What New IRS Rules Say On Spousal IRA Rollovers

Specifically, the preamble to the new regulations states that if a surviving spouse “actually receives” a distribution from a decedents IRA, the spouse is permitted to roll that distribution over into the spouses own IRA.

On its face, this statement suggests that proceeds of a decedents IRA that pass through a trust or estate may be rolled over to the surviving spouses own IRA so long as the surviving spouse “actually receives” the proceeds.

Stated differently, the preamble can be read as providing that a surviving spouses ability to roll over IRA proceeds paid to a trust or estate is not limited to situations where the surviving spouse is sole trustee or sole executrix.

It appears from PLR 200236052, however, that the IRS is not applying this broader interpretation. Rather, it is continuing to apply the general rule and exceptions as mentioned above.

PLR 200236052 involved a decedents IRA, the beneficiary of which was the decedents estate. Pursuant to the decedents will, the surviving spouse–the mans wife–was “sole residuary beneficiary” and “sole executrix” of his estate. The IRS ruled generally that the surviving spouse is eligible to roll over the IRA proceeds she received into an IRA set up and maintained in her own name.

In so ruling, the IRS referred to the new regulations. It said the regulations do not preclude the surviving spouse from rolling amounts distributed from a decedents IRA into an IRA in her own name–”if the surviving spouse is the distributee of said amounts.” This statement is consistent with a broad interpretation of the preamble to the new regulations.

However, the IRS did not adopt this interpretation. Rather, the IRS went on to recite the general rule noted above.

The IRS concluded that this general rule would not apply and that the surviving spouse could roll over the proceeds to her own IRA. The IRS reasoned that the spouse was a distributee of the IRA proceeds. This is because the spouse was the sole residuary beneficiary of the estate and sole executrix of the estate with authority to allocate estate assets to the beneficiaries.

In sum, notwithstanding the broad language in the preamble to the new regulations, it appears that the IRS has not changed its ruling position with respect to a surviving spouses ability to roll over proceeds from a decedents IRA into the surviving spouses own IRA.

Mark E. Griffin, Esq., is a partner with the Washington, D.C. law firm of Davis & Harman. He can be e-mailed at [email protected].

Reproduced from National Underwriter Life & Health/Financial Services Edition, October 7, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.