Surviving spouse may roll inherited IRA proceeds into her own IRAs

Plain-English summary

A decedent's children were originally named as the sole beneficiaries of his IRA, but a state court later named his surviving spouse as the sole beneficiary. The spouse represented that she had an unlimited right to withdraw the IRA funds. The IRS ruled that the account was not an inherited IRA with respect to her and that she could roll eligible distributions into IRAs in her own name within 60 days. Amounts timely rolled over would not be included in her gross income, subject to the one-rollover-per-year limit. Required minimum distributions could not be rolled over.

Ruling snapshot

• Question: May the surviving spouse treat the decedent's IRA as her own for rollover purposes after becoming its sole beneficiary?
• Outcome: approved, except required minimum distributions and subject to the statutory rollover limits
• Key authorities: IRC §§ 401(a)(9), 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: 201934006                               Third Party Communication: None
Release Date: 8/23/2019                         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-135406-18
                                                Date:
                                                May 30, 2019


Legend


Decedent = --------------------
Taxpayer = ------------------------



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

This letter responds to your request dated December 11, 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 died after he was required to begin receiving required minimum distributions
from his individual retirement account (Decedent’s IRA). At the time of his death,
Decedent was married to Taxpayer and their children were listed as the sole
beneficiaries of Decedent’s IRA. Subsequently, a state court named Taxpayer the sole
beneficiary of Decedent’s IRA and she represents that she remains the sole beneficiary
and has an unlimited right to withdraw amounts from it.

You have requested the following rulings:

    1. Decedent’s IRA is not an inherited IRA within the meaning of section
       408(d)(3)(C) with respect to Taxpayer;

    2. As the sole beneficiary, 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 60th 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 is 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
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 to 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,
for purposes of applying section 408(d)(3)(A) to Decedent’s IRA, Taxpayer is the
individual for whose benefit the account is maintained. Accordingly, if Taxpayer
receives a distribution of the proceeds of Decedent’s 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 that:

    1. Decedent’s IRA is not an inherited IRA within the meaning of section
      408(d)(3)(C) with respect to Taxpayer;

    2. As the sole beneficiary, 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 60th 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 is 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
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, 2019-1 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 representative.

                                    Sincerely,



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