If you inherit an IRA from your spouse, one advantage is that you’re entitled to transfer the inherited funds to a spousal rollover IRA. For tax purposes, this rollover IRA is treated as your own IRA, which means that you aren’t required to start taking required minimum distributions (RMDs) until the age of 72. By contrast, if an IRA is inherited from someone other than your spouse, then the entire IRA balance needs to be withdrawn within 10 years of their death. (It’s worth noting that different rules apply to IRAs that were inherited before January 1, 2020.)
But what happens if your spouse failed to name a beneficiary, or if they mistakenly named a trust as the beneficiary of their IRA?
IRS guidance on correcting mistakes
There is some available IRS guidance which may help you to ensure that you’ll receive the benefits of a spousal rollover, even if a mistake has been made. Because this guidance typically comes from private letter rulings (PLRs), it can’t be cited as precedent—but it does give an indication of how the IRS will likely rule in similar cases.
One such example is described in a PLR from 2019. In that instance, the deceased named a trust as beneficiary of his IRA—but failed to name a contingent beneficiary. The trustee, the deceased’s son, and two grandchildren executed a qualified disclaimer of the trust’s interest in the inherited IRA—and the IRS ruled that in this case, the wife of the deceased was entitled to complete a spousal rollover.
In cases where deceased individuals have failed to designate a beneficiary—and an IRA or qualified retirement plan account has thus been included in their estates—other private letter rulings have permitted similar strategies
Contact us today
If a loved one has made beneficiary designation mistakes, precedent suggests that there may be strategies you can use to correct them. However, previous PLRs are dependent on the specific facts of each case, and it’s worth getting a consultation before taking additional action. Contact us today for assistance.