Spousal IRA Inheritance - Helping Mom Figure Out Options

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Topic Author
kmanjir
Posts: 61
Joined: Fri Mar 27, 2020 8:45 pm

Spousal IRA Inheritance - Helping Mom Figure Out Options

Post by kmanjir »

Hi Everyone - I am helping my Mom trying to figure out her IRA inheritance options. My Dad passed recently, and my Mom inherited his traditional IRA as the spousal beneficiary.

She is not yet of RMD-receiving age, and ideally would like to roll my Dad's IRA funds into her own IRA account that she also holds at the same bank.

Some info about my parents' situation:
  • Both my parents are non-resident aliens
  • My Dad was receiving RMDs for the last 10 years or so, with the last RMD issued in late 2020. This was not requested by my Dad as he had passed by then, and my understanding is that taking RMDs were optional in 2020 due to Covid, so not sure why that was issued
  • My Mom is not yet of RMD-receiving age
  • Both my parents have separate traditional IRA accounts at the same bank
After months of back-and-forth trying to get an appropriate contact and engagement with the bank's estate services and properly verifying the non-US death certificate, they have finally sent a form for IRA distribution elections, with the below options.

Do any of these options below allow my Mom to roll my Dad's IRA funds into her own IRA?

From my understanding, the closest I can see is Option 6, but it looks like they would open a new IRA account (there is another section in the form that asks for consent to open an 'inherited money market IRA account) and transfer my Dad's IRA funds into that new account, so my Mom would then have 2 separate IRA accounts at the same bank?

<< Copy-pasted from the distribution election form >>

Section - Distribution Options (Select only one of the distribution options below)

BANK RECOMMENDS YOU CONTACT YOUR TAX ADVISOR BEFORE MAKING YOUR ELECTION
A beneficiary of an IRA Plan should elect how to receive the proceeds of the IRA Plan no later than 09/30 of the year following the year of the IRA Plan Depositor's death. Any separate beneficiary accounts must be established by 12/31 of the year following the IRA Plan Depositor's death. Available options depend on the age of the IRA Plan Depositor, the relationship of the beneficiary to the IRA Depositor, and the type of IRA Plan.

IRA proceeds will be deposited to and held in the new Money Market IRA account listed above.

Options for all beneficiaries
1. Lump Sum Distribution - I elect to receive my entire portion of the IRA Plan in a single lump sum payment
2. Life Expectancy Payments - I elect to receive my entire portion of the IRA Plan by taking payments over the longer of my own life expectancy or the remaining life expectancy of the deceased IRA Plan Depositor.
3. Specific Amount - I elect to receive my entire portion of the IRA Plan by taking payments of $xx
4. Specific Term - I elect to receive my entire portion of the IRA Plan by taking payments over zz years
5. 5-Year Payout - I elect to receive my entire portion of the IRA Plan by 12/31 of the year containing the 5th anniversary of the IRA Plan Depositor's death. (Only available if the deceased IRA Plan Depositor was under the age of 70.5 on the date of death).

Additional Options for Spouse Only
6. Spouse Treat as Own - I am the spouse of the deceased IRA Plan Depositor and I elect to treat my entire portion of the IRA Plan as my own IRA
7. Spousal Exception - I am the spouse of the deceased IRA Plan Depositor and I elect to delay taking distributions until the year my spouse would have reached age 70.5

Thank you in advance for your help!
BogleTaxPro
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Re: Spousal IRA Inheritance - Helping Mom Figure Out Options

Post by BogleTaxPro »

Option 6 to her own existing IRA account. Ignore the "section in the form that asks for consent to open an 'inherited money market IRA account". This would not apply in her situation.
Uniballer
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Re: Spousal IRA Inheritance - Helping Mom Figure Out Options

Post by Uniballer »

Option 6 is fine unless she needs to be able to withdraw some of the money and is not yet 59 1/2.
Topic Author
kmanjir
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Joined: Fri Mar 27, 2020 8:45 pm

Re: Spousal IRA Inheritance - Helping Mom Figure Out Options

Post by kmanjir »

BogleTaxPro wrote: Thu Oct 21, 2021 11:17 am Option 6 to her own existing IRA account. Ignore the "section in the form that asks for consent to open an 'inherited money market IRA account". This would not apply in her situation.
Thanks a lot for the quick insight, BogleTaxPro.

