Life and Death Planning for Retirement Benefits

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Chapter 3: Marital Matters 157
for the year of the election is erased “retroactively” as is the case with a spousal election
regarding a traditional IRA; compare Reg. A-5(a), discussed at 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 to any nonqualified distribution .
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; se
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 B).
See als 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 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.
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 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. A-
5(b)(2).