The Slott Report

Question: I read your November 29, 2017 explanation of rollovers and the time limitations. But my issue is still unclear to me. In December 2018, my husband made a transfer from his 401(k) to an IRA to a Roth IRA. We intended to do the same this year, but an unexpected bill hit us, and we took a distribution from the 401K two weeks ago. Taxes were taken out. The bill turned out to be much less than expected and so, we would like to roll over the distribution into his existing Roth account. Since the December one was a transfer and this one would be a 60 day rollover, is it permitted? And if so, can we do another transfer in a few months? Thank you in advance. Nina Answer: Hi Nina, You are wise to be concerned about the timing of your transactions, but you should be OK. The IRS has a “once-per-year rule” that limits anyone from making more than one IRA rollover in any 12-month period. (The 12-month period is not a calendar year.) Violating this rule could cause serious tax consequences.

Many of you who participate in a company retirement plan may have heard that the plan is “qualified” or “tax-qualified.” That sounds reassuring, but what exactly does it mean? In other words, what qualifies a qualified plan to be qualified? (And, while we’re at it, how much wood can a woodchuck chuck …?) The carrot and the stick: The concept of a qualified plan resulted from Congress’s desire to incentivize companies to establish retirement plans. So, Congress enacted certain tax breaks for employers who set up those plans, but required the plans to satisfy a number of rules designed to make sure the plans don’t take advantage of rank-and-file workers. Here are the most important of those rules:

Roth IRAs and Roth 401(k) plans are incredibly popular, and why wouldn’t they be? Both offer tax-free earnings and allow the account owner to pass tax-free dollars to their beneficiaries. However, despite the ubiquity of Roth accounts, there are some common misunderstandings about how Roth IRAs and Roth 401(k)s operate and interact with each other. Confusion swirls around such basic concepts as contribution limits, eligibility and Roth rollovers. For example, income limits apply to Roth IRA contributions only There are no income limits for designated Roth 401(k) plan salary deferrals. Contributions are the initial building block of Roth IRAs.

Question: I have read your updates and shared information regarding the SECURE bill that is in the Senate currently. The information discusses the non-spouse beneficiaries of IRAs will need to take distributions over 10 years as a lifetime stretch will not be an option anymore. Do you have any information on existing Inherited IRAs that are already in the stretch phase? My wife inherited an IRA in 2007 and we are stretching it over her lifetime. Does the bill grandfather existing and focus on future inherited IRAs? I realize we will not know the final answer until the bill is passed by both chambers and signed by the President, but wondered if you had any preliminary information.

When driving your car, most of the time you’re going forward. But sometimes, like when you back into a parking spot in anticipation of beating the traffic after a sporting event or concert, you must shift gears to reverse. So it is with rollovers between 401(k) plans (or other employer plans) and IRA’s. Most of the time you’ll be considering a rollover from the 401(k) plan to an IRA. But sometimes it makes sense to consider a “reverse rollover” – from an IRA to a 401(k).

With the year half over, it’s prime time to huddle, refocus your team and commit to reaching your 2019 goals—for your clients and your advisory business. Here are 7 strategies advisors can leverage now to notch a win for clients in the 2019 retirement planning game: 1. Analyze the Film: Review 2018 Tax Returns The 2018 tax season is now over for most taxpayers, and it has been a learning experience for many. This is the first time both advisors and clients will know the actual effects of the Tax Cuts and Jobs Act. Review clients’ 2018 returns and use these results to plan for 2019. Assess the effect of the Qualified Business Income (QBI) Deduction on 2018 tax returns to plan for 2019 results. Did retirement plan contributions affect the client’s QBI deduction or their tax bracket?

‘Tis the season for bee stings and mosquito bites. Just like those summer irritations, 401(k) plan loans have their own annoying rules that can make them risky transactions. Fortunately, a provision of the 2017 tax reform law applied a little hydrocortisone to help relieve the itch. One advantage that 401(k) plans have over IRA’s is that 401(k)’s (as well as many other employer-sponsored plans) can allow participants to borrow against their accounts. 401(k) plans are not required to allow loans, but most do.

Happy 4th of July to all the loyal readers of the Slott Report! This summer holiday is a time for barbeques. This is a time when all ages come together to celebrate. Families will gather to grill hot dogs, roast marshmallows and watch fireworks. If the conversation around the grill should happen to turn to retirement savings, here are 4 IRA tips, one for each generation of guests, to share while you celebrate: It’s never too early to start to save. Here is a tip to share with younger guests who might be just starting their careers. With student loans and the high cost of housing, the last thing on a millennial’s mind is saving for retirement. However, when it comes to retirement, young people have a huge advantage – time.

Did you inherit an IRA from someone who is NOT your spouse? This is not uncommon. Maybe you inherited from a sibling or a parent or a friend. If this is your situation, you will want to proceed with caution. For nonspouse beneficiaries a wrong move can result in disastrous consequences. So, take your time and do it right. Step one is to carefully explore your options. What are a nonspouse beneficiary’s options when it comes to the inherited IRA? Under the tax code, nonspouse beneficiaries can take advantage of the “stretch” IRA. This means you can set up a properly titled inherited IRA and then take required minimum distributions (RMD)s based on your life expectancy.

Question: Your advice, articles, publications and books I’ve purchased over the years have been great and most informative. Great job! My question is with regards to NUA – I retired recently (age 66) and had a company 401(k) to which I contributed over the years and will likely not make any withdrawals until required RMD’s. Within the company 401(k) plan I invested in selected bond funds, stock funds, small cap, a value fund, target funds, mid cap funds, international funds and our company stock fund option. (Some of the company stock I purchased and some was a company gift over the years).