The Slott Report

If you are planning on doing a 60-day rollover with your IRA funds, be sure you understand same-property rule. This is one of the lesser known rules that apply to rollovers and is one many taxpayers find confusing. For IRA-to-IRA or Roth-to-Roth 60-day rollovers, the same property received is the property that must be rolled over. These rules also apply to SIMPLE and SEP IRAs. An individual cannot receive a distribution of cash and then roll over shares of stock that he purchases with the cash or that he currently owns. If cash is distributed from an IRA, then cash must be rolled over within 60 days.

Question: I recently inherited a traditional IRA from my mother. I mistakenly asked for a lump sum to be paid to me by the custodian. I realized after the fact that I wanted to set up a stretch IRA. I haven’t cashed the check yet. Can I just return it or have them stop payment on the check and change my option to an inherited beneficiary IRA? Thank You, Paul Answer: Paul, Once the distribution is paid to you, you cannot roll it over to an inherited IRA. Since the custodian properly followed your original instructions for a lump-sum payout and the check was already issued, you will probably be locked into the result.

With college costs almost certain to keep increasing each year, parents need to explore every possible tool available to meet the challenge of paying for higher education. Roth IRAs are not just for retirement savings. They can play a vital role in education savings. However, the rules can be tricky. Before you take a distribution from your Roth IRA to pay that tuition bill, be sure you understand the tax consequences. Contributions and Conversions If you are thinking of tapping your Roth IRA to pay for college, there is good news if you just withdraw contributions or converted funds. A Roth IRA distribution of tax-year contributions will be tax and penalty-free if used for higher education.

Roth IRAs are extremely popular, and why wouldn’t they be? Tax-free earnings over a lifetime can add up to a serious chunk of change. However, in order to receive those tax-free earnings, rules must be followed and timeframes must be met. Despite the ubiquity of Roth IRAs, there is confusion around what those rules and timeframes are. In order to maximize Roth benefits, it is imperative to understand the central guidelines around the ever-present 5-year windows. In fact, there are two primary Roth IRA clocks to consider.

Good morning, We have a client that retired on 1/2/2019 and he was over 70.5. He was not required to take his RMD in 2018 from his 401k since he was still working (he did take his 2018 RMD from his IRA). He rolled that 401k into his IRA this year (which was allowed in his plan since he retired in 2019), so we are trying to determine what his IRA RMD amount should be for this year. Should we calculate based on the 12/31/18 value of his 401k, or the amount that was rolled over into his IRA this year? We are thinking it would be the 12/31/18 value, but wanted to verify.

To discourage early access to amounts invested in IRAs and company retirement plans, the IRS imposes a 10% early distribution penalty on withdrawals before age 59 ½. Even though Roth IRAs consist of after-tax contributions, the penalty could also apply to converted amounts or earnings. There are several exceptions to the 10% early distribution penalty, which means taxpayers should be familiar with these before electing a distribution. Doing so will help them possibly avoid this penalty.

In the wake of tax reform, more IRA owners are making use of the Qualified Charitable Distribution (QCD) strategy. This is a side effect of fewer people choosing to itemize and instead going with the larger standard deduction. If you are not itemizing, you cannot claim a tax deduction for your charitable contribution. To get a tax break for money given to charity, many savvy IRA owners are increasingly turning to the QCD. With the number of QCDs rapidly increasing, so are the questions as to how this tax break works. Here are two QCD questions we are hearing a lot these days.

et Unrealized Appreciation (“NUA”) is a powerful tool that people with employer stock in company plans should be aware of. Under this tax concept, the gains on the employer stock that are distributed according to the NUA rules are subject to long term capital gains rates when sold. That could be a huge tax break for some people. Normally, distributions from a company plan are subject to ordinary income tax rates, which while dependent on income are generally going to be higher than long-term capital gains rates. Of course, there’s a catch: the basis in that stock is taxed at ordinary income tax rates in the year of the distribution. Because of this, the first step in any NUA analysis is to determine whether the company stock is highly appreciated enough to justify accelerating the taxes.

Question: My sister is 72 years old and quite philanthropic. Much of her traditional IRA RMD she donates to various charities. Is it possible for her to instruct the IRA trustee to send the money directly from her IRA account to the charities? How will the charities acknowledge receipt from my sister so she can deduct the donations on her taxes? Is she still taxable on the RMD directed to the charity? Keep up the great work and thank you. Edward Answer: Hi Edward, It is great that your sister is charitably inclined. If she is already donating funds distributed from her IRA to charity, she may be a good candidate for Qualified Charitable Distributions (QCD). With a QCD the funds would be transferred directly from her IRA to the public charity of her choice.

The House Ways and Means Committee recently passed the Setting Every Community Up for Retirement Enhancement Act of 2019 (the SECURE Act). This bill includes a number of measures designed to strengthen retirement savings. With regard to IRAs, the bill would treat certain taxable non-tuition fellowship and stipend payments as compensation for purposes of making a contribution and would remove the prohibition on traditional IRA contributions for those age 70 ½ and over. It would also allow penalty-free distributions for any “qualified birth or adoption distributions” and would increase the age when required minimum distributions must begin from age 70 ½ to age 72. Buried in the SECURE Act is some bad news for many retirement account owners. As a revenue raiser, the SECURE Act would essentially do away with the stretch IRA as we now know it. The proposed legislation would change the rules for defined contribution plans and IRAs upon the death of the account owner.