Here is a real life story from my clientfiles. The names have been changed so Iam not fined for breaking privacy rules (see – I do know my “ethics”!).
Patty O’Furniture continued to work pastage 70½. He had begun to take RMDs fromhis traditional IRAs, but continued to contribute each year to his employer’s401(k) plan and a ROTH IRA. He also madeannual contributions to a spousal ROTH IRA for his non-working spouse, who hadrecently also turned age 70½ and began taking RMDs from her traditional IRA.
Patty passed away of a sudden heart attackwhile at work in early 2012, prior to making his or his wife’s 2012 ROTH IRAcontributions. During January of 2012 heearned $8,000+ in W-2 income.
Obviously a 2012 ROTH IRA contributioncould not be made for Patty, as he had gone to his final audit, and IRAcontributions cannot be made for a decedent after death (since “the primarypurpose for an IRA is the accumulation of retirement funds” – from PLR8439066).
Mrs. O’Furniture, who will have no earnedincome for 2012, asked me if she could make a $6,000 contribution to her ROTHIRA 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 thedecedent’s death as long as the funds donot come from the estate. Thecontribution must be made with her personal funds – funds she holds outside theestate.
In Private Letter Ruling 8527083 the IRSallowed a contribution to a non-working surviving spouse's IRA made after thedeath of the working spouse.
If the surviving spouse had maintainedseparate checking, savings or investment accounts prior to the passing of thedeceased spouse there is no problem determining “funds held outside theestate”.
But what if, as was the case with myclient, all funds and accounts had been in joint name?
Mrs. O’Furniture could consider half of thebalances in the various joint accounts as being “funds she holds outside theestate”.
Any questions?
TTFN
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