Only a surviving spouse may do a charitable rollover from an inherited individual retirement account (IRA), and that is only if the spouse elects to consider the inherited IRA as his own. Non-spousal beneficiaries of an inherited IRA do not have this option. The spouse must meet other eligibility requirements for a charitable rollover.
Spousal Inherited IRAs
The surviving spouse may choose to designate the inherited account as his own, or roll it over into their personal IRA. The IRS considers that the spouse chooses to treat the inherited IRA as his own if any contributions are made to it, including rollovers, or the spouse does not take a required minimum contribution for at least a year after inheriting the account. If the spouse treats the IRA as his own, qualified charitable rollover contributions may be made. The spouse may also use the inherited IRA options available for non-spousal beneficiaries, but cannot make qualified charitable rollover contributions if taking this route.
Qualified Charitable Distribution
A qualified charitable distribution is usually a nontaxable distribution made by the IRA's trustee directly to a non-profit organization or institution that may receive tax-deductible contributions under IRS rules. Simplified Employee Pension (SEP) and Savings Incentive Match Plan for Employees (SIMPLE) IRAs do not qualify for charitable distributions. The IRA account owner must be at least 70 1/2 to make this type of distribution, and the annual maximum distribution at the time of publication is $100,000. The account owner must receive an acknowledgement of the contribution from the organization to claim a charitable contribution tax deduction. If the distribution exceeds $100,000, it is treated as ordinary income for the account owner.
Non-spousal beneficiaries cannot make additional contributions to the inherited IRA account and usually must take required minimum distributions based on either the beneficiary's or the decedent's life expectancy, according to the IRS single life expectancy table. The inherited IRA may be subject to a trustee-to-trustee transfer, in which the inherited assets are maintained in the name of the decedent owner for the benefit of the person named on the account. The beneficiary must take required minimum distributions if a trustee-to-trustee transfer is made.
The beneficiary may use the IRS' five-year rule if the decedent had not reached the age of 70 1/2. This regulation permits assets to be withdrawn before December 31 of the fifth year after the original account owner's death. During this time frame, the beneficiary may withdraw any amount of funds from the account. As long as the account is closed by the fifth anniversary of the decedent's death, the IRS waives required minimum distribution penalties for the beneficiary.
A graduate of New York University, Jane Meggitt's work has appeared in dozens of publications, including Sapling, Zack's, Financial Advisor, nj.com, LegalZoom and The Nest.