Is Form 8606 needed in the future??

[FEDUKE404]

Husband had been filing Form 8606 (related to non-deductible contributions to traditional IRA) for several years. Husband died in 2007, RMD was made (as required!), and value of "his" account as of 12/31/07 was zero. All IRA assets were transferred to the surviving spouse, who has no prior 8606 issues.

If I place zero on line 6 of Form 8606, that increases greatly the amount that can be excluded for tax year 2007, as calculated on line 12. (And of course leaves nothing for the wife to use in future years for her own RMDs.)

Although the account still has significant value, by the end of the year it belonged to the wife. During calendar year 2007, she made no withdrawals from "her" IRA.

It appears that after the current year the "basis" shown on line 2 of Form 8606 will not be an issue for the wife. She will, of course, pay tax on all of her own RMDs in the future, which I guess is an offset to her late husband's tax (per Form 8606) taking a significant nosedive for tax year 2007.

My best determination is that the door closes upon the death of the first spouse, and that the inherited IRA goes to the surviving spouse without any possible "basis" factors that would generate Form 8606.

Am I at least warm?

FE

[ChEAr$]

This might matter,

I'm not sure.

You say his IRA was "transferred" to wife. Do you mean she was beneficiary and it
rolled over to a survivor IRA for her?
OR was his estate the beneficiary and she therefore inherited the account? If latter case
however, I would think the IRA would terminate and the funds would be "regular" in nature
to her.

I suspect it was the former, and therefore the basis would thus transfer to the beneficiary.
Thus she would have cost in the rolled over IRA and could continue to march, excluding
year after year.

[FEDUKE404]

Best plan so far is....

I'm not sure.

You say his IRA was "transferred" to wife. Do you mean she was beneficiary and it rolled over to a survivor IRA for her?
OR was his estate the beneficiary and she therefore inherited the account? If latter case however, I would think the IRA would terminate and the funds would be "regular" in nature to her.

I suspect it was the former, and therefore the basis would thus transfer to the beneficiary.
Thus she would have cost in the rolled over IRA and could continue to march, excluding
year after year.

The wife, not the estate, was the beneficiary of the IRA.

If you put in "zero" on Form 8606 as the year-end value of the account for the husband, ALL of the unused excluded amount gets used in 2007. (A poor comparison, but somewhat like getting to take all of the amortized refinance points when the second loan is finally paid off.) Because a much larger amount of the husband's IRA payment is therefore excluded, his/their tax goes down in 2007.

Of course, in future years, the wife has a plain vanilla "100% taxable" IRA of her own, with no "basis" issue.

At least that's the best I've been able to come up with................................

FE