Life and Death Planning for Retirement Benefits

Chapter 3: Marital Matters

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for the year of the election is erased “retroactively” as is the case with a spousal election regarding a traditional IRA; compare Reg. § 1.408-8 , A-5(a), discussed at ¶ 1.6.03 (B). Following the spousal election, the decedent’s basis in the account (his contributions) would be combined with the surviving spouse’s own basis/contributions to her own Roth IRAs for purposes of applying the Ordering Rules ( ¶ 5.2.07 ) to any nonqualified distribution ( ¶ 5.2.06 ). Finally, once the spouse elects to treat the inherited Roth IRA as her own, the account ceases to be a “death benefit” for purposes of exceptions to the early-distributions penalty; see ¶ 3.2.08 . There is one exception to the rule that the elected Roth IRA becomes “indistinguishable” from any Roth IRA established by the spouse herself: The exception is that she gets to “keep” the decedent’s years of Roth IRA ownership, if longer than her own, for purposes of computing the Five-Year Period; see ¶ 5.2.05 (B). See also ¶ 3.2.04 regarding the surviving spouse’s ability to convert an inherited traditional plan or IRA to a Roth IRA. C. Conditions that must be met for spouse to make this election. “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.” See ¶ 1.6.02 for definition of “sole beneficiary.” The requirement that the spouse be the “sole” beneficiary to make this election is satisfied (as to a “separate account” within the IRA) if the spouse is the sole beneficiary of such separate account, even if she is not the sole beneficiary of the participant’s entire interest in the IRA. ¶ 1.8.01 . If the spouse has limited her rights to withdraw from the IRA (for example, through a prenuptial agreement), or if the beneficiary designation form limits the spouse’s rights to withdraw from the IRA (for example, by specifying that she may withdraw only the income or only the RMD), then the spouse can NOT elect to treat the IRA as her own because she does not have the unlimited right to withdraw from the account. D. How spouse makes the election. Reg. § 1.408-8 , A-5(b) provides three ways the surviving spouse can elect to treat the deceased participant’s IRA or Roth IRA as the spouse’s own IRA or Roth IRA. 1. Affirmative election. Ideally, with proper advice and planning, the spouse makes the election by “redesignating the account as an account in the name of the surviving spouse as IRA owner rather than as beneficiary.” 2. Spouse contributes to the account. Another way to make the election is for the spouse to make a contribution to the account (other than a rollover of another retirement plan or IRA inherited from the deceased spouse). Since contributions (other than rollovers of other inherited plans from the same decedent) to an inherited IRA are not allowed, the spouse is deemed to have elected to treat the account as her own if she makes that type of contribution to it. Reg. § 1.408-8 , A- 5(b)(2).