Monday, June 4, 2012


Here is a real life story from my client files.  The names have been changed so I am not fined for breaking privacy rules (see – I do know my “ethics”!).

Patty O’Furniture continued to work past age 70½.  He had begun to take RMDs from his traditional IRAs, but continued to contribute each year to his employer’s 401(k) plan and a ROTH IRA.  He also made annual contributions to a spousal ROTH IRA for his non-working spouse, who had recently also turned age 70½ and began taking RMDs from her traditional IRA.

Patty passed away of a sudden heart attack while at work in early 2012, prior to making his or his wife’s 2012 ROTH IRA contributions.  During January of 2012 he earned $8,000+ in W-2 income.

Obviously a 2012 ROTH IRA contribution could not be made for Patty, as he had gone to his final audit, and IRA contributions cannot be made for a decedent after death (since “the primary purpose for an IRA is the accumulation of retirement funds” – from PLR 8439066). 

Mrs. O’Furniture, who will have no earned income for 2012, asked me if she could make a $6,000 contribution to her ROTH IRA for 2012.

I did my research and here is what I found –

A non-working spouse can make a contribution to a spousal IRA for the year of the decedent’s death as long as the funds do not come from the estate.  The contribution must be made with her personal funds – funds she holds outside the estate. 

In Private Letter Ruling 8527083 the IRS allowed a contribution to a non-working surviving spouse's IRA made after the death of the working spouse.

If the surviving spouse had maintained separate checking, savings or investment accounts prior to the passing of the deceased spouse there is no problem determining “funds held outside the estate”. 

But what if, as was the case with my client, all funds and accounts had been in joint name?

Mrs. O’Furniture could consider half of the balances in the various joint accounts as being “funds she holds outside the estate”.

Any questions?



Peter Kronenberg said...

I would argue that money in a joint account or TOD/POD, does not pass through probate and is therefore never part of the estate. It passes immediately to the spouse

Mark Randall @ tax help said...

I agree with Peter. It only makes sense that it is to be given to the spouse.