Surviving spouse may roll an estate-paid IRA into her own IRA

Plain-English summary

A deceased IRA owner had named a beneficiary who died before him, causing the IRA to become payable to his estate. His surviving spouse was both the estate's sole beneficiary and its personal representative, and she intended to allocate the IRA proceeds to herself. The IRS ruled that the proceeds would not be treated as an inherited IRA with respect to the spouse. She could direct a wire transfer to an IRA in her name or deposit a distributed check into her own IRA within 60 days. If timely rolled over, the proceeds would not be included in her federal gross income.

Ruling snapshot

• Question: May a surviving spouse roll over IRA proceeds paid through an estate she solely represents and inherits?
• Outcome: Approved, subject to completing the rollover within 60 days
• Key authorities: IRC §§ 408(d)(3) and 3405(c)(2); Treas. Reg. § 1.408-8, Q&A-5

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

AUG 11 2014

Uniform Issue List: 408.03-00

T:EP:RA:T1
Legend:
Taxpayer A =
Decedent B =

IRA C =

Custodian D =

Decedent E =

Dear:

This is in response to your request dated October 12, 2012, submitted by your authorized representative, in which you request a ruling that IRA C will not be treated as an inherited IRA within the meaning of section 408(d) of the Internal Revenue Code (the “Code”) with respect to you, and that you be permitted to rollover over the proceeds of IRA C into an IRA maintained in your own name.

The following facts and representations have been submitted under penalty of perjury in support of the rulings requested:

Taxpayer A is the surviving spouse of Decedent B, who died on June 30, 2011, having not attained age 70½. At his death, Decedent B maintained an individual retirement account, IRA C, with Custodian D.

Taxpayer A represents that Decedent B had designated his father, Decedent E, as sole beneficiary for IRA C. Decedent E died on November 1, 1992. Decedent B’s IRA provides that in the event there is no designated beneficiary named, the IRA proceeds will be payable to Decedent B’s estate.

Decedent B died testate, and his Last Will and Testament (“Will”) named Taxpayer A as sole beneficiary of his estate assets. Decedent B’s Will appoints

Taxpayer A as his Personal Representative, and she represents that she intends

to assign all of Decedent B’s estate assets to herself, including IRA C.

As sole Beneficiary under the Will, Taxpayer A proposes to either transfer IRA C directly into an IRA in her name, by way of a trustee-to-trustee transfer, or to make a distribution of the assets of IRA C to herself. It is Taxpayer A's intention to roll over the distribution into an IRA set up and maintained in her own name.

Based on the facts and representations, you request the following rulings:

1. That the proceeds of IRA C, which will be distributed to Decedent B’s
   estate and subsequently paid to Taxpayer A as sole beneficiary of said estate, shall not constitute an inherited IRA within meaning of section 408(d)(3)(C) of the Code, with respect to Taxpayer A; and

2. That Taxpayer A, as the surviving spouse of Decedent B, may transfer
   IRA C directly into an IRA in her name, by means of a trustee-to-trustee transfer; and

3. If IRA C is transferred by means of a trustee-to-trustee transfer, that the
   trustee-to-trustee transfer will be exempt from the withholding requirements of section 3405(c)(2) of the Code; or in the alternative

4. Taxpayer A, as the surviving spouse of Decedent B, may roll over the IRA
   C distribution she will receive into an IRA set up and maintained in her name; and

5. Taxpayer A is not required to include IRA C proceeds in income for federal
   income tax purposes for the year in which the IRA C proceeds are distributed and rolled over into the IRA set up and maintained in Taxpayer A’s name, provided the proceeds are timely rolled over into an IRA set up and maintained in the name of Taxpayer A; and

6. If Taxpayer A appoints IRA C to herself and receives the proceeds of IRA
   C, she will be treated as the payee or distributee thereof for purposes of section 408(d) of the Code.

Section 408(d)(1) of the Code provides that, except as otherwise provided in section 408(d), any amount paid or distributed out of an IRA shall be included in gross income by the payee or distributee, as the case may be, in the manner provided under section 72 of the Code.

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Section 408(d)(3) of the Code defines and provides the rules applicable to IRA rollovers.

Section 408(d)(3)(A) of the Code provides that section 408(d)(1) of the Code does not apply to any amount paid or distributed out of an IRA to the individual for whose benefit the IRA is maintained if:

(i) the entire amount received (including money and any other property) is paid into an IRA for the benefit of such individual not later than the 60th day after the day on which the individual receives the payment or distribution; or

(ii) the entire amount received (including money and any other property) is paid into an eligible retirement plan (other than an IRA) for the benefit of such individual not later than the 60th day after the date on which the payment or distribution is received, except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross income (determined without regard to section 408(d)(3)).