I had been looking at Option 6 as well. I had explicitly asked the bank representative whether choosing this option would ensure that my Dad's IRA would get rolled over into my Mom's IRA, but the answer was a non-committal "I am not an accountant but review your options and make a selection for spouses."

Thanks also for the advice on the Inherited Money Market IRA account - they ask either to provide consent or not.
I'll have my Mom select the 'Do not consent to opening an Inherited Money Market IRA account' option.
sport
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Re: Spousal IRA Inheritance - Helping Mom Figure Out Options

Post by sport »

The RMD for the deceased spouse for this year still needs to be taken. I believe that can happen either before or after the account is transferred to her.
Topic Author
kmanjir
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Re: Spousal IRA Inheritance - Helping Mom Figure Out Options

Post by kmanjir »

Uniballer wrote: Thu Oct 21, 2021 12:13 pm Option 6 is fine unless she needs to be able to withdraw some of the money and is not yet 59 1/2.
My Mom is over 59.5 years of age, thanks for your insight!
Topic Author
kmanjir
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Joined: Fri Mar 27, 2020 8:45 pm

Re: Spousal IRA Inheritance - Helping Mom Figure Out Options

Post by kmanjir »

sport wrote: Thu Oct 21, 2021 12:21 pm The RMD for the deceased spouse for this year still needs to be taken. I believe that can happen either before or after the account is transferred to her.
Thanks for pointing this out, sport.

I believe my Mom is running late in terms of getting the IRA inheritance paperwork in order, as she got involved in this in earnest in the middle of this year.

My Dad passed early last year. In late 2020, the bank issued an RMD check that was not requested (and also, I have the understanding that RMDs were optional in 2020 for Covid). This check was unable to be cashed as it's in my Dad's name, but the funds are also not returned to his IRA account (still trying to figure that out)

I wonder if the bank would consider reissuing this old RMD check in my Mom's name to fulfil the 'RMD for the deceased spouse' condition. Something I'll have to find out.
RetiredAL
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Re: Spousal IRA Inheritance - Helping Mom Figure Out Options

Post by RetiredAL »

kmanjir wrote: Thu Oct 21, 2021 12:31 pm
I believe my Mom is running late in terms of getting the IRA inheritance paperwork in order, as she got involved in this in earnest in the middle of this year.

My Dad passed early last year. In late 2020, the bank issued an RMD check that was not requested (and also, I have the understanding that RMDs were optional in 2020 for Covid). This check was unable to be cashed as it's in my Dad's name, but the funds are also not returned to his IRA account (still trying to figure that out)

I wonder if the bank would consider reissuing this old RMD check in my Mom's name to fulfil the 'RMD for the deceased spouse' condition. Something I'll have to find out.
Sounds like a bank I wound walk from as soon as I could get the IRA monies moved to a more upstanding place.
sport
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Re: Spousal IRA Inheritance - Helping Mom Figure Out Options

Post by sport »

There were no RMDs for 2020. Since he died in 2020, he has no RMD for 2021. So there is "no RMD for the deceased spouse".
mhalley
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Re: Spousal IRA Inheritance - Helping Mom Figure Out Options

Post by mhalley »

Sorry for your loss. One major thing that stands out to me is that the iras are held at a bank. In general, this means high fees. You might consider this an opportunity to move them to one of the 3 recommendations here, ie vanguard, fidelity or Schwab.
Topic Author
kmanjir
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Re: Spousal IRA Inheritance - Helping Mom Figure Out Options

Post by kmanjir »

mhalley wrote: Thu Oct 21, 2021 6:44 pm Sorry for your loss. One major thing that stands out to me is that the iras are held at a bank. In general, this means high fees. You might consider this an opportunity to move them to one of the 3 recommendations here, ie vanguard, fidelity or Schwab.
Yes, this is the ideal state that I have been thinking of as well. However, I am not sure how easy (or possible) it is for my mother to open a new account at Vanguard, Fidelity or Schwab from overseas and have them initiate the move of the IRAs. I think my Mom would need to be here in the US in person to get that process started, and I don't think she will be traveling here until a few years from now.
Activesloth
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Re: Spousal IRA Inheritance - Helping Mom Figure Out Options

Post by Activesloth »

