The actual event happened a few years ago, I'm just asking this for
A non-working spouse is terminally ill (and we're talking just days or
even within minutes after the tube will be pulled). Because the
household income is close to the IRA phaseout limit, they normally
wait until early the next year to fund their IRAs, because they need
to know their gross income so they know the max they can contribute.
Now, can the surviving spouse keep the deceased's IRA open, contribute
when he normally would, and then merge the IRA into his own, or does
the right to contribute to an IRA die with the owner?
Private Letter Rulings.
In the one from 1984 the IRS stated (PLR 8439066):
"Section 1.408-2(a) of the Income Tax Regulations specifies the person
who may establish and maintain an IRA to include an individual, an
employer, or an employee association. The regulations do not provide
that the decedent?s personal representatives, the decedent?s estate, or
beneficiaries of the decedent?s estate can establish or maintain and IRA
on behalf of an individual. This is because the primary purpose of the
IRA is for retirement."
In other words, once the IRA holder is dead, no further contributions
can be made to that IRA.
In 1985, the IRS issued another letter ruling (PLR 8527083) that allowed
the surviving spouse to make a contribution to her own spousal IRA based
on her deceased spouse having enough earned income in the year before
dying. This was consistent with the earlier PLR in that the IRA holder
was still alive.
What about if the spouse makes contribution to her IRA in 2009? Then
unfortunately she dies in 2009. The following year the surviving
spouse files a married filing joint return for 2009. However, it is
discovered that the IRA contribution was too much (one or more spouses
covered at work and AGI too high). So they withdraw the excess
contribution by 4/15/2010. However at that time the estate has been
dissolved -- all assets distributed to beneficiaries and form 747 (or
is it 707) filed. Then what happens?
date of the tax return. As such, it is treated as if it never happened.
If there was a gain on the excess contribution, it should have been
withdrawn at the same time and the amount included as income on the 2009
personal income tax return. If the decedent had not attained age 59 1/2,
there would also be a 10% early withdrawal penalty on the taxable gain.
decedent's IRA was merged into the surviving spouse's IRA, then you
just withdraw the excess contribution from the spouse's IRA. But what
if the IRA was liquidated as cash (not even sure if this can be done,
but if your estate is under the exemption then better take IRA as cash
as there will be no taxes, but there will be taxes when you withdraw
from the inherited IRA)?
I did NOT read "contribute when he normally would" as "contribute on HIS
As far as "the right to contribute after death" is concerned, a SPOUSE may
contribute to an IRA after death, because he/she may treat the account as
if it were his/her own.
For the year of death, a contribution into a decedent's account can still
happen until the due date of the return. Such a contribution is deemed
made on the last day of the decedent's tax year (which is his date of
death) per IRC Section 219(f)(3).
As Stuart pointed out, the OP was asking whether a surviving spouse can
make a contribution to the decedent's IRA. The answer is no. If a
surviving spouse treats the decedent's IRA as her/his own IRA, then of
course a contribution can be made if there is taxable earned income.
paragraph you quote is the one that says if a taxpayer makes a
contribution before the due date of the return it is deemed to have been
made by 12/31 of the prior year. Sec. 408 deals with who can make a
contribution. As the PLR stated, Sec. 408 does not allow anyone other
than the owner to make a contribution. As the owner is dead... no
contribution can be made to that IRA.
beneficiary is exempt from the penalty. In this instance, you have a
removal of an excess contribution and its gain. Under the rules, the
gain, even if it occurs after the close of the tax year but before the
due date, is treated as income for the year of the contribution. The
question we first have to ask is: On whose tax return does the gain get
reported? Is it the decedent's final income tax return (1040)? Or is it
the estate's income tax return (1041)? As the income comes in after
death, I believe the gain has to be reported on the estate's 1041. As
such, I think it is reasonable to treat this specific distribution has
having been made to a beneficiary (the estate) and therefore exempt from
the 10% penalty.
Doesn't matter. Once the decedent dies, the exception is met.
IRC 72(t)(2)(ii) "made to a beneficiary (or to the estate of the
'employee'*) on or after the date of death...," (via Section 408(d)).
* - The section was originally written with employer-based pension plans in
mind, but applies to IRAs also.
All 408(d)(4)(C) says is that the "distribution is accompanied by the
amount of net income attributable to such contribution." It leaves it to
section 72 to determine whether the excise tax applies, for which it does
NOT once the original IRA owner dies.
Distribution to the estate also qualifies. There is no distribution to the
decedent unless accrued/paid (depending on his accounting method) before
But the owner IS making a contribution (only in the year of death), as long
as it's before the due date of the return, even when made after the close
of the tax year (which for a decedent is the date of death). As for years
thereafter, no contribution on the decedent's behalf is permitted.
Suppose these facts:
A person mails his IRA contribution (during the year) to his custodian. He
[otherwise] qualifies to make the contribution. Before the custodian
deposits the funds of the contribution, the person dies.
Is it your position that such a contribution is not allowable?
an IRA of a deceased owner as long as it was before the filing deadline.
The answer is no as only an owner can make a contribution to his/her
IRA. It doesn't matter what the date is. All that matters is whether the
owner is alive or dead.
2. Now you propose to change the assumptions. You now ask whether the
act of mailing a contribution by an owner before the owner dies would be
allowed. There is no guidance on this, but there is guidance on when a
contribution is deemed to be made. It is not when it is mailed or when
you instruct the trustee to make it. It is the day the deposit is made
into the IRA account. Therefore, I would conclude that the IRS position
would probably be that as the owner is dead before the day the
contribution is made, Sec. 408 would disallow it.
And that's where we disagree, as the IRC, in section 219, also says that a
contribution may be made at any time from the start of the tax year until
the due date of the return. There is NOTHING in the IRC which forbids a
deposit by the custodian after the death of the primary beneficiary as long
as the person can make the contribution per the first sentence. Should an
executor direct a contribution for a decedent during his final year, the
contribution is for a period which the person was in fact alive (and has
POA authority to do so), and is deemed made on his date of death (i.e. the
end of his [final] tax year). Although one cannot contribute to an
inherited account, inheritance is not instant; there is a period of
administration, plus section 219(d)(4) is meant to deny successor
beneficiary contributions, not those of the primary who opened the IRA.
contained in Subchapter B, Part VII, Additional Itemized Deductions for
Individuals that deals with when you can take a deduction. The IRS wants
to use the section (408) of the code contained in Subchapter D, Part I,
Pension, Profit Sharing, Stock Bonus Plans, Etc., that says who can make
I hate to say that I agree with Stussy on anything, but his
interpretation seems more logical to me. Looking at §408, it
specifically states that, with respect to health saving accounts,
that death results in loss of eligibility.
In that statute there is no similar statement of loss of
eligibility for IRA contributions after death. The conclusion is
that if Congress wanted death to terminate eligibility immediately,
they could have and would have said so.
Under §219, contributions to an individual retirement plan are
retroactive to the last day of the tax year of made by the due date
of the return. If the person dies in the mean time, presumably,
the contribution will still be good. I don't see why, then, that
should not apply if death is before the end of the tax year.
I was able to find no specific rule on this point.
filing deadline and it will be considered to have been made by 12/31 in
order to take a deduction! 219 says nothing about who can make a
contribution! It is 408 that determines who can make a contribution.
Once you determine that a contribution can be made, you look to see
whether it is deductible and in which year.
I am merely pointing out that in the two PLRs, the IRS properly relied
on Sec. 408 in making the determination as to whether a contribution
could be made. Section 408 establishes the IRA and the regulations in
support of that say:
"It may be established and maintained by an individual, by an employer
for the benefit of his employees (see paragraph (c) of this section), or
by an employee association for the benefit of its members (see paragraph
(c) of this section)."
The IRS said that once a person dies, the estate, personal
representative or beneficiary are not identified in 408 as someone who
can make a contribution.
Therefore, the IRS position is that dead people can not make a
contribution. The only question left is Mr. Stussy's variant on the
original post: Namely, what if the person who dies, had made arrangement
(posted the contribution or asked his broker to make the contribution
before the deadline) for a contribution before death and the
contribution is made after death but before the filing deadline.
Sec. 219 is not relevant. The question is not whether a contribution is
timely. The question is whether a contribution can be made at all.
I am merely pointing out, that to be consistent, the IRS would probably
take the position that the answer is "No", because the individual did
not make a contribution to his IRA. The individual was dead. The IRS
has been consistent in its rulings regarding timing of contributions.
The contributions have to be in the account by the filing deadline. In
other words merely posting a check in the mail that does not get
deposited into an IRA until after the filing deadline is not a timely
contribution that meets Sec. 219 requirements. Therefore, a check
mailed by a person who dies, would probably not be a timely contribution
because at the time of the deposit, there is no individual alive to make
the contribution. Would the IRS carve out an exception for a check in
the mail before death, I don't know. That's why we have the PLR process.
PLRs are not citable authorities for anyone other than those who sought the
We have a statute on the books that indicate that timely mailing meets
deadlines, and that applies to more than just returns and payments (e.g.
Tax Court filings too).
We have a statute that indicates that a contribution made before the due
date of the return (and after the end of the tax year) is a valid
contribution for that tax year, and considered as made on the last day of
that tax year (even when performed thereafter).
Although a decedent's tax year ends on his date of death, there are
regulations which state that the due date is not advanced (to 3.5 months
after the last day of the month they die in) because the IRS cannot process
such partial calendar year returns until after the end of the calendar
As noted, there is nothing in either statute (219 or 408) that says that a
contribution is specifically prohibited after death for a taxpayer's tax
year during which for part he was alive. As long as estate administration
hasn't occurred, I see no problem. However, once an IRA is retitled to the
successor beneficiary(-ies), ONLY THEN is it an inherited account for which
contributions are banned.
Regardless, any distribution after death is NOT going to have the 10%
excise tax imposed.