Contributing to a deceased's IRA

The only guidance on this genberal subject that I am aware of is in IRS 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.

years ago,  I'm just asking this for

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?

years ago, I'm just asking this for

In your scenario, the excess contribution was withdrawn prior to the due date of the tax return.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 If there was a gain on the excess contribution, it should have been withdrawn at the same time and the amount included as income on the 2009 personal income tax return.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.

ONLY a surviving spouse may treat the deceased spouse's IRA as his/her own and contribute to it (as if it were his/hers). No other beneficiary may contribute.

Of course. But that wasn't the question. The issue is whether one spouse can make a contribution on behalf of the other spouse after the other spouse dies.

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 would guess that this is correct.

But what

If liquidated as cash, then the excess contribution has been withdrawn before the due date, hasn't it?

few years ago, I'm just asking this for

I disagree with the imposition of the 10% excise tax. Death is a valid exception.

I did NOT read "contribute when he normally would" as "contribute on HIS behalf."

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.

Wrong code section. Sec. 219 deals with deducting contributions. The 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.

I believe you are referring to the clause that says a distribution to a 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 death.

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?

1. The original question was whether someone can make a contribution to 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.

Then we disagree. You seem to want to use a section (219) of the code 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 a contribution.

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.

Under 219 an individual can make a contribution to an IRA up until the 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 rulings.

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 year.

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.