Inherit or assume IRA?

[VolvoGirl]

My husband passed away.  I called his IRA.  I can either inherit it or Assume it.  Are there pros and cons for which to do?  

If I Assume it there are 2 ways, I can either add it to my IRA or setup a new IRA account for it.  I'm leaning towards keeping it separate.  He was 75 and taking RMD.  I just turned 70.  And then I want to rollover his 401K to the IRA.  

Anything to watch out for?  At least it's early in the year so it should all get done before 2023 tax.  Maybe @dmertz ?

[dmertz]

My condolences.

With you being age 70 and your husband having been age 75, there is no reason to maintain the inherited IRA as an inherited/beneficiary IRA.  doing so would subject you to higher RMDs and would be less beneficial to your own beneficiaries.  You can keep it in a separate account from your other traditional IRAs, but there is no tax benefit to doing so.

The inherited IRA should be change into your own IRA either by trustee-to-trustee transfer to an IRA opened in your own name or by retitling the account, either of which is nonreportable.  (Few custodians allow simple retitling because doing so messes up their accounting systems.)  Although generally permitted, you do not want to move the funds to your own IRA by distribution and rollover because that counts toward the one-rollover-per-12-months limitation.

If your husband had not yet taken the RMD from the IRA for the year-of death, you are responsible for completing that RMD, which you can do after the account is moved by trustee-to-trustee transfer.  Did he die in 2022 or in 2023?

As for the 401(k), you would also want to roll that over to your own IRA by direct rollover to avoid mandatory tax withholding.  If he died in 2023, had not completed his 2023 RMD and died after his required beginning date for RMDs from this 401(k), the plan must distribute his RMD to you before doing a direct rollover of the remainder to your IRA.

[DianeW777]

The details depend on how you actually want to handle it and tax consequences.  See the information below for assistance and the link for more information:

• Retirement Topics - Beneficiary

The age of each of you is relative and a Roth would not be recommended should you have that as a thought due to the taxability of it all now.

How beneficiary RMDs are determined

The factors that affect the distribution requirements for inherited retirement plan accounts and IRAs include:

• Whether the account owner died after 2019 (the SECURE Act made changes to the RMDs for beneficiaries if the death of the account holder occurred after 2019).
• The relationship of the beneficiary to the account owner and certain characteristics (spouse, minor child, disabled or chronically ill individual, entity other than an individual)
• Whether the original account owner died before or after their required beginning date (the first date the original account owner was required to begin taking RMDs).

The spouse of the account owner has more options than non-spouse beneficiaries, if they're the sole beneficiary. Determination of whether the spouse is the sole beneficiary is made by September 30 of the year following the year of the account holder's death.

For the year of the account owner's death, the RMD due is the amount the account owner was required to withdraw and did not withdraw before death, if any. Beginning the year following the owner's death, the RMD depends on certain characteristics of the designated beneficiary and the distribution option chosen by the beneficiary.

Spousal beneficiary options (death occurred after 2020)

If the account holder's death occurred after the required beginning date, the spouse beneficiary may:

• Keep as an inherited account
  • Take distributions based on their own life expectancy, or
• Rollover the account into their own IRA

Distributions to beneficiaries from qualified retirement plans

If the distribution is from a qualified retirement plan, such as a 401(k) or profit-sharing plan, the plan document establishes the distribution options available to satisfy the RMD rules. The plan administrator should provide the beneficiaries with their distribution options. If the beneficiary is the spouse of the account owner, they may have more distribution options available to them in the plan than a non-spouse beneficiary. Beneficiaries should contact the plan administrator for distributions from a qualified plan.

You can rollover the 401(k) into an IRA as your own as well.  And I see you have your response from the requested party as well.

[Opus 17]

I'm so sorry for you.

For the inherited 401(k), I don't know what your options are, but they may be different than the IRA.

For the IRA, you can rollover the funds into your own IRA and then you treat it as one IRA for all purposes (RMDs, etc.). That's the assume option, I believe.

If you keep it as an inherited IRA, you would have to take RMDs from that IRA now, since your spouse was over his beginning age.

I'm not aware of any other big differences. 

[VolvoGirl]

@dmertz he just died last week in March 2023.  If I transfer it into my IRA I assume I will still have to take the RMD on his amount?  Then how to track his portion when it's mixed with mine?  That why I thought to make a new IRA account for it.  

For 401K I want to move it to IRA so I can make QCD from it.  

[dmertz]

Yes, if he had not completed his 2023 IRA RMD, you must complete it, which you can do after trustee-to-trustee transferring the account into an IRA of your own.

Once transferred to your own account it's all yours.  There is nothing to track separately.  If he had an basis in nondeductible traditional IRA contributions, that basis transfers to you.

Regarding the 401(k), if he left the company providing the 401(k) before 2022 (meaning that he died after his required beginning date for RMDs from this 401(k)), the plan is required to distribute his 2023 RMD to you before directly rolling over the remainder to your IRA.  That RMD cannot be a QCD because it must be paid from the 401(k).  However, the completion of his IRA RMD can be in the form of a QCD as long as you request the QCD to occur after you have reached age 70½.

[VolvoGirl]

So after I put it in my IRA I don't have to take his RMD out of it for 2024 >?  Then it becomes my RMD when I turn 72?  So I don't need to take a 2024 RMD?

[Opus 17]

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@VolvoGirl wrote:

So after I put it in my IRA I don't have to take his RMD out of it for 2024 >?  Then it becomes my RMD when I turn 72?  So I don't need to take a 2024 RMD?

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Yes.  You must take the 2023 RMD for your husband, but then once you put the balance into your IRA (the assume option) then it all becomes your IRA and you only have to follow the rules that apply to you, not your husband.  Your next RMD would be whenever you turn 73 (I think 2026?), and you would not be required to track the funds separately.  

(If you did not turn 72-1/2 before January 1, 2023, the SECURE 2.0 act raised your beginning age for RMDs from 72-1/2 to 73.)

[VolvoGirl]

@Opus 17   Cool, thanks.  Yes Jan 2026.  But can I make QCD before then?

[Opus 17]

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@VolvoGirl wrote:

@Opus 17   Cool, thanks.  Yes Jan 2026.  But can I make QCD before then?

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According to this article, the SECURE 2.0 Act inflation indexes the maximum QCD so it will increase over time, but does not change the eligibility age. 

https://www.fidelitycharitable.org/articles/secure-act-2-0-retirement-provisions.html