Vernoia, Enterline + Brewer, CPA LLC

In a taxpayer-friendly ruling, the IRS recently determined that a surviving spouse could roll over two Roth IRAs, which were payable to a trust controlled by her, into her own Roth IRA. The taxpayer’s late husband had maintained the Roth IRAs and created the trust.

Roth IRAs

The taxpayer’s husband had two Roth IRAs. He designated a trust as the beneficiary of the two Roth IRAs, with the provision that upon his death, his wife would become the sole trustee of the trust. The husband also directed that the trust be divided into two sub-trusts (Marital Trust and Family Trust).

The husband died and the wife became the sole trustee of the trust. The wife intended to allocate the assets of the trust—except for the Roth IRAs—to Family Trust. The wife also proposed to make a distribution of both Roth IRAs to herself as beneficiary of Marital Trust. Further, the taxpayer intended to roll over the distribution into one or more IRAs set up and maintained in her own name. The taxpayer asked if both Roth IRAs would be treated as inherited IRAs and if she could roll over both IRAs into a Roth IRA maintained in her name.

IRS analysis

The IRS explained that if the proceeds of a decedent’s IRA are payable to a trust, and are paid to the trustee of the trust, who then pays them to the decedent’s surviving spouse as the beneficiary of the trust, the surviving spouse is treated as having received the IRA proceeds from the trust and not from the decedent. The surviving spouse, the IRS further explained, cannot roll over the distributed IRA proceeds into his or her own IRA.

However, this case was different. The surviving spouse was the sole trustee of the trust and had authority under the trust to pay the IRA proceeds to herself. The IRS concluded that the wife could roll over proceeds of both Roth IRAs into a Roth IRA in her own name. The IRS also determined that the Roth IRAs were not inherited IRAs.

LTR 201423043

%d bloggers like this: