My wife passed away in January 2023 at the age of 59 and had a traditional IRA that had never seen any distributions. I was the sole beneficiary. After her death, a financial planner set up an IRA in my name. I opened a new account and rolled over her assets there. This new account has remained unchanged since her passing, without any distributions or mingling of funds from my other accounts.
I am nine years older than my wife and will turn 73 in 2027. If the planner had created an ‘inherited’ IRA under the designation of ‘wife FBO husband,’ then I could have deferred the required minimum distributions (RMDs) until her intended start date of 2036. The account currently holds more than $400,000. While the planner’s actions might not have been outright wrong, it certainly wasn’t in my best interest, and I wasn’t given other options. Despite reaching out to several members of the planner’s firm, they’ve shown no willingness to change my account.
The form I signed didn’t specify how the transaction would be managed—whether as inherited or as traditional. My expectation was that the planner could convert the IRA into an inherited one, especially since no outside transactions or IRS reporting have happened on the new account since it started. Yet, other firms won’t accept a traditional rollover, insisting they can’t change it to an inherited IRA because it’s not deemed similar. I even wrote to the SEC, but they forwarded my concern to the original planners, and they didn’t budge. Should I consult with a lawyer about this? I want to do everything possible to avoid unnecessary RMDs. Is there anything else I can pursue?
In theory, it seems you could have retained the account as a beneficiary IRA and deferred RMDs. Experts suggest that your advisor should have been aware of this. You might want to consider getting a new advisor. It could be useful to explore services offered by other professionals, including the CFP Board and NAPFA. But first, let’s examine what transpired here.
A beneficiary IRA would have likely been a better choice. The planner didn’t seem to recognize that you might not need the income right away, says Joe Favorito, a certified financial planner. Often, spouses are closer in age or require more immediate income, making this choice less common.
As a spouse, you have the option to either remain a beneficiary of your wife’s IRA or transfer the assets to your own IRA. Keeping her IRA would have allowed you to delay the RMDs until her specified start date, enhancing your tax deferral advantages. Unfortunately, the IRS views spousal rollovers as irrevocable decisions.
This means your account is now regarded as your personal property, and you can’t reclassify it as an inherited IRA, no matter the status of the account. The IRS has made several private rulings on this matter, all affirming that spousal rollovers are indeed irrevocable decisions.
In terms of outcomes, it may be challenging to achieve what you want. Favorito mentions that once funds are taken from a beneficiary IRA, they typically can’t be returned. He’s never witnessed a rollover in such situations, and it likely would have required immediate resolution rather than waiting until two years later.
Since the planner neglected to present an inherited IRA option and the signed form lacked clarity, you might have grounds to argue that the rollover was done without proper disclosure, potentially constituting a breach of fiduciary duty.
Favorito emphasizes that while the advisor’s actions weren’t illegal, they likely weren’t the optimal choice. Seeking arbitration could be an option, though there’s no guarantee of a favorable outcome since the advisor could claim you did not instruct them to maintain the assets in a beneficiary IRA, which is less typical among spouses. Unfortunately, this may leave you facing a quicker RMD and the tax implications that accompany it.
That said, proactive tax planning could alleviate some of your tax burdens over time. Although you’re not required to take distributions until age 73, initiating withdrawals sooner could help you benefit from a potentially lower tax bracket. If you’re over 70½, you might also qualify for qualified charitable distributions that can further minimize your tax liability, according to Tushingham.
A financial planner or tax expert can help you figure out these strategies and align them with your overall financial objectives.
Given your current circumstances, it might be best to find a new advisor. Collaborating with a project-based professional who can address your specific concerns and craft a personalized financial plan would be advisable.
Many certified financial planners offer hourly or project-based services that are significantly more affordable than those charging 1% assets under management. Hourly rates typically range from $200 to $500, while project fees can be anywhere between $1,500 and $7,500, contingent on how complicated your situation is. When vetting a planner, it’s essential to ask relevant questions and ascertain whether they’ve worked with individuals in similar circumstances.
Question has been edited for brevity and clarity. By reaching out with a question for the advisor, you agree to have your inquiry published anonymously.
