Surviving spouse may roll a trust's inherited IRA distribution into a personal IRA

Plain-English summary

A deceased IRA owner's estate transferred four traditional IRAs into an inherited IRA for a trust, and the surviving spouse was entitled to a redacted percentage of a specified trust residue. The spouse also served as the estate's sole executor and the trust's sole trustee. Because no third party could prevent the spouse from receiving that mandatory share and rolling it over, the IRS treated the spouse as the individual for whose benefit that portion of the inherited IRA was maintained. The spouse could roll the eligible distribution into one or more personal IRAs within 60 days, despite the assets passing through the estate and trust. The timely rolled amount would not be included in gross income, except for a Roth IRA rollover, and any required minimum distribution remained ineligible for rollover. The ruling assumed every IRA involved met section 408 throughout the relevant periods.

Ruling snapshot

• Question: May a surviving spouse who is sole executor and sole trustee roll over a mandatory share of an inherited IRA held through the trust?
• Outcome: Approved, subject to the 60-day deadline and required-minimum-distribution limitation
• Key authorities: IRC §§ 408(d)(1), 408(d)(3), and 408A(d)(3); Treas. Reg. § 1.408-8, Q&A-5

Full text (IRS public release)

6
Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202348009 Third Party Communication: None
Release Date: 12/1/2023 Date of Communication: Not Applicable
Index Number: 408.00-00, 408.03-00
Person To Contact:
--------------------, ID No. -----------------
----------------- Telephone Number:
------------------------------------------- -------------------
--------------------------- Refer Reply To:
CC:EEE:EB:QP1
PLR-108017-23
Date: August 31, 2023

Legend:

Decedent = -------------------
Taxpayer = ---------------------------------------------
Trust = --------------------------------------------
IRA U = ------------------------------------------------------------------
IRA V = ------------------------------------------------------------------
IRA W = ------------------------------------------------------------------
IRA X = ----------------------------------------------------------
IRA Y = ---------------------------------------------------------------------------------------------
----------------
IRA Z = ---------------------------------------------------------------------------------------------
------------------------------
Date 1 = ---------------------------
Date 2 = --------------------------
Date 3 = ------------------
Date 4 = ---------------------------
Date 5 = -----------------------
Date 6 = ----------------
A% = -----------

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

This is in response to a request for a letter ruling under sections 408(d)(1) and (d)(3) of
the Internal Revenue Code, submitted on your behalf by your authorized representative
in correspondence dated April 6, 2023, and updated by correspondence dated August
4, 2023.

The following facts and representations have been submitted under penalties of perjury
in support of the requested rulings.
PLR-108017-23 2

Taxpayer was married to Decedent until Decedent’s death on Date 5. During their joint
lives, Decedent executed Trust on Date 1, naming Decedent and Taxpayer as trustees
of Trust. Decedent amended Trust on Date 2, Date 3, and Date 4.

At the time of Decedent’s death, Decedent was the owner of four traditional Individual
Retirement Accounts (IRAs), IRA U, IRA V, IRA W, and IRA X. Decedent died before
Decedent’s required beginning date.

Decedent’s will, dated Date 4, named Taxpayer as the sole executor. On Date 6,
Decedent’s will was probated and Taxpayer was appointed as sole executor of
Decedent’s estate.

Under the terms of Decedent’s will, the residue of Decedent’s estate transferred to
Trust. Under the terms of Trust, as amended on Date 4, Taxpayer is the beneficiary of
A% of a specified residue of Trust, which residue includes IRA U, IRA V, IRA
W, and IRA X but excludes other specified assets.

After Decedent’s death, the assets of IRA U, IRA V, IRA W, and IRA X were transferred,
via a trustee-to-trustee transfer, to IRA Y, a beneficiary IRA established solely to receive
a transfer from another IRA after the death of the IRA owner. IRA Y is a traditional IRA
established for the benefit of Decedent’s estate as beneficiary of Decedent. IRA Y has
since been retitled as a traditional IRA established for the benefit of Trust as beneficiary
of Decedent, and is now IRA Z.

As sole executor of Decedent’s estate and sole trustee of Trust, Taxpayer intends to
make a partial distribution from IRA Z in an amount no more than A% of the specified
residue of Trust to Taxpayer in satisfaction of Trust’s outright and direct allocation to
Taxpayer of A% of the specified residue of Trust and, within 60 days of receipt, roll
over the distribution to one or more IRAs held in Taxpayer’s name.

Requested Rulings

Based on the above facts and representations, you, through your authorized
representative, request the following rulings:

1) Taxpayer is eligible to roll over the distribution from IRA Z to Taxpayer into one or
more IRAs established and maintained in Taxpayer’s named, provided the rollover
occurs no later than the 60th day after the proceeds of IRA Z are distributed.

