IRA Spouse Rollover Traps and Rules

I have been receiving a lot of questions on rollovers of surviving spouse benefits lately. One of the benefits of inheriting an IRA as a spouse is that you can receive  a distribution and have 60-days to roll it over and avoid taxation. This rule does not apply to non-spouse beneficiaries.

My one warning was this, if the original (deceased spouse) had already participated in a 60-day rollover within the last 12 months from IRA to IRA, this may carry over to the surviving spouse and make them ineligible for a the rollover. This would require the spouse to transfer the funds, not take a distribution and roll it over.

I started to second guess myself, does this rule really carry through to the spouse? I found a section in Natalie Choate’s retirement book and it quotes ” A participant or surviving spouse may not roll over an IRA distribution to the same or another another IRA” … then going on to describe the 12 month rule for IRA to IRA rollovers. She sites Code Sec. 408(d)(3)(B) which essentially eliminates the use of Code Sec 408 (d)(3)(A)  to rollover funds within 60-days. Everything else I read talks about an account by account basis, not taxpayer basis.

I have concluded that this rule does see through to the surviving spouse. The lesson.

If you have a surviving spouse with an inherited IRA, make sure the 12-month rule is not violated as the 12 months dates back to the original spouse. Maybe someone else has a different opinion on this?

Also, as usual, never let a non-spouse beneficiary receive a check as this is an automatic taxable distribution. Have them perform a trustee-to-trustee transfer.