4014 / May a surviving spouse make a rollover contribution?

Yes.

Where any portion of an eligible distribution from a qualified plan is paid to the spouse of a participant after that participant’s death, the spouse may make a rollover contribution of all or any part of that portion within 60 days of receipt.¹ The IRS is authorized to waive the 60-day rule under certain circumstances ( Q 4016).

A qualified plan, a traditional IRA, a Roth IRA ( Q 3662), a tax sheltered annuity, or an eligible Section 457 governmental plan that agrees to separately account for funds received from any eligible retirement plan except another eligible Section 457 governmental plan is treated as an eligible retirement plan with respect to a surviving spouse.² In other words, a surviving spouse may roll over an eligible distribution into his or her own plan account, provided the plan accepts rollover contributions.³

The other rules applicable to rollovers in general apply to rollovers by a deceased participant’s spouse ( Q 4000, Q 4001, Q 4004, Q 4007, Q 4016).⁴ Thus, unless a spouse elects the direct rollover option, the distribution will be subject to mandatory withholding at 20 percent ( Q 4004).

Because the surviving spouse of an owner of a traditional IRA is not subject to the inherited account rules, the surviving spouse may make rollovers to and from the plan.⁵ This generally has held true whether the spouse was the beneficiary designated under the plan or inherited the account as sole beneficiary of the owner’s estate.⁶ Under regulations proposed in 2022, spousal beneficiaries will also be required to elect to treat the deceased spouse’s IRA as their own by the later of (1) December 31 of the year following the year of the owner’s death or
(2) the individual’s required beginning date (73 in 2023-2032, 72 in 2020-2022).

Furthermore, a proper rollover was considered made by a surviving spouse who, as her deceased husband’s executrix, transferred the right to receive the benefits due her husband from his profit sharing plan to herself under the residuary bequest in the husband’s will and then transferred this amount into an IRA already established on her behalf.⁷

In a number of private rulings during the 1990s, the IRS stated that if a decedent’s IRA or tax sheltered annuity passed through a third party, such as a trust, and then was distributed to the decedent’s surviving spouse, the spouse was treated as acquiring the IRA or tax sheltered annuity from the trust rather than from the decedent; thus, no rollover was possible.⁸

The IRS also determined on several occasions that if the trustee had no discretion as to the allocation of IRA proceeds to a trust or the payment of the proceeds directly to the surviving spouse, the surviving spouse would be treated as having acquired the IRA proceeds from the decedent rather than from the trust. In other words, a rollover was possible.⁹

In numerous rulings, the IRS has treated a surviving spouse as having acquired the IRA from the decedent and not the trust where the surviving spouse had the power to revoke the trust.¹⁰

The preamble to the 2002 final regulations under IRC Section 401(a)(9) ( Q 3892) clarifies that if a surviving spouse receives a distribution from a deceased spouse’s IRA, the spouse is permitted to roll that distribution over within 60 days into an IRA in the spouse’s own name to the extent that the distribution is not a required distribution, regardless of whether or not the spouse is the sole beneficiary of the IRA owner.¹¹ In other words, it appears that for rollover purposes, the final regulations were intended to put to rest the distinction between trusts that provide discretion to the surviving spouse and those that do not.

The surviving spouse does not receive a stepped up basis with respect to the decedent’s plan interest or tax sheltered annuity, as retirement benefits are treated as income in respect of a decedent.¹²