Surviving spouse may roll over a deceased spouse's IRA into her own, even though the IRA passed through the estate

Plain-English summary

A surviving spouse can usually roll over a deceased spouse's IRA into her own IRA
and keep deferring taxes. That is normally not allowed when the IRA is left to the
estate rather than directly to the spouse, because the money is treated as passing
through a third party. Here, though, the deceased husband's estate was the named
IRA beneficiary, and his wife was both the sole administrator of the estate and its
sole residuary beneficiary. Because no one else could stand between her and the
money, the IRS ruled she is effectively the person for whose benefit the IRA is
maintained. So she may pay the IRA to the estate, receive it, and roll it into her
own IRA within 60 days; the IRA is not treated as an "inherited IRA"; and (except
for any Roth conversion) she owes no tax on the rolled-over amount. This is a
common favorable ruling that lets a surviving spouse preserve tax-deferred
retirement savings despite an estate-planning technicality.

Ruling snapshot

• Question: May a surviving spouse who is the sole administrator and sole
  residuary beneficiary of the estate that is the IRA's named beneficiary roll
  the IRA proceeds into her own IRA tax-free?
• Outcome: Approved (all four rulings granted)
• Key authorities: IRC §§ 408(d)(1), 408(d)(3)

Full text (IRS public release)

 Internal Revenue Service                                      Department of the Treasury
                                                               Washington, DC 20224

 Number: 202210016                                             Third Party Communication: None
 Release Date: 3/11/2022                                       Date of Communication: Not Applicable
 Index Number: 408.00-00, 408.03-00
                                                               Person To Contact:
                                                               --------------------, ID No. -----------------
 ----------------------                                        Telephone Number:
 -----------------------                                       -------------------
 ------------------------------------                          Refer Reply To:
 --------------------------------------                        CC:EEE:EB:QP1
                                                               PLR-116732-21
                                                               Date:
                                                               December 13, 2021




Legend:

 Decedent A          =    ---------------------------
 Taxpayer B          =    --------------------------------------------------
 Estate E            =    -----------------------------------------------------------------
 State S             =    ------------
 IRA X               =    ---------------------------------------------------------------------------------------------
                          ---------------------------------------------------------------------------------------------
                          ---------------------------------------------------------------------------------------------
                          -----------
 Date 1              =    -----------------------
 Date 2              =    ------------------------
 Date 3              =    --------------------------
 Date 4              =    -----------------

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

This is in response to a request for a letter ruling under sections 408(d)(1) and (d)(3) of
the Internal Revenue Code, submitted on your behalf by your authorized representative
in correspondence dated August 10, 2021.

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

Decedent A was the owner of IRA X, an individual retirement arrangement (IRA). On
Date 2, Decedent A designated Decedent A's estate, Estate E, as the beneficiary of IRA
X. Decedent A died on Date 3.

Decedent A's will, dated Date 1, names Decedent A's spouse, Taxpayer B, as the sole
personal representative and sole residuary beneficiary of Estate E. On Date 4, a
probate court in State S authorized Taxpayer B to solely administer Estate E.
PLR-116732-21                                 2


At all times after the death of Decedent A, IRA X has been maintained in the name of
Decedent A. Before death, Decedent A had received all distributions required under
section 401(a)(9).

As sole administrator of Estate E, Taxpayer B intends to pay the entire proceeds of IRA
X to Estate E, and then to receive the proceeds as residuary beneficiary of Estate E.
Taxpayer B intends to roll over the proceeds, within 60 days of the date the proceeds
are paid to Estate E, to an IRA maintained in Taxpayer B's name. IRA X has at all
times been maintained as a traditional IRA.

Requested Rulings

Based on the above facts and representations, you, through your authorized
representative, request the following rulings:

1. The proceeds of IRA X to be paid by Taxpayer B will be treated as being paid directly
from IRA X to Taxpayer B, and as a result, Taxpayer B will be treated as the payee or
distributee of IRA X for purposes of section 408(d)(1).

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

3. Taxpayer B is eligible to roll over IRA X into an IRA set up and maintained in
Taxpayer B's own name as long as the rollover of that distribution occurs no later than
the 60th day after the date the distribution is received by Taxpayer B as administrator of
Estate E.

4. Taxpayer B will not be required to include in gross income for federal income tax
purposes for the year in which the distribution of IRA X, and subsequent rollover is
made, any portion of the amounts from IRA X received by Estate E and rolled over to
the IRA set up and maintained in Taxpayer B's name.

Law

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)(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 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)
PLR-116732-21                                 3

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 1-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
gross income because of the application of section 408(d)(3).

Section 408(d)(3)(C)(i) provides 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 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 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 408(d)(3)(D) permits the rollover of a portion of the amount paid or distributed
from an IRA, providing that if the amount paid or distributed out of an IRA would meet the
requirements of subparagraph (A) but for the fact that the entire amount was not paid into
an eligible plan, such amount shall be treated as meeting the requirements of
subparagraph (A) to the extent it is paid into an eligible plan within the applicable 60 day
period.

