Surviving spouse may roll a deceased spouse's estate-payable IRA into her own IRA

Plain-English summary

A person died owning a traditional IRA that named no living beneficiary, so the
custodian treated the decedent's estate as the beneficiary and moved the money into a
beneficiary IRA in the estate's name. The decedent's surviving spouse was the sole
beneficiary of the estate under the will and the sole administratrix of the estate. She
asked the IRS whether she could take the IRA money out through the estate and roll it
into an IRA in her own name. Normally, when IRA proceeds pass through a third party
like an estate, the surviving spouse cannot do a rollover. But the IRS applies an
exception when the spouse is both the sole estate beneficiary and the sole person
controlling the estate, so no third party can block her. The IRS ruled that the IRA is
not treated as an inherited IRA as to her, that she may roll the proceeds into her own
IRA if she does so within 60 days of receipt, and that (except for a rollover to a Roth
IRA) she will not owe income tax on the amount timely rolled over.

Ruling snapshot

• Question: May a surviving spouse who is sole estate beneficiary and administratrix roll an estate-payable IRA into her own IRA tax-free?
• Outcome: Approved (three favorable rulings)
• Key authorities: IRC § 408(d)(1), (d)(3)(A)(i), (d)(3)(C); § 408A(d)(3)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202214008 Third Party Communication: None
Release Date: 4/8/2022 Date of Communication: Not Applicable
Index Number: 408.03-00
Person To Contact:

----------------------------- --------------, ID No. -----------------
------------------------ Telephone Number:
-------------------------------------- --------------------
Refer Reply To:
CC:EEE:EB:QP3
PLR-116332-21
Date:
January 11, 2022

Taxpayer = -----------------------------
Decedent = -----------------------------
Custodian = --------------------------
IRA X = ----------------------------
IRA Y = ---------------------------------------------------------
Date 1 = ------------------
Date 2 = ------------------------
Date 3 = --------------------------

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

This is in response to your letter dated July 26, 2021, submitted on your behalf by your
authorized representative, in which you request rulings under section 408 of the Internal
Revenue Code.

The following facts and representations have been submitted under penalties of perjury
in support of the rulings requested:

Decedent was born on Date 1. Decedent established IRA X, a traditional individual
retirement account, on Date 2. In the beneficiary designation form for IRA X, Decedent
named Decedent as beneficiary and did not name any other beneficiary. As a result,
Custodian treated Decedent's estate as the beneficiary of IRA X. Decedent died testate
on Date 3, prior to attaining age 72.

You represent that Custodian transferred the assets of IRA X to IRA Y, a beneficiary
IRA in the name of Decedent's estate.
PLR-116332-21 2

Article Five of Decedent's Will gave all of Decedent's estate to Taxpayer, Decedent's
spouse. Article Seven of Decedent's Will names Taxpayer as sole executor of the Will.
The Will was admitted to probate and Taxpayer was appointed sole independent
administratrix of Decedent's estate.

Taxpayer intends to request the distribution of all of the assets of IRA Y to Taxpayer as
sole independent administratrix of the estate and, within 60 days of receipt of the
distribution, roll over the distribution to an IRA in Taxpayer's own name.

Rulings Requested

Based on the facts and representations, the following rulings were requested:

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

2. Taxpayer is eligible to roll over IRA Y to an IRA set up and maintained in
   Taxpayer's own name pursuant to section 408(d)(3)(A)(i), as long as the roll-over
   occurs no later than 60 days after the proceeds are received by Taxpayer in
   Taxpayer's capacity as sole independent administratrix of Decedent's estate.

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

Law

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 section 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
PLR-116332-21 3

plan may not exceed the portion of the amount received which is includible in gross
income (determined without regard to section 408(d)(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 408A(d)(3) contains a special rule that applies for a rollover to a Roth IRA from
a non-Roth IRA, which provides in part that, notwithstanding section 408(d)(3), there
shall be included in gross income any amount which would be includible were it not part
of a qualified rollover contribution.

