A widow who inherited an IRA through her revocable trust may roll it into her own IRA

Plain-English summary

When someone inherits an IRA, they normally cannot roll it over into their own IRA, but a surviving spouse gets special treatment. Here a husband died naming his revocable living trust, rather than his wife directly, as the beneficiary of his IRA. Because a trust (not the spouse) was named, the wife could not simply elect to treat the inherited IRA as her own under the usual regulation. But the wife was the sole trustee and sole beneficiary of that trust, with an unlimited right to all of its income and principal, so the IRS looked through the trust and treated her as the person for whose benefit the IRA is maintained. The IRS ruled that she will be treated as having acquired the IRA directly from her late husband, that she may roll a distribution from it into one or more IRAs in her own name so long as she completes the rollover within 60 days, and that the rolled-over amount will not be included in her gross income. The ruling does not let her roll over any required minimum distributions under § 401(a)(9), and it remains subject to the one-rollover-per-year limit.

Ruling snapshot

• Question: May a surviving spouse who inherited an IRA through her own revocable trust (as sole trustee and beneficiary) roll the IRA distribution into an IRA in her own name tax-free?
• Outcome: Approved (all three rulings granted, subject to the 60-day and once-per-year limits and excluding required minimum distributions)
• Key authorities: IRC § 408(d)(1), (3); Treas. Reg. § 1.408-8, Q&A-5; § 401(a)(9)

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201844004                                              Third Party Communication: None
Release Date: 11/2/2018                                        Date of Communication: Not Applicable
Index Number: 408.03-00
                                                               Person To Contact:
-------------------------                                      ---------------------------, ID No. ---------------
---------------------------                                    -----------------
-------------------------------------------                    Telephone Number:
                                                               ----------------------
                                                               Refer Reply To:
                                                               CC:TEGE:EB:QP2
                                                               PLR-105003-18
                                                               Date:
                                                               August 08, 2018


Taxpayer       =    -------------------------
Decedent       =    ------------------------
Trust          =    ----------------------------------------
Date 1         =    ------------------
Date 2         =    ----------------------------


Dear ----------------:

This is in response to your letter dated January 30, 2018, submitted on your behalf by
your authorized representative, in which you requested a series of rulings under section
408(d) of the Internal Revenue Code.

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

Taxpayer established the Trust, a revocable living trust, on Date 1. Taxpayer is the sole
trustee of the Trust and reserves the sole right to amend or revoke the Trust and to
distribute all income and the entire corpus for her own benefit.

Decedent was married to Taxpayer until his death, after his required beginning date, on
Date 2. Decedent maintained an IRA with a custodian at the time of his death and
named the Trust as the primary beneficiary of Decedent's IRA. The assets of
Decedent's IRA were transferred via a trustee-to-trustee transfer, to an IRA for the
benefit of the Trust (the IRA).

Taxpayer intends to distribute the assets of the IRA to herself, as sole beneficiary of the
Trust, and roll over the distribution into one or more IRAs in her own name.

Based on the preceding facts Taxpayer requests the following rulings:
PLR-105003-18                                 2

       1.     Taxpayer, as Decedent's spouse, will be treated as having acquired the
              IRA directly from Decedent, and not from the Trust;

       2.     Taxpayer is eligible to roll over the IRA distribution to one or more IRAs
              established and maintained in her own name pursuant to section
              408(d)(3)(A)(i), provided that the rollover occurs no later than the sixtieth
              day following the day the proceeds of the IRA are received; and

       3.     Taxpayer will not be required to include in gross income for federal tax
              purposes, for the year in which the distribution from the IRA is made, any
              portion of the proceeds distributed from the IRA which are timely rolled
              over to one or more IRAs set up and maintained in Taxpayer's name.

With respect to your ruling requests, section 408(d)(1) 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.

Section 408(d)(3) provides that section 408(d)(1) does not apply to a rollover
contribution if such contribution satisfies the requirements of sections 408(d)(3)(A) and
408(d)(3)(B).

