IRA Contributions After Death
John and Barbara were happily married. John had a good job, while Barbara, who did a lot of volunteer work, had no earned income. Like many married couples, they annually filed a joint tax return, and like many married couples, both made annual contributions to their respective Roth IRAs.
Sadly, in August 2021, John was in a bad auto accident a did not survive. The family knew that John was loyal to contributing to his Roth IRA, and he earned plenty of money from his job that year. So, six weeks after his passing, they tried to make an annual contribution to his Roth IRA from John’s checking account.
Is this contribution IRS compliant?
- John had earned income for 2021.
- John had a long history of making contributions to his IRA.
The answer is NO. As the principal use of the IRA is for retirement and John was deceased, the IRS’s position is, “John does not need these retirement funds.”
On the same day, Barbara, who had no earned income, also contributed to her Roth IRA.
Is this contribution IRS compliant?
The answer is YES. Barbara was able to point at John’s year-to-date income. As the principal use of the IRA is for retirement, Barbara may someday retire. Hence, the IRS’s position is, “Barbara may need these retirement funds.”
Is the rule different for a SEP IRA?
Yes. As the individual does not make the SEP IRA contribution but, instead by the employer, the contribution is still due to the SEP account ever after the death of the participant.
Qualified Charitable Distributions
A growing number of seniors make Qualified Charitable Distributions (QCD) directly from their IRA. Each year Alice made QCDs from her Traditional IRA. She had several reasons:
- She was a charitable individual.
- Her named beneficiaries were successful and were not dependent on the funds.
- Her Traditional IRA was large, hence and estate taxes could have been costly.
Following her passing, her family tried to make a QCD from her IRA.
Was the QCD allowable?
Unfortunately, the answer is NO. Only the account owner (Alice) could make a QCD.
For information about a Self Directed IRAs, Solo 401(k)s, or alternative investments,
call IRA Club at 312-795-0988 or click here to schedule a call.
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