Surviving spouse may roll trust-held IRA into her own IRA

Plain-English summary

A decedent named a trust as beneficiary of an IRA, and the surviving spouse became the trust's sole trustee and sole beneficiary. The spouse allocated the IRA to a survivor's trust, had authority to distribute all of that trust's property to herself, and revoked the survivor's trust. Ordinarily, a spouse receiving IRA proceeds through a trust cannot roll them into the spouse's own IRA because the proceeds come from the trust rather than the decedent. The IRS applied an exception because the spouse was sole trustee and had sole authority and discretion to pay herself the IRA proceeds. It ruled that the account was not an inherited IRA with respect to her and that she could complete a rollover or trustee-to-trustee transfer into her own IRA within the 60-day period.

Ruling snapshot

• Question: Could the surviving spouse treat the trust-held IRA as noninherited and move its proceeds into an IRA in her own name?
• Outcome: Approved, subject to the 60-day rollover rule and the stated IRA and trust assumptions
• Key authorities: IRC §§ 72 and 408(d); 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

201507040

DEC 04 2014

Uniform Issue List: 408.03-00

XXXXX
XXXXX
XXXXX

T:EP:RA:T2

Legend:

Taxpayer = XXXXX
Decedent = XXXXX
IRA X = XXXXX
XXXXX
XXXXX
Trust = XXXXX
XXXXX
Survivor’s Trust = XXXXX
XXXXX
XXXXX
Marital Trust = XXXXX
XXXXX
XXXXX
Exemption Trust = XXXXX
XXXXX
XXXXX
Date = XXXXX

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201507040

Dear XXXXX:

This is in response to your request dated November 26, 2013, submitted on your
behalf by your authorized representative in which you request a ruling that IRA 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
proceeds of IRA into an IRA in your own name.

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

Decedent died on Date. Decedent was married to Taxpayer on the date of his
death. Decedent maintained IRA, and designated Trust as the beneficiary of IRA.

Trust provides that upon Decedent's death, Taxpayer becomes the sole trustee
of Trust.

Trust provides that upon Decedent's death, Trust is divided into three trusts, a
Survivor's Trust, a Marital Trust and an Exemption Trust. The Survivor's Trust is funded
by payment of all net income to Taxpayer in quarter-annual installments and “so much
of the principal as the Trustee considers necessary for the surviving spouse’s proper
health, support and enjoyment. Trustee shall have the right to withdraw and revoke all
or any part of Survivor's Trust.”

Under the terms of Trust, Taxpayer, as sole Trustee, allocated all retirement
accounts of Decedent to Survivor Trust. Additionally, Taxpayer, acting in her capacity as
sole trustee revoked the Survivor's Trust and withdrew the right of the Survivor’s Trust
to IRA X. Under the terms of Trust, if Survivor's Trust is revoked, IRA X would pass to
the beneficiary of Trust. Taxpayer is sole beneficiary of Trust, and therefore has the
right to receive IRA X.

Taxpayer, as sole Trustee of Trust, proposes to take possession of IRA X as sole
beneficiary of Survivor’s Trust. It is Taxpayer’s intention to roll over said assets into one
or more IRAs set up and maintained in her own name.

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

1. IRA X will not be treated as an inherited IRA within the meaning of 408(d) of
   the Code with respect to Taxpayer.

2. Taxpayer is eligible to roll over or have transferred by means of a trustee to
   trustee transfer, IRA X into an IRA set up and maintained in her own name,
   as long as the rollover of such distribution occurs no later than the 60th day
   from the date said distribution is received from IRA X.

201507040

-3-

With respect to your ruling requests, Section 408(d)(1) of the Code provides that,
except as 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.

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)(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 obtained 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 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.

In this case, Decedent designated Trust as the beneficiary of IRA X. Decedent’s
surviving spouse, Taxpayer, is sole trustee of Trust. Under the terms of Trust, the
decision as to which property will be allocated to the Survivor's Trust rests with
Taxpayer, as Trustee. Pursuant to this authority, Taxpayer allocated IRA X to the
Survivor's Trust.

As Trustee of the Survivor's Trust, Taxpayer has the power to distribute to herself
any portion or all of the property of the Survivor's Trust, including the proceeds of IRA X,
for the surviving spouse’s proper health, support and enjoyment. As trustee of the

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201507040

Survivor's Trust, Taxpayer revoked the Survivor's Trust and thus its right to IRA X.
Taxpayer intends to distribute the proceeds of IRA to herself as beneficiary of the
Survivor's Trust, and then rollover the funds into an IRA maintained in her own name.

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

spouse, in general, is not eligible to roll over the distributed IRA proceeds into her own
IRA.

However, the general rule will not apply where the surviving spouse is the sole
trustee of the decedent's trust and has the sole authority and discretion under trust
language to pay herself the IRA proceeds. The surviving spouse may then receive the
IRA proceeds and roll over the amounts into an IRA set up and maintained in her name.

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

1. IRA X will not be treated as an inherited IRA within the meaning of
   section 408(d) of the Code with respect to Taxpayer.

2. Taxpayer is eligible to roll over or transfer, by means of a trustee-to-
   trustee transfer, a distribution of the proceeds of IRA X into an IRA set up and
   maintained in her own name, as long as the rollover of such distribution occurs no later
   than the 60th day from the date said distribution is made from the IRA.

This letter is based on the assumption that that IRA met the requirements of
section 408(a) of the Code at all relevant times, and that the Trust is valid under
applicable state law. It also assumes that any rollover IRA established by Taxpayer will
also meet the requirements of section 408(a) at all relevant times.

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

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.

201507040

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If you wish to inquire about this ruling, please contact XXXXX at (XXX) XXX-
XXXX. Please address all correspondence to SE:T:EP:RA:T2.

Sincerely yours

[signature]

Jason E. Levine, Manager
Employee Plans Technical Group 2

Enclosures:
Deleted copy of ruling letter
Notice of Intention to Disclose

cc:
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XXXXX
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