payable to the Deceased Spouse’s Estate?
When a surviving spouse is the beneficiary of the deceased spouse’s IRA, the surviving spouse has the option of stretching out distributions from the IRA over the surviving spouse’s life expectancy, as determined by Internal Revenue Service tables. When the surviving spouse is much younger than the deceased spouse, getting such a fresh start on required minimum distributions from the IRA can allow the IRA to compound free of income tax for a longer period of time. If there is no beneficiary on the IRA (perhaps due to an error by the deceased spouse, or sometimes due to lost paperwork by the IRA custodian), the ability of the surviving spouse to stretch the IRA, however, would appear to be lost.
If the surviving spouse is the sole beneficiary of the deceased spouse’s estate, however, the Internal Revenue Service may allow the surviving spouse to transfer the IRA into the surviving spouse’s IRA. In Private Letter Ruling 201211034, which cannot be used as a precedent in any other case but which shows the lenient attitude of the Internal Revenue Service towards helping the surviving spouse in that case, the Internal Revenue Service concluded that the surviving spouse could transfer the proceeds tax-free into the surviving spouse’s IRA in two different ways.
One way authorized in Private Letter Ruling 201211034 for the surviving spouse to receive the IRA and stretch it out was to engage in a trustee-to-trustee transfer from the deceased spouse’s IRA directly to the surviving spouse’s IRA. According to the Internal Revenue Service, such a rollover would be exempt from the withholding requirement in Internal Revenue Code Section 3405(c)(2). Because such a move would require direct participation by both of the IRA custodians, the surviving spouse and the Executor or Personal Representative of the deceased’s spouse’s estate could be forced to jump though hoops before obtaining approval of the process by the IRA custodians.
The other way authorized by the Internal Revenue Service in Private Letter Ruling 201211034 for the surviving spouse to receive the IRA and stretch it out was for the estate to claim the IRA proceeds, then, within 60 days, roll over those proceeds into the surviving spouse’s IRA. The IRS ruled that such a rollover would also be exempt from the withholding requirement in Internal Revenue Code Section 3405(c)(2). This two-step approach, from the decedent’s IRA to the decedent’s estate then to the surviving spouse’s IRA, may be the more practical way of handling the situation where an IRA has no beneficiary designation and the surviving spouse is the sole beneficiary of the deceased spouse’s estate.