2) Taxpayer is not required to include as income for federal income tax purposes for the
year in which the distribution from IRA Z is made any portion of the proceeds that were
distributed from IRA Z and subsequently and timely rolled over into an IRA established
and maintained in Taxpayer’s name.
PLR-108017-23 3

Law

Section 408(d)(1) of the Code 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 in the manner provided under section 72.

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 the payment or distribution is received; 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)).

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) provides that amounts from an inherited IRA cannot be rolled over
into another IRA. Under Section 408(d)(3)(C)(ii), an IRA is treated as an inherited IRA if
the individual for whose benefit the IRA is maintained acquired the IRA by reason of the
death of another individual, and such individual is not the surviving spouse of the other
individual.

Section 408(d)(3)(D) permits rollovers of amounts less than the entire amount in an IRA
account.

Section 408(d)(3)(E) provides that amounts distributed as required minimum
distributions are not permitted to be rolled over pursuant to section 408(d)(3).

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. If a trust is named as beneficiary of the IRA, this
requirement is not satisfied even if the spouse is the sole beneficiary of the trust.

Section 408A(d)(3) of the Code 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
PLR-108017-23 4

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, a trust,
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, and such 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 if no third party can prevent the surviving
spouse from receiving the proceeds of the IRA and from rolling over the proceeds into
the spouse’s own IRA. In this case, Taxpayer is the sole executor of the estate and sole
trustee of Trust, and Taxpayer has the unrestricted right to A% of a specified residue of
Trust. Under these circumstances, no third party can prevent the surviving spouse, as
sole executor and sole trustee, from receiving the proceeds of IRA Z up to the amount
of A% of the specified residue of Trust in satisfaction of the spouse’s mandatory share
and then rolling over the proceeds into the spouse’s own IRA. Therefore, Taxpayer is
effectively the individual for whose benefit IRA Z is maintained.

Because Taxpayer is the surviving spouse of Decedent, the inherited IRA rules of
section 408(d)(3)(C) do not prevent a rollover.

With respect to your first ruling request, Taxpayer is permitted to roll over the IRA Z
proceeds, that are not in excess of A% of the specified residue of Trust, received by
Taxpayer to an IRA set up and maintained in Taxpayer’s name pursuant to section
408(d)(3)(A)(i), provided that the rollover occurs no later than the 60th day from the day
the proceeds are paid from IRA Z.

With respect to your second ruling request, as set forth in the preceding paragraph,
Taxpayer is permitted to roll over a distribution from IRA Z to an IRA set up and
maintained in Taxpayer’s name. 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 Z proceeds that are not in excess of A% of the specified residue of Trust and
timely rolled over to an IRA set up and maintained in Taxpayer’s name.

Rulings

Thus, with respect to your ruling requests, we conclude as follows:

1. Except with respect to any portion of a distribution that is a required minimum
   distribution, Taxpayer is eligible to roll over the proceeds of IRA Z that are not in excess
   of A% of the specified residue of Trust to an IRA set up and maintained in Taxpayer’s
   own name pursuant to section 408(d)(3)(A)(i), provided that the rollover occurs no later
   than the sixtieth day following the day the proceeds of IRA Z that are not in excess of
   PLR-108017-23 5

A% of the specified residue are distributed on Taxpayer’s behalf.

2. 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 that are not in excess of A% of the
   specified residue of Trust distributed from IRA Z and that are timely rolled over to an
   IRA set up and maintained in Taxpayer’s name.

This letter assumes that IRA U, IRA V, IRA W, IRA X, IRA Y, and IRA Z satisfy the
requirements of section 408 at all relevant times. It also assumes that the rollover IRA
or IRAs set up by Taxpayer will satisfy the requirements of section 408 at all relevant
times.

The rulings contained in this letter are based upon information and representations
submitted by Taxpayer and accompanied by a penalties of perjury statement executed
by Taxpayer, as specified in Rev. Proc. 2023-1, 2023-1 I.R.B. 1, § 7.01(16)(b). This
office has not verified any of the material submitted in support of the request for ruling,
and such material is subject to verification on examination. The Associate office will
revoke or modify a letter ruling and apply the 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 ruling 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. 2023-1, § 11.05.

Except as expressly provided above, no opinion is expressed or implied concerning the
federal income tax consequences of any other aspects of any transaction or item of
income described in this letter ruling.

This letter 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,




                                       ______________________________
                                       Amy S. Moskowitz
                                       Senior Technician Reviewer
                                       Qualified Plans Branch 3
                                       Office of the Associate Chief Counsel
                                       (Employee Benefits, Exempt Organizations,
                                       and Employment Taxes)

PLR-108017-23 6

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