Surviving spouse may roll estate-received IRA proceeds into own IRA

Plain-English summary

A decedent died before age 70 1/2 without naming a beneficiary for an IRA, causing the account to pass to the estate. The decedent's surviving spouse was both the estate's sole executor and its sole beneficiary. Because no third party could prevent the spouse from receiving and rolling over the proceeds, the IRS treated the spouse as the payee or distributee for IRC § 408(d)(3). The IRA was not treated as an inherited IRA with respect to the spouse. The spouse could avoid including a timely rolled-over amount in gross income by depositing the proceeds into an IRA in the spouse's own name within 60 days after receiving them as the estate's personal representative.

Ruling snapshot

• Question: May a surviving spouse who is the estate's sole executor and beneficiary roll estate-received IRA proceeds into an IRA in the spouse's own name?
• Outcome: Approved
• Key authorities: IRC §§ 72 and 408(d)(1), (3); Treas. Reg. § 1.408-8, Q&A-5

Full text (IRS public release)

Internal Revenue Service                                      Department of the Treasury
                                                              Washington, DC 20224

Number: 201618011                                             Third Party Communication: None
Release Date: 4/29/2016                                       Date of Communication: Not Applicable
Index Number: 408.00-00
                                                              Person To Contact:
                                                              ----------------------, ID No. -----------------
                                                              Telephone Number:
--------------------                                          ---------------------
-------------------------------                               Refer Reply To:
---------------------------------------                       CC:TEGE:EB:QP2
                                                              PLR-T-103115-15
                                                              Date:
                                                              January 27, 2016

Taxpayer A        =    --------------------------
Decedent B        =    -------------------------
Custodian C       =    -----------------------------------------
IRA D             =    ----------------------------------
Date 1            =    ----------------------
Date 2            =    --------------------------

Dear -------------:

This letter responds to your request dated September 10, 2014, as supplemented by
correspondence dated March 27, 2015 and January 11, 2016, submitted on your behalf
by your authorized representative, in which you request rulings that IRA D will not be
treated as an inherited IRA under section 408(d) of the Internal Revenue Code (Code)
and that you will be permitted to roll over the proceeds of IRA D to an IRA in your own
name.

The following facts and representations were submitted under penalties of perjury on
your behalf:

Decedent B established IRA D in 2010 and did not designate a beneficiary on the
adoption agreement form. Decedent B was born on Date 1. You represent that the
adoption agreement provides that if no beneficiary is designated Custodian C shall
distribute any remaining balance of the IRA to the estate.

Decedent B died testate on Date 2 failing to reach age 70 1/2. Article Three of the Last
Will and Testament (Will) gave all of the estate to Taxpayer A, her spouse. Article Six
of the Will names Taxpayer A as sole executor of the Will.

PLR-T-103115-15                              2

Taxpayer A, as surviving spouse and personal representative of the estate and sole
beneficiary of the estate, intends to distribute IRA D to himself and, within 60 days of
receipt, rollover the proceeds of IRA D into an IRA in his own name.

Based on the preceding facts Taxpayer A requests the following rulings:

    1. Taxpayer A as surviving spouse, personal representative and sole beneficiary of
      Decedent B’s estate will be treated for purposes of section 408(d)(3), as the
      payee or distributee of the proceeds from IRA D.

    2. IRA D will not be treated as an inherited IRA within the meaning of section
      408(d)(3) with respect to Taxpayer A.

    3. Taxpayer A is eligible to roll over IRA D to an IRA set up and maintained in his
      own name pursuant to section 408(d)(3)(A)(i), as long as the rollover occurs no
      later than 60 days after the proceeds are received by Taxpayer A in his capacity
      as personal representative of Decedent B’s estate.

    4. Taxpayer A will not be required to include in gross income for federal tax
      purposes, for the year in which the distribution of IRA D is made, any portion of
      the proceeds distributed from IRA D that are timely rolled over to an IRA set up
      and maintained in Taxpayer A’s name.

With respect to your ruling requests, section 408(d)(1) provides that, except as
otherwise provided in section 408(d), any amount paid or distributed out of an IRA shall
be included in gross income by the payee or distributee, as the case may be, in the
manner provided under section 72.