Section 408(d)(3)(B) of the Code provides that section 408(d)(3) of the Code does not apply to any amount described in section 408(d)(3)(A)(i) of the Code received by an individual from an IRA if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in section 408(d)(3)(A)(i) of the Code from an IRA which was not includible in gross income because of the application of section 408(d)(3) of the Code.

Section 408(d)(3)(C)(i) of the Code provides, in summary, that the rollover rules of section 408(d)(3) do not apply to inherited IRAs.

Section 408(d)(3)(C)(ii) of the Code provides that the term “inherited IRA” means an IRA acquired by an individual, other than the IRA owner's spouse, as a result of the death of the IRA owner.

Section 1.408-8 of the Income Tax Regulations, Question and Answer 5 (“Q&A- 5”) provides that a surviving spouse of an IRA owner may elect to treat the spouse's entire interest as a beneficiary in an individual's IRA as the spouse's own IRA. In order to make this election, the spouse must be the sole beneficiary of the IRA and have an unlimited right to withdraw amounts from the IRA. If a trust is named as beneficiary of the IRA, this requirement is not satisfied even if the spouse is the sole beneficiary of the trust.

Generally, if the proceeds of a decedent's IRA are payable to an estate, and are paid to the executor of the estate who then pays them to the decedent's surviving spouse as the beneficiary of the estate, the surviving spouse is treated as having received the IRA proceeds from the estate and not from the decedent.

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Accordingly, the surviving spouse, in general, is not eligible to rollover (or have transferred) the distributed: IRA proceeds into his/her own IRA.

However, the general rule will not apply in a case where the surviving spouse is the sole executor of the decedent’s estate who pays the IRA proceeds to the surviving spouse, in order to satisfy the residuary bequest under the decedent’s will, and which surviving spouse then receives the IRA proceeds and transfers them into an IRA established and maintained in his/her own name. In such a case, the surviving spouse may roll over (or have transferred) the proceeds into an IRA set up and maintained in his/her name within 60 days of the date the proceeds are distributed from the IRA.

In this case, Taxpayer A is the sole Personal Representative under Decedent B’s will and intends to allocate the proceeds of IRA C to herself, as sole beneficiary of the estate. As part of the distribution of Decedent B’s estate, the proceeds from IRA C will be transferred into Decedent's estate and then distributed to Taxpayer A, who within 60 days of receipt of these proceeds from IRA C, will rollover these proceeds from the IRA into her own IRA account.

Therefore, with respect to your ruling requests, we conclude as follows:

1. IRA C, which will be distributed to Decedent B’s estate and
   subsequently paid to Taxpayer A as sole beneficiary of said estate, shall not constitute an inherited IRA within meaning of section 408(d)(3)(C) of the Code, with respect to Taxpayer A; and

2. Taxpayer A, as the surviving spouse, Personal Representative and
   sole beneficiary of Decedent B’s estate can direct IRA C to distribute the IRA to her and she may roll it over. She may accomplish this either by wire transfer to an IRA in her name or by distribution of a check followed by a deposit to an IRA in her name as long as the rollover of such distribution occurs no later than the 60th day from the date the distribution is made from the IRA; and

3. Taxpayer A is not required to include IRA C proceeds in income for
   federal income tax purposes for the year in which the IRA C proceeds are distributed and rolled over into the IRA set up and maintained in Taxpayer A’s name, provided the proceeds are timely rolled over into an IRA set up and maintained in the name of Taxpayer A.

No opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the Code or regulations which may be applicable thereto.

This letter is based on the assumption that IRA C met the requirements of section 408 of the Code at all relevant times. It also assumes that any rollover

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IRA established by Taxpayer A will also meet the requirements of section 408 of the Code at all relevant times.

This letter is directed only to the taxpayer who requested it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

Pursuant to a power of attorney on file with this office, a copy of this letter ruling is being sent to your authorized representative.

If you have any questions, please contact (I.D. # ) by phone at or fax at . Please address all correspondence to SE:T:EP:RA:T1.

Sincerely yours,

Carlton A. Watkins, Manager
Employee Plans Technical Group 1

Enclosures:
Deleted Copy of Ruling Letter
Notice of Intention to Disclose

cc: