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

Plain-English summary

A decedent’s IRA was paid to an inherited IRA established for a trust rather than directly to the surviving spouse. After the trust was restated, the spouse became its sole trustee and had authority to distribute all trust assets to herself during her lifetime. Although a spouse generally cannot elect to treat an IRA as her own when a trust is the named beneficiary, the IRS found that this spouse was effectively the individual for whose benefit the account was maintained. It ruled that she would be treated as acquiring the IRA directly from the decedent and could roll a distribution into one or more IRAs in her own name within 60 days. Amounts timely rolled over would not be included in gross income, but required minimum distributions and the one-rollover-per-year limitation remained applicable.

Ruling snapshot

• Question: May a surviving spouse who controls the beneficiary trust roll the inherited IRA proceeds into IRAs in her own name?
• Outcome: approved
• Key authorities: IRC §§ 401(a)(9), 408(d)(1), 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: 202404003                                                Third Party Communication: None
 Release Date: 1/26/2024                                          Date of Communication: Not Applicable
 Index Number: 408.03-00
                                                                  Person To Contact:
 -------------------                                              --------------------, ID No. -----------------
 ----------------------------------                               Telephone Number:
 ------------------------------                                   --------------------
                                                                  Refer Reply To:
                                                                  CC:EEE:EB:QP3
                                                                  PLR-109816-23
                                                                  Date:
                                                                  October 31, 2023




Legend

Taxpayer                              = -------------------
Decedent                              = -------------
Trust                                 = ----------------------------
Retirement Plan                       = ---------------------------------------------
IRA 1                                 = -------------------------------------------------
IRA 2                                 = ------------------------------------------------
Date 1                                = -------------------
Date 2                                = -----------------------
Date 3                                = -----------------------
Date 4                                = ------------------
Date 5                                = --------------------------
Year X                                = -------
Age A                                 = ---
Age B                                 = ---

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

This is in response to a letter ruling request under section 408(d) of the Internal
Revenue Code (Code), submitted on your behalf by your authorized representative by
letter dated -----------------, and supplemented by correspondence dated ----------------------
-------, and ---------------------.

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

On Date 1, Decedent established an IRA (IRA 1) with a custodian.

On Date 2, Decedent and Taxpayer established Trust as part of their estate plan.
Taxpayer and Decedent were named as trustees, each of whom could act
PLR-109816-23                                2

independently of the other to exercise any powers granted to a trustee. Either trustee
could withdraw or distribute any property from Trust at any time.

In Year X, Decedent rolled over a distribution from Decedent’s 401(k) retirement plan to
IRA 1.

On Date 3, Decedent passed away at Age A before any required minimum distributions
(RMDs) were required to begin under section 401(a)(9). Taxpayer was married to
Decedent on Date 3. Taxpayer was Age B on Date 3.

On Date 4, IRA 1 was paid to an inherited IRA (IRA 2) established for Trust.

On Date 5, Trust was restated to reflect Decedent’s death. Taxpayer is the sole trustee
of Trust, as restated, and has the authority to distribute all of the trust assets to
Taxpayer during Taxpayer’s lifetime.

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

    1. Taxpayer, as surviving 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 Taxpayer’s own name pursuant to Code 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.

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 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 sixtieth day after the day on
which the individual receives the payment or distribution; or (ii) the entire amount
PLR-109816-23                                 3

received (including money and any other property) is paid into an eligible retirement
plan for the benefit of such individual not later than the sixtieth 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 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 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 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
as beneficiary of the IRA, this requirement is not satisfied even if the spouse is the sole
beneficiary of the trust.

In the present case, Decedent’s IRA passed to Trust upon Decedent’s death. Under
these circumstances, Taxpayer, as Decedent’s surviving spouse, is not permitted to
treat the IRA as Taxpayer’s own because Trust was the named beneficiary of
Decedent’s IRA. But because Taxpayer is the sole trustee and primary beneficiary of
Trust during Taxpayer’s lifetime and has the authority to distribute all of the trust assets
to the Taxpayer, 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 IRA’s proceeds, Taxpayer 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
Taxpayer’s name.

Therefore, with respect to your ruling requests, we conclude:
PLR-109816-23                                  4

    1. Taxpayer, as Decedent’s surviving 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 Taxpayer’s 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.

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.

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representative.
PLR-109816-23                                           5

The rulings contained in this letter are based upon information and representations
submitted on Taxpayer’s behalf by Taxpayer’s authorized representative and
accompanied by a penalty of perjury statement executed by an appropriate party, as
specified in Rev. Proc. 2023-1, 2023-1 I.R.B. 1, section 7.01(16)(b). While this office
has not verified any of the material submitted in support of the request for rulings, it 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. 2023-1, section 11.05.

                                           Sincerely,



                                           John T. Ricotta
                                           Branch Chief
                                           Qualified Plans Branch 3
                                           Office of the Associate Chief Counsel
                                           (Employee Benefits, Exempt Organizations, and
                                           Employment Taxes)



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