Section 408(d)(3)(E) provides that the rollover provisions of section 408(d) do not apply
to any amount required to be distributed under section 408(a)(6) (regarding required
minimum distributions under section 401(a)(9)).

Section 408A(d)(3) contains a special rule that applies for a rollover to a Roth IRA from
a non-Roth IRA, which provides in part that, notwithstanding section 408(d)(3), there
shall be included in gross income any amount which would be includible were it not part
of a qualified rollover contribution.
Analysis

Generally, if a decedent's IRA proceeds pass through a third party (for example, an
estate) and then are distributed to the decedent's surviving spouse, the surviving spouse
will be treated as having received the IRA proceeds from the third party and not from
the decedent's IRA. Thus, generally, a surviving spouse will not be eligible to roll over the
IRA proceeds into the surviving spouse's own IRA.

However, the general rule will not apply in situations in which the decedent's estate is the
PLR-116732-21                                4

beneficiary of a decedent's IRA proceeds, and the decedent's surviving spouse is the sole
administrator of the estate and the sole beneficiary of the IRA proceeds that pass through
the estate. Under these circumstances no third party can prevent the surviving spouse
from receiving the proceeds of the IRA and from rolling over the proceeds into the
surviving spouse's own IRA.

Under the facts presented, the IRA X account balance remaining at Decedent A's death
is payable to Decedent A's estate under the terms of Decedent A's will. Taxpayer B,
Decedent A's surviving spouse, is the sole administrator of Decedent A's estate (Estate
E) and the sole residuary beneficiary under Decedent A's will. As administrator,
Taxpayer B can cause the IRA X proceeds to be paid to Estate E and then to Taxpayer
B as Estate E's residual beneficiary. Accordingly, for purposes of section 408(d)(3)(A),
Taxpayer B is effectively the individual for whose benefit IRA X is maintained. Thus, if
Taxpayer B receives the IRA X proceeds, Taxpayer B may roll over the proceeds (other
than any amounts required to be distributed in accordance with the required minimum
distribution rules of section 401(a)(9)) into one or more IRAs set up and maintained in
Taxpayer B's name, provided that all other applicable rules of section 408(d)(3) are
satisfied.

Therefore, with respect to your first ruling request, the IRA X proceeds that are paid to
Estate E and then received by Taxpayer B and timely rolled over to an IRA or IRAs set
up and maintained in Taxpayer B's name may be treated as paid or distributed to
Taxpayer B under sections 408(d)(1) and (d)(3).

With respect to your second ruling request, Taxpayer B is the surviving spouse of
Decedent A. Therefore, IRA X is not treated as an inherited IRA for purposes of section
408(d)(3).

With respect to your third ruling request, as concluded above, Taxpayer B may roll over
the IRA X proceeds paid to Estate E and then received by Taxpayer B to an IRA or
IRAs set up and maintained in Taxpayer B's name, provided that the rollover occurs no
later than the 60th day after the day the proceeds are paid to Estate E.

With respect to your fourth ruling request, except in the case of a rollover to a Roth IRA,
Taxpayer B will not be required to include in Taxpayer B's gross income any portion of
the IRA X proceeds timely rolled over to an IRA set up and maintained in Taxpayer B's
name.

Rulings


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

1. Taxpayer B will be treated for purposes of section 408(d)(1) and (d)(3) as the payee
or distributee of the proceeds from IRA X.
PLR-116732-21                                 5


2. IRA X will not be treated as an inherited IRA, within the meaning of section
408(d)(3)(C), with respect to Taxpayer B.

3. Taxpayer B will be eligible to roll over the proceeds from IRA X into an IRA or IRAs
set up and maintained in Taxpayer B's name, as long as the rollover occurs no later
than the 60th day after the date the proceeds are paid to Estate E.

4. Except in the case of a rollover to a Roth IRA, Taxpayer B will not be required to
include in Taxpayer B's gross income any portion of the IRA X proceeds timely rolled
over to an IRA set up and maintained in Taxpayer B's name.

This letter assumes that IRA X has satisfied the requirements of section 408 at all
relevant times. It also assumes that the rollover IRA or IRAs set up by Taxpayer B will
satisfy the requirements of section 408 at all relevant times.

The rulings contained in this letter are based upon information and representations
submitted by Taxpayer B and accompanied by a penalties of perjury statement
executed by Taxpayer B, as specified in Rev. Proc. 2021-1, 2021-1 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. 2021-1, § 11.05.

Except as expressly provided above, no opinion is expressed or implied concerning the
federal income tax consequences of any other aspects of any transaction or item of
income described in this letter ruling.

This letter is directed only to the taxpayer requesting it. Section 6110(k)(3) provides that
it may not be used or cited as precedent.
PLR-116732-21                                  6

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,


                                           /s/ Neil Sandhu
                                           ______________________________
                                           Neil Sandhu
                                           Senior Technician Reviewer
                                           Qualified Plans Branch 1
                                           Office of the Associate Chief Counsel
                                           (Employee Benefits, Exempt Organizations,
                                           and Employment Taxes)




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