The Slott Report

I get the same question every year at year end. “My client has an illiquid IRA and can’t take his RMD. Can we just write a note to IRS explaining the problem?” Every year my answer is the same. “NO.” What is an RMD? It is a required minimum distribution. What does required mean? From dictionary.com: “to call for or exact as obligatory; ordain: The law requires annual income-tax returns.” In other words, it is something you must do; you cannot get out of it.

If you are considering converting an IRA to a Roth IRA in 2018, time is quickly running out. Here are 5 things you need to know when making a decision: 1. The Deadline - The deadline for a 2018 conversion is the end of the calendar year. There is a common misconception that a conversion can be done up to the client’s tax-filing deadline. That is NOT the case. There is no such thing as a prior-year conversion. The distribution must be taken in 2018 and reported on a 2018 Form 1099-R. It is best not to wait until the last minute. Be sure to leave enough time to complete the transaction.

Question: Mr. Slott, My spouse turned 70 on June 27th, 2018, so in December 2018 she will be 70 ½. She would like to complete a Qualified Charitable Distribution (QCD). Does the QCD need to be dated from December 27 to December 31, 2018 in order to take advantage of the favorable tax treatment for tax year 2018? Or, does she have all of calendar year 2019 to disburse her 2018 (and of course 2019 QCD) to meet the RMD requirements? Thank you for your advice. Ron

One piece of advice we commonly reiterate is, when you inherit an IRA or other retirement plan asset, touch nothing! That’s because many transactions cannot be undone, and the IRS rarely grants relief simply because the taxpayer misunderstood the tax rules. That said, you don’t want to remain stagnant forever. We were reminded of this in a recent private letter ruling approving a proactive approach by trust beneficiaries that saved the stretch distribution.

It turns out the Grinch stirs up a blizzard of trouble beyond stealing Christmas trees and presents from the innocent Whos down in Whoville. That candy cane he slipped out of Cindy Lou’s fingers? Child’s play. The breadcrumb he stole from the hungry Who mouse? Just the tip of his naughty iceberg of misdeeds and bad retirement advice. He’s an account-churning, RMD-avoiding, tax-scheming thief! An excess-contributing, high-pressure selling, rollover cheat! Oh, you ARE a mean one, Mr. Grinch. In an effort to protect the other Whos in Whoville, we share the top 3 most foul Grinch-recommended year-end IRA strategies that unequivocally, unmistakably and inevitably will NOT work:

Good morning! I am hoping you can provide some direction for an issue we have encountered. In December of 2016, we changed our broker-dealer. A particular client had not completed the transfer paperwork and had to mail a check to the IRA custodian directly for their 2016 contribution. The client had mailed the check prior to April 18, 2017, which was the deadline for the 2016 IRA contribution. The check was dated for 04/18/2017. The custodian has incorrectly coded the check for the current year (2017), and it should have been for prior year 2016. The custodian is not allowing the coding to be corrected, which the client is stating they are now subject to fines. Is there a way this client can dispute this issue, or can you please offer any advice? Thank you!

Twenty-six states have adopted revocation-on-divorce statutes similar to each other, and these statutes are impacting court decisions.

If you are thinking about doing a qualified charitable distribