If the transfer to a spouse or a charity under a charitable remainder unitrust cannot be quantified as to its present value, that transfer is not eligible to be claimed as a deduction for federal estate tax purposes.

While the IRS recently waived the 50% excise tax for some, but clearly not all, beneficiaries who inherited an IRA after the SECURE Act, the calculation of the next required minimum distribution from that inherited IRA, starting in 2023, will require some calculations.

The Tax Code and Regulations have multiple deadlines that often confuse retirement account owners. Keeping these deadlines straight is a challenge,  which is something that advisors must continuously remind account owners about.

While a qualified charitable distribution (QCD) from an IRA seems pretty straightforward, there can be a lot of confusion that leads to mistakes, and thus taxable income when a QCD goes awry.

As we near the finalization of the IRS’ Proposed Regulations on the SECURE Act, it is helpful to recall some of the surprising ‘interpretations’ that the IRS has provided to that Act in its Regulations. Four important IRS ‘interpretations’ are summarized below. It is highly doubtful that the IRS will change its position on its interpretation of what the SECURE Act requires.

The timing of when to take the first required minimum distribution (RMD) can create confusion and lead to a possible excise tax for an ‘excess contribution.’ This trap is because an RMD can never be rolled over.

No one knows why this spousal election exists in the Regulations. One would assume that if a surviving spouse wants to be treated as the owner of their deceased spouse’s account why not just do a spousal rollover to their own rollover IRA. Existing  Treasury Regulations provide that a surviving spouse of a deceased IRA owner can elect to treat an inherited IRA from their deceased spouse’s IRA as the survivor’s own IRA. [Regulation 1.408-8, A-5(a).] In something of a surprise, the SECURE Act Proposed Regulations confirm this election, but they now impose a deadline on the spousal election. [Proposed Regulation 1.408-8(c).] This election results from an unintended rollover  of the decedent’s account into the survivor’s name if the survivor triggers a deemed election by failing to take a required minimum distribution (RMD.) Historically this spousal election was the result where the surviving spouse of an older married couple inadvertently triggered the deemed election by failing to take any action with regard to the inherited IRA. Under the old rules, this inadvertent election could be triggered at any time, even years after the IRA owner’s death, if the deemed election was not discovered shortly after the IRA owner’s death. The Proposed Regulations provide that this deemed election, via the failure to take an RMD, will occur when only one year’s or at most two years,’ worth of RMDs that have accrued are not taken. After that, the survivor’s failure to take an RMD as beneficiary of the deceased spouse’s IRA will trigger the customary 50% excise tax, but it will not cause a change of the survivor’s status from ‘beneficiary’ to ‘owner.’

Take-Away: A surviving spouse may wish to be treated as the beneficiary of their deceased spouse’s IRA for a couple of technical reasons. The reality is, however, that a spousal rollover of the decedent’s IRA is the most tax efficient way to deal with the IRA due to the Table used to calculate required minimum distributions (RMDs) and the possible delays in having to take an RMD.