The Tax-exempt Benefits of Spousal Rollover IRAs

Rules of required minimum distribution (“RMD”) within defined contribution plan retirement funds, are usually relatively little while a participant is still alive. Previously, the rules to RMD were less favorable depending on the terms and conditions of the plan, and form of distribution elected, as well as the relationship between the participant and the beneficiary, and the beneficiary’s age. Now, surviving spouses can benefit from transfer of defined benefits from pension fund accounts to a spousal rollover independent retirement account (“IRA”). The latest rule treatment of RMD payout, surviving spouses and designated beneficiaries can now extend the distribution period.


Calculation of RMDs at Time of Death

When a defined contribution plan participant dies calculation of RMDs (and proxy for beneficiaries 10 years or fewer years younger than the participant) no longer coincides with the Uniform Lifetime Table. The Single Life Table applied to RMDs accorded surviving spouses and beneficiaries of participants, has traditionally afforded a shorter distribution period. Without adequate transfer option, designated beneficiaries have been forced to accept double-sized distributions after the participant’s death. The former rules also prevented surviving spouses from remarrying due to Joint and Last Survivor Table distribution restrictions.


Solution: Spousal Rollover IRA

Estate law allows for a surviving spouse may elect to rollover a qualified defined contribution plan retirement account to an IRA, or “spousal rollover IRA.” If a surviving spouse elects to treat the account as a rollover IRA, they must evidence that they are the sole designated beneficiary of the account to have rights to withdrawal or rollover of the account balance, at which time evaluation of RMD limits are determined.


Rollover entitles a spouse to continue the Uniform Lifetime Table distribution periods for calculating RMD, rather than automatic conversion to Single Lifetime Table periods. The decision to transfer defined contribution plan account benefits to an IRA also allows for a surviving spouse to remarry and designate the new spouse as the sole beneficiary of the account. Joint and Last Survivor Table distribution period rules apply in such case.


Planning for End-of-Life Transfers

When planning an estate, inclusion of defined contribution plan retirement fund benefits as part of your will require that beneficiaries transfer those funds to an IRA or other account to reduce RMD distributions for purposes of taxation. Spousal rollover IRAs offer tax benefits and deferral. Consider rollover of estate assets to an IRA during the planning process. Planning for transfer of a defined contribution plan account to an IRA before a participant’s death will ensure timely, tax-exempt rollover.


Contact a licensed attorney specializing in estate law about how you can plan for spousal rollover IRA transfer of defined contribution plan assets.


New York Estate Law Firm

Ettinger Law Firm is a licensed New York attorney practice specializing in estate planning and probate litigation. Contact Ettinger Law Firm to schedule a consultation about a spousal rollover IRA related estate law matter.  


See Related Blog Posts

How Spousal Rollover IRAs Allow Estate Holder to Reduce Required Minimum Distribution from a Defined Contribution Plan

Understanding Required Minimum Distributions


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