Analysis

Generally, if a decedent's IRA proceeds pass through a third party, for example, 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 the spouse's 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
independent administratrix of the estate and the sole beneficiary of the IRA proceeds
that pass through the estate. Under these circumstances no third party can prevent the
surviving spouse from receiving the proceeds of the IRA and from rolling over the
proceeds into the surviving spouse's own IRA.

Under the facts presented, the IRA Y proceeds are payable to Decedent's estate under
the terms of Decedent's will. Article Five of Decedent's Will gives all of Decedent's
estate to Taxpayer, Decedent's spouse. Article Seven of Decedent's Will names
Taxpayer as sole executor of the Will. The Will was admitted to probate and Taxpayer
PLR-116332-21 4

was appointed sole independent administratrix of Decedent's estate. In that capacity,
Taxpayer can cause the IRA Y proceeds to be paid to Decedent's estate and then to
Taxpayer as beneficiary of the estate. Accordingly, for purposes of section 408(d)(3)(A),
Taxpayer is effectively the individual for whose benefit IRA Y is maintained. Thus, if
Taxpayer receives the IRA Y proceeds, Taxpayer may roll over the proceeds into an
IRA maintained in Taxpayer's name, provided that all other applicable rules of section
408(d)(3) are met.

With respect to your first ruling request, Taxpayer is the surviving spouse of Decedent.
Therefore, IRA Y is not treated as an inherited IRA for purposes of section 408(d)(3).

With respect to your second ruling request, as concluded above, Taxpayer may roll over
the IRA Y proceeds received by Taxpayer to an IRA set up and maintained in
Taxpayer's name, provided the rollover occurs no later than the 60th day from the day
the proceeds are paid to Decedent's estate.

With respect to your third ruling request, section 408(d)(1) provides that, except as
otherwise provided under section 408(d), any amount paid or distributed out of an IRA
shall be included in the gross income by the payee or distributee. Section 408(d)(3)(A)(i)
provides that section 408(d)(1) does not apply to a rollover contribution meeting the
requirements of section 408(d)(3). As concluded in the second ruling described above,
Taxpayer may roll over the IRA Y proceeds in accordance with section 408(d)(3).
Therefore, except in the case of a rollover to a Roth IRA, Taxpayer will not be required
to include in Taxpayer's gross income any portion of the IRA Y proceeds timely rolled
over to an IRA set up and maintained in Taxpayer's name.

Rulings

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

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

2. Taxpayer is eligible to roll over the proceeds of IRA Y to an IRA set up and
   maintained in Taxpayer's 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 in Taxpayer's capacity as the sole independent administratrix of
   Decedent estate.

3. Except in the case of a rollover to a Roth IRA, Taxpayer will not be required to
   include in gross income any portion of the proceeds distributed from IRA Y that
   are timely rolled over to an IRA set up and maintained in Taxpayer's name.

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
PLR-116332-21 5

by an appropriate party, as specified in Rev. Proc. 2021-1, 2021-1 IRB 1, § 7.01(16)(b).
This office has not verified any of the material submitted in support of the request for
rulings, and such material is subject to verification on examination. The Associate office
will revoke or modify a letter ruling and apply revocation retroactively if there has been a
misstatement or omission of controlling facts; the facts at the time of the transaction are
materially different from the controlling facts on which the rulings was based; or, in the
case of a transaction involving a continuing action or series of actions, the controlling
facts change during the course of the transaction. See Rev. Proc. 2021-1, § 11.05.

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 ruling.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) 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.

                                            Sincerely,


                                            /s/ Neil Sandhu
                                            ______________________________
                                            Neil Sandhu
                                            Senior Technician Reviewer
                                            Qualified Plans Branch 1
                                            Office of Associate Chief Counsel
                                            (Employee Benefits, Exempt
                                            Organizations, and Employment Taxes)

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