Section 408(d)(3)(A) provides that section 408(d)(1) does not apply to any amount paid
or distributed out of an IRA to the individual for whose benefit the account 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 he receives the payment or distribution, or (ii) the entire amount received
(including money and any other property) is paid into an eligible retirement plan 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) provides that section 408(d)(3) does not apply to any amount
described in section 408(d)(3)(A)(i) received by an individual from an IRA if at any time
during the one-year period ending on the day of such receipt such individual received
any other amount described in section 408(d)(3)(A)(i) from an IRA which was not
includible in his gross income because of the application of section 408(d)(3).

Section 408(d)(3)(C)(i) provides, in pertinent part, that, in the case of an inherited IRA
section 408(d)(3) shall not apply to any amount received by an individual from such
account (an no amount transferred from such account to another IRA shall be excluded
from gross income by reason of such transfer), and such inherited account shall not be
treated as an IRA for purposes of determining whether any other amount is a rollover
contribution.
PLR-105003-18                                 3


Section 408(d)(3)(C)(ii) provides that an IRA shall be treated as inherited if the
individual for whose benefit the account is maintained acquired such account by reason
of the death of another individual, and such individual was not the surviving spouse of
such other individual.

Section 1.408-8, Q&A-5, provides that a surviving spouse of an individual may elect to
treat the spouse's entire interest as a beneficiary in the 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
the beneficiary of the IRA, this requirement is not satisfied even if the spouse is the sole
beneficiary of the trust.

Under the preceding facts, Decedent's IRA passed to the Trust upon decedent's death.
Under these circumstances, Taxpayer, as the surviving spouse of the Decedent, is not
permitted to treat the IRA as her own, because the Trust was named the beneficiary of
Decedent's IRA. However, because Taxpayer is the trustee and sole beneficiary of the
Trust and is entitled to all income and the entire corpus of the Trust, for purposes of
applying section 408(d)(3)(A) to the IRA, Taxpayer is effectively the individual for whose
benefit the account is maintained. Accordingly, if Taxpayer receives a distribution of the
proceeds of the IRA, she may roll over the distribution (other than amounts required to
have been distributed or to be distributed in accordance with section 401(a)(9)) into one
or more IRAs established and maintained in her name.

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

       1.     Taxpayer, as Decedent's spouse, will be treated as having acquired the
              IRA directly from Decedent, and not from the Trust;

       2.     Taxpayer is eligible to roll over the IRA distribution to one or more IRAs
              established and maintained in her own name pursuant to section
              408(d)(3)(A)(i), provided that the rollover occurs no later than the sixtieth
              day following the day the proceeds of the IRA are received; and

       3.     Taxpayer will not be required to include in gross income for federal tax
              purposes, for the year in which the distribution from the IRA is made, any
              portion of the proceeds distributed from the IRA which are timely rolled
              over to one or more IRAs set up and maintained in Taxpayer's name.

This ruling does not authorize the rollover of amounts that are required to be distributed
under section 401(a)(9) and is subject to the limitation in section 408(d)(3)(B).

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item discussed or referenced in
this letter.
PLR-105003-18                                  4


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

The rulings contained in this letter are based upon information and representations
submitted by the taxpayer and accompanied by a penalty of perjury statement executed
by an appropriate party, as specified in Rev. Proc. 2018-1, 2018-1 I.R.B. 1,
section 7.01(16)(b). This office has not verified any of the material submitted in support
of the request for ruling, and such material is subject to verification on examination. The
Associate office will revoke or modify a letter ruling and apply the revocation
retroactively if there has been a misstatement or omission of controlling facts; the facts
at the time of the transaction are materially different from the controlling facts on which
the ruling was based; or, in the case of a transaction involving a continuing action or
series of actions, the controlling facts change during the course of the transaction. See
Rev. Proc. 2018-1, section 11.05.

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

                                        Sincerely,



                                        Keith R. Kost
                                        Senior Technician Reviewer
                                        Qualified Plans Branch 2
                                        Office of Associate Chief Counsel
                                        (Tax Exempt and Government Entities)