Where the IRA owner dies before reaching the RBD (before April 1 of the year following age 70 ½), he would not have been required to take any money from his IRA before his death. In this case, the entire interest in the IRA must be distributed within 5 years of the date of his death. If there is a substantial sum in the IRA, this 5-year rule will cause the moneys to be taxed over a fairly short time span. Fortunately, there are exceptions to this 5-year rule.

The first exception applies if you have designated a beneficiary. Under this exception, the beneficiary appointed by you must commence distributions by the end of the year following the year of your death and can take the money over his or her life expectancy. As such, a named beneficiary has the option to withdraw the money over his or her life expectancy.

The second exception applies if your spouse is designated as the beneficiary. In this case, the surviving spouse can take withdrawals over his or her life expectancy, and the withdrawals must start no later than the date on which the deceased IRA owner would have been age 70 1/2. Therefore, if your wife is the beneficiary, she may be able to wait to begin withdrawals, whereas a child or any other beneficiary would have to begin taking moneys within one year after your death.

Another option is available if your wife is named as your IRA beneficiary. That is, your wife can elect to treat the IRA as being her own. In essence, this amounts to an IRA rollover. A surviving spouse is the only beneficiary who has this rollover option.

As you can see, the tax rules in this area are quite complex. Moreover, this is only a general explanation of the federal income tax rules and doesn't consider the possible inheritance or estate taxes on IRAs. As such, as is the case with most tax and legal matters, individual facts or circumstances may alter the application of the above rules or may involve other legal and tax considerations not mentioned here. In situations like these, you should seek professional advice tailored to your individual circumstances.

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To elect to treat the decedent's IRA as his own, a surviving spouse uses the election procedure specified in regulations. Such an election is deemed made if either of the following occurs:
• the minimum distributions ordinarily required to be made after the death of an IRA owner are not in fact made (e.g., more than five years elapses); or
• the surviving spouse makes an actual contribution to the IRA (thereby exercising ownership-type dominion over the IRA). 423

/Footnote/ 423 Prop. Regs. §1.408-8, A-4(b). Note that a qualified rollover under §§402(c)(9) and 401(a)(31) by a surviving spouse of a decedent's qualified plan distribution into the decedent's IRA does not automatically make the surviving spouse the owner of the decedent's IRA, and the surviving spouse may remain the beneficiary of the decedent's IRA for purposes of §§72 and 402. In PLR 9842058, the IRS ruled that a surviving spouse's trustee-to-trustee transfer of the account balances of two IRAs of her late husband, of which she was sole beneficiary, to another IRA in his name of which she was also sole beneficiary, did not constitute elections by the surviving spouse to treat the first two IRAs as her own but does not affect her ability to elect to treat those IRAs as her own. The surviving spouse may elect to treat the transferee IRA as her own IRA, and her transfer of that IRA account balance into an IRA established in her name, by means of a trustee-to-trustee transfer, will constitute such an election. Such an election will relate back to the first two IRAs, so that the surviving spouse will effectively be electing to treat those IRAs as her own. The effect of this election will be to cause the surviving spouse to be treated as the owner of the transferee IRA and not its beneficiary and to make the transferee IRA subject to the required distribution rules of §401(a)(9)(A). Relying on Prop. Regs. §1.401(a)(9)-1, Q&As D-3 and E-7, the IRS ruled that, if the surviving spouse makes a trustee-to-trustee transfer of the transferee IRA account balance into an IRA established in her own name, she will be the "individual for whose benefit the IRA is maintained" for purposes of the minimum required distribution rules and the incidental death benefit rules, i.e., these rules will apply to her IRA as if she is its owner, not its beneficiary. The surviving spouse may choose either to recalculate or not to recalculate her life expectancy for purposes of the required minimum distribution rules as long as she does so by the §401(a)(9)(C) required beginning date (April 1 of the calendar year following the calendar year when she attains age 70-1/2). Under Prop. Regs. §54.4974-2, Q&A A-6, no §4974 excise tax will be imposed if the surviving spouse begins to receive distributions from her IRA by the §401(a)(9)(C) required beginning date and if the distributions are made over her life expectancy and over the life expectancy of her timely designated beneficiary.

Of course, an actual election could be filed by the spouse; the IRA trustee, custodian or insurance company may have a form for this purpose to change the name, Taxpayer Identification Number, etc. on the IRA to that of the surviving spouse. The surviving spouse's directing a trustee-to-trustee transfer of the funds from the decedent's IRA to the surviving spouse's IRA(s) constitutes a sufficient election to treat the decedent's IRA as his own. 424
/Footnote/ 424 PLR 9534027.