Surviving Spouse Who Was Designed Beneficiary of IRA by State Court Allowed to Treat IRA as Her Own

In PLR 201934006[1] the IRS granted the taxpayer’s request to allow her to roll the amounts from her deceased husband’s IRA to an IRA in her own name.

The IRA had listed the couple’s children as the beneficiaries of the decedent’s IRA.  Later a state court named the spouse as the sole beneficiary of her husband’s IRA.

Reg. §1.408-5, Q&A-5 allows a surviving spouse who is the sole beneficiary of the decedent’s IRA to treat the entire interest in the IRA as his/her own.  The spouse must be the sole beneficiary of the IRA and have an unlimited right to withdraw fund from the IRA.

Otherwise, the IRA is treated as an inherited IRA and becomes subject to required minimum distribution rules.

The IRS concluded in this case that:

Because Taxpayer is entitled to the proceeds of Decedent’s IRA as the sole beneficiary, for purposes of applying section 408(d)(3)(A) to Decedent’s IRA, Taxpayer is the individual for whose benefit the account is maintained. Accordingly, if Taxpayer receives a distribution of the proceeds of Decedent’s IRA, she 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 her name.[2]

The ruling held that:

  • The IRA in question was not an inherited IRA as defined at IRC §408(d)(3)(C) for the surviving spouse;

  • The surviving spouse is eligible to roll the IRA over to IRAs established in her name; and

  • The surviving spouse will not be required to include in income any amounts distributed from the IRA that are rolled over.[3]

Note the IRS did not object to this change of beneficiary made by a state court.  Most likely the IRS concluded that there were sufficiently adverse interests between the spouse and children that this did not amount to a “rubber stamp” change where only the government’s interests (in terms of collecting tax sooner) would be damaged.

[1], August 23, 2019, retrieved August 25, 2019

[2] Ibid, p. 3

[3] Ibid