Death of an IRA Owner

Take-Away: In general, no contribution can be made to the decedent’s IRA account after his or her death. But,of course, when dealing with the IRS, there are a few exceptions.

Background: Most transactions are not permitted with a decedent’s IRA after his or her death. However, some activities with regard to the decedent’s  IRA which are ‘in process’ can be completed by the decedent’s Personal Representative. Actions that are permitted, and those that are not permitted, are summarized below.

1. Post-Death Contributions: Once an IRA owner dies, no contribution can be made to his/her IRA. [Private Letter Ruling 8439066.] An IRA contribution cannot be initiated after the account owner’s death. The reasoning is that the contribution is permitted to cover expenses in retirement; if the account owner is dead, there will be no retirement expenses to save for.
   1a. Prior Year Contribution: This prohibition applies even for the prior year if the decedent had planned to make a contribution by the time his or her income tax return was filed for the prior calendar year. [Private Letter Ruling 8439066.]
   Example: Kendra died on February 15, 2022.  Kendra died after she had filed her income tax return for 2021 in early February on which she reported making a $6,000 deductible contribution to her IRA for 2021. Kendra had planned to make her tax deductible IRA contribution in mid-March, 2022. Kendra’s prior year contribution (for 2021) cannot be made, nor can it be made on her behalf by her Personal Representative. Kendra’s Personal Representative will have to file an amended 2021 Form 1040 for her, removing the deductible IRA contribution.
   1b. ‘Process Begun’ Exception:  An exception to the general rule that no contributions can be made to the decedent’s IRA after his or her death exists if the contribution process had begun prior to the account owner’s death.
   Example: In January, 2022, Barney mailed a $6,000 check to his IRA custodian. The contribution was intended to be for Barney’s 2021 contribution to his IRA. Barney’s check got mixed up in the mail, it was returned to him, but only after Barney died. Barney’s estate Personal Representative can return the check to the IRA custodian for deposit. The IRA custodian should be able to accept the check for deposit to Barney’s IRA account, since Barney’s IRA contribution was ‘in the process of being completed’ at the time of Barney’s death.
   1c. ‘SEP’ Exemption; While IRA contributions cannot be made by the IRA owner after his or her death, that rule does not apply to a Simplified Employee Plan, i.e. a SEP IRA. This exception exists because the contribution to a SEP IRA is not made by the employee but the employee’s employer. The employer must still fund a SEP IRA for a qualifying employee, even if the employee has died.

2. Spousal IRA Contributions: A contribution to a spousal IRA can be made even though the working spouse has died. A spousal IRA contribution is made based on the income earned by the now-deceased spouse. Thus, a spousal IRA contribution is permitted even when the working spouse is dead. [Private Letter Ruling 8527083.]
3. Qualified Charitable Distributions (QCDs): A qualified charitable distribution cannot be made from the decedent’s IRA after his or her death. A QCD is permitted only if it is initiated prior to the account owner’s death.

Tip: The decedent’s IRA account is immediately owned by the IRA’s beneficiaries. Accordingly, if one of the designated beneficaries is over the age of 70 1/2, then he/she may make a QCD from their inherited IRA.

Example: Bill, age 80, was in the process of Making a $80,000 charitable gift using multiple QCDs from his IRA. Bill’s plan was to make 4 QCDs of $20,000 each, delivered to the charity. However, Bill died after 3 of the 4 QCDs were made. Bill’s estate cannot complete his charitable giving plan by making a final QCD of $20,000 to the charity because Bill has died.

However, Bill named his siblings, Alex (age 73) and Melinda (age 67) as the beneficiaries of his IRA. Alex, since he is over the age 70 1/2, can use his inherited IRA to make a QCD to fulfill the remaining installment of Bill QCD charitable giving ‘plan.’ Melinda could not make a QCD from her inherited IRA since she is not yet age 70 1/2.

4. IRA Rollovers: If the IRA owner has taken an IRA distribution as part of a 60-day rollover, and the IRA owner dies before completing the 60-day rollover, there is a mixed answer as  to whether the Personal Representative can complete the decedent’s rollover. A federal District Court in Michigan, [Gunther et al v. United States (Western District of Michigan, 1982)] allowed the decedent’s Personal Representative to roll over the distribution back into the IRA. Yet in a PLR [Private Letter Ruling 200204038] the IRS reached the opposite conclusion, saying that the Personal Representative could not complete the decedent’s 60-day rollover.
   4a. Spousal Exception: Several subsequent Private Letter Rulings have permitted a surviving spouse to complete the deceased spouse’s 60-day rollover, but only when the surviving spouse was the sole designated beneficiary of the deceased spouse’s IRA. In these PLRs the IRS has permitted the surviving spouse to roll the assets back into the deceased spouse’s IRA after the account owner’s death.
   4b. Late Rollovers: It is not uncommon for the deceased account owner to die while the 60-day rollover is pending, and the 60-day deadline is missed and not discovered until well after the account owner’s death. Numerous PLRs have allowed late rollovers penalty-free due to the death of the account owner. Revenue Procedure 2003-16 provides that the IRS will consider the death of the account owner who was eligible to engage in a 60-day rollover when it is requested to waive the 60-day rollover period. However, in the fairly recent Revenue Procedure that permits self-certification of the failure to complete the rollover within 60 days does not include the account owner’s death as one of the 12 acceptable self-certification excuses. [Revenue Procedure 2020-46.]

Conclusion: As a generalization, no tax deductible contributions can be made to the decedent’s IRA after the decedent’s death. However, there are limited exceptions to this general rule, particularly if money is in motion at the time of the account owner’s death.