Spouse may roll inherited IRA proceeds from her revocable trust

Plain-English summary

A decedent named his spouse's revocable trust as beneficiary of his IRA. The spouse was the trust's sole trustee and beneficiary, could withdraw all trust income and principal, and had sole authority to distribute the IRA proceeds to herself. Although a spouse cannot elect to treat an IRA directly as her own when a trust is the named beneficiary, the IRS treated her as effectively the person for whose benefit the account was maintained. It ruled that distributions paid through the trust to the spouse would not be treated as inherited-IRA amounts and could be rolled into IRAs in her name within 60 days. Timely rolled amounts would be excluded from income, subject to the one-rollover-per-year rule and excluding required minimum distributions.

Ruling snapshot

• Question: May the surviving spouse roll IRA proceeds received through her revocable trust into IRAs in her own name?
• Outcome: Approved, subject to the 60-day deadline, rollover-frequency limit, and RMD exclusion.
• Key authorities: IRC § 408(d)(3); Treas. Reg. § 1.408-8, Q&A-5

Full text (IRS public release)

Internal Revenue Service                                      Department of the Treasury
                                                              Washington, DC 20224

Number: 201923002                                             Third Party Communication: None
Release Date: 6/7/2019                                        Date of Communication: Not Applicable

Index Number: 408.03-00                                       Person To Contact:
                                                              -----------------------
-----------------------                                       Telephone Number:
-------------------------------------                         ----------------------
 -----------------------------                                Refer Reply To:
                                                              CC:EEE:EB:QP2
                                                              PLR-129433-18
                                                              Date:
                                                              March 04, 2019



Decedent                      =    ---------------------
Decedent’s IRA                =    ---------------------------------------------------------------------------------
Taxpayer                      =    -----------------------
Taxpayer’s Trust              =    --------------------------------------------------------


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

This letter responds to your request dated October 2, 2018, in which you, through your
authorized representative, requested rulings under section 408 of the Internal Revenue
Code.

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

Decedent was married to Taxpayer until his death, at which time both Decedent and
Taxpayer were over 70 ½ years old.

At the time of his death, Decedent owned an individual retirement account, Decedent’s
IRA. The beneficiary of Decedent’s IRA was Taxpayer’s Trust. Taxpayer is the sole
trustee and beneficiary of Taxpayer’s Trust which provides that Taxpayer has the right
to withdraw its net income and/or its principal. Taxpayer has the right to modify, amend,
or revoke Taxpayer’s Trust at any time and has the sole authority and discretion to
distribute the Decedent’s IRA proceeds to herself at any time. Taxpayer intends to roll
the amounts paid to her from Decedent’s IRA to an IRA in her own name.

You have requested the following rulings:

    1. Decedent’s IRA will not be treated as an inherited IRA within the meaning of
       section 408(d) with respect to Taxpayer;
PLR-129433-18                                 2

    2. Taxpayer is eligible to roll over distributions from Decedent’s IRA to one or more
      IRAs established and maintained in her own name pursuant to section
      408(d)(3)(A)(i), provided that the rollovers occur no later than the sixtieth day
      following the day the proceeds are received; and

    3. Subject to the limitation in section 408(d)(3)(B), Taxpayer will not be required to
      include in gross income for federal tax purposes, for the year in which a
      distribution from Decedent’s IRA is made, any portion of the proceeds distributed
      from Decedent’s 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 section 408(d)(3)(A) and
(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 (and 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.
Section 408(d)(3)(C)(ii) provides that an IRA will be treated as inherited if the individual
for whose benefit the account is maintained acquired such account by reason of the
PLR-129433-18                                 3

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.
Section 408(d)(3)(E) provides that section 408(d)(3) does not apply any amount to the
extent that such amount is a required minimum distribution described in section
408(a)(6).

Because Taxpayer is entitled to the proceeds of Decedent’s IRA as the sole beneficiary
of Taxpayer’s Trust during Taxpayer’s life, for purposes of applying section 408(d)(3)(A)
to Decedent’s IRA, Taxpayer is effectively the individual for whose benefit the account is
maintained. Accordingly, if Taxpayer receives a distribution of the proceeds of
Decedent’s IRA, subject to the limitation of section 408(d)(3)(B), 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 that:

    1. Decedent’s IRA will not be treated as an inherited IRA within the meaning of
      section 408(d) with respect to Taxpayer;

    2. Taxpayer is eligible to roll over distributions from Decedent’s IRA to one or more
      IRAs established and maintained in her own name pursuant to section
      408(d)(3)(A)(i), provided that the rollovers occur no later than the sixtieth day
      following the day the proceeds are received; and

    3. Subject to the limitation in section 408(d)(3)(B), Taxpayer will not be required to
      include in gross income for federal tax purposes, for the year in which a
      distribution from Decedent’s IRA is made, any portion of the proceeds distributed
      from Decedent’s IRA which are timely rolled over to one or more IRAs set up and
      maintained in Taxpayer’s name.


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.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) provides
PLR-129433-18                                    4

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 penalties of perjury statement
executed by an appropriate party, as specified in Rev. Proc. 2019-1, 2018-1 I.R.B. 1,
§ 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. 2019-1, § 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 representatives.


                                    Sincerely,



                                    Keith R. Kost
                                    Senior Technician Reviewer
                                    Qualified Plans Branch 2
                                    Office of Associate Chief Counsel
                                    (Employee Benefits, Exempt Organizations, and
                                    Employment Taxes)




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