Section 408(d)(3) provides that section 408(d)(1) does not apply to a rollover
contribution if such contribution satisfies the requirements of sections 408(d)(3)(A) and
(d)(3)(B).

Section 408(d)(3)(A) provides that section 408(d)(1) does not apply to any amount paid
or distributed out of an IRA to the individual for whose benefit the account is maintained
if: (i) the entire amount received (including money and any other property) is paid into
an IRA for the benefit of such individual not later than the 60th day after the day on
which he receives the payment or distribution; or (ii) the entire amount received
(including money and any other property) is paid into an eligible retirement plan for the
benefit of such individual not later than the 60th day after the date on which the payment
or distribution is received, except that the maximum amount which may be paid into
such plan may not exceed the portion of the amount received which is includible in
gross income (determined without regard to section 408(d)(3)).

PLR-T-103115-15                              3

Section 408(d)(3)(B) provides that section 408(d)(3) does not apply to any amount
described in section 408(d)(3)(A)(i) received by an individual from an IRA if at any time
during the one-year period ending on the day of such receipt such individual received
any other amount described in section 408(d)(3)(A)(i) from an IRA which was not
includible in his gross income because of the application of section 408(d)(3).

Section 408(d)(3)(C)(i) provides, in pertinent part, that, in the case of an inherited IRA,
section 408(d)(3) shall not apply to any amount received by an individual from such
account (and no amount transferred from such account to another IRA shall be
excluded from gross income by reason of such transfer), and such inherited account
shall not be treated as an IRA for purposes of determining whether any other amount is
a rollover contribution.

Section 408(d)(3)(C)(ii) provides that an IRA shall be treated as inherited if the
individual for whose benefit the account is maintained acquired such account by reason
of the death of another individual, and such individual was not the surviving spouse of
such other individual.

Section 1.408-8 of the Income Tax Regulations, Question and Answer 5, provides that a
surviving spouse of an IRA owner may elect to treat the spouse’s entire interest as a
beneficiary in an individual’s IRA as the spouse’s own IRA. 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.

Generally, if a decedent's IRA proceeds pass through a third party, e.g. an estate, and
then are distributed to the decedent's surviving spouse, the surviving spouse will be
treated as having received the IRA proceeds from the third party and not from the
decedent’s IRA. Thus, generally, a surviving spouse will not be eligible to roll over the
IRA proceeds into his own IRA.

However, the general rule will not apply where the decedent's estate is the beneficiary
of a decedent's IRA proceeds, and the decedent's surviving spouse is the sole executor
of the estate and the sole beneficiary of the IRA proceeds that pass through the estate.
Under these circumstances no third party can prevent Taxpayer A from receiving the
proceeds of the IRA and from rolling over the proceeds into his own IRA.

Therefore, with respect to your ruling requests, we conclude that:

    1. Taxpayer A will be treated for purposes of section 408(d)(3), as the payee or
      distributee of the proceeds from IRA D;

    2. IRA D will not be treated as an inherited IRA within the meaning of section
      408(d)(3) with respect to Taxpayer A;

PLR-T-103115-15                               4

        3. Taxpayer A is eligible to roll over IRA D to an IRA set up and maintained in his
         own name pursuant to section 408(d)(3)(A)(i), as long as the rollover occurs no
         later than 60 days after the proceeds are received by Taxpayer A in his capacity
         as personal representative of Decedent B’s estate.

        4. Taxpayer A will not be required to include in gross income for federal tax
         purposes, for the year in which the distribution of IRA D is made, any portion of
         the proceeds distributed from IRA D that are timely rolled over to an IRA set up
         and maintained in Taxpayer A’s name.

Except as specifically set forth above, no opinion is expressed or implied concerning the
federal tax consequences of any aspect of any transaction or item discussed or
referenced in this letter

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code
provides that it may not be used or cited as precedent.

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representative.

The rulings contained in this letter are based upon information and representations
submitted by the taxpayer and accompanied by a penalty of perjury statement executed
by an appropriate party. While this office has not verified any of the material submitted
in support of the request for rulings, it is subject to verification on examination.

                                        Sincerely,

                                        Ingrid E Grinde
                                        Senior Tax Law Specialist
                                        (Qualified Plans Branch 3)
                                        Tax Exempt & Government Entities

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