I agree with the other posts about transferring/integrating her IRA. Why don’t you call Vanguard if you could act as custodian for your mom.
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celia
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Re: Spousal IRA Inheritance - Helping Mom Figure Out Options

Post by celia »

kmanjir wrote: Thu Oct 21, 2021 12:31 pm I believe my Mom is running late in terms of getting the IRA inheritance paperwork in order, as she got involved in this in earnest in the middle of this year.
I think inherited IRAs are supposed to be taken over by the beneficiary(ies) by the end of the following year after death. (This allows the transfer to happen for someone who died on December 31 to be passed on, with the heirs taking the RMD in that following year.)
My Dad passed early last year. In late 2020, the bank issued an RMD check that was not requested (and also, I have the understanding that RMDs were optional in 2020 for Covid).
I suspect your dad had set up automatic withdrawals so they wouldn’t be overlooked in case he died. Your mom may want to do this too but they would be voluntary until the year she turns 72. This will help her enjoy a steady string of income. However, I have no idea how it will impact her U.S. taxes.

Those who took withdrawals out before the 2020 RMDs were waived, had until about September 2020 to put them back in, if they didn’t need them. So, it is too late to do that now.
This check was unable to be cashed as it's in my Dad's name, but the funds are also not returned to his IRA account (still trying to figure that out)

I wonder if the bank would consider reissuing this old RMD check in my Mom's name to fulfil the 'RMD for the deceased spouse' condition. Something I'll have to find out.
If they had a joint account, she should be able to deposit it in there. Or if there are still any non-retirement accounts open in his name, the check could be deposited there. And most places will re-issue a check made out to a deceased person if they feel confident it will be going to the beneficiary the deceased intended.
RetiredAL wrote: Thu Oct 21, 2021 12:39 pm Sounds like a bank I wound walk from as soon as I could get the IRA monies moved to a more upstanding place.
Sounds like a bank that knows what it is doing, in my opinion.

I agree, however, that long-term investments in a brokerage account would be better. But this can be tricky for a non-resident alien to set up. One of the big brokerages (Schwab???) is said to be willing but Vanguard is not. A big issue is that taxes need to be paid and tax withholding should be requested. (Tax forms still need to be filed but at least an estimated amount of taxes could be paid on time.)

OP, please check that your mom has beneficiaries listed on all US-based accounts, not just the assets that are now in her name, but also pre-existing assets.
Topic Author
kmanjir
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Re: Spousal IRA Inheritance - Helping Mom Figure Out Options

Post by kmanjir »

Thank you very much, Celia and Everyone else for your advice and help.

After a lot of phone calls and documentation that my Mom had to provide, the bank finally transferred my Dad's IRA funds over to my Mom. They even transferred the funds from the check that was issued in 2020 that was not able to be cashed since my Dad had passed away by then. We were lucky that we got a dedicated and diligent case worker who helped my Mom navigate all the forms and requirements for this transfer to be completed.

The one thing that they were not able to help with was the income tax that was automatically withheld when that check was issued in 2020.

The bank said that they cannot help with that since that withheld tax was sent to the IRS in 2020 itself.

Is there a way to recover that withheld tax amount or is that as good as gone?

Thanks
sport
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Re: Spousal IRA Inheritance - Helping Mom Figure Out Options

Post by sport »

Your Mom can file an amended tax return for 2020 that shows the lower income. This would result in a tax refund for the amount withheld, more or less.
Topic Author
kmanjir
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Re: Spousal IRA Inheritance - Helping Mom Figure Out Options

Post by kmanjir »

sport wrote: Thu Dec 23, 2021 10:52 am Your Mom can file an amended tax return for 2020 that shows the lower income. This would result in a tax refund for the amount withheld, more or less.
Thank you, Sport, that makes sense. However, since the original RMD check was issued to my Dad (as well as the withheld tax was paid in his name), wouldn't the tax refund from the amended return be issued in my Dad's name? Given that my Mom is a non-resident, I am guessing this refund will be in the form of a physical check in my Dad's name, which my Mom probably won't be able to cash.
sport
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Re: Spousal IRA Inheritance - Helping Mom Figure Out Options

Post by sport »

If your Dad died in 2020, your Mom would have filed a joint return for the year of his death. So, that return and an amended return for that year would be under her name. I am sure there are instructions for filing a joint return for the year of death, but I do not have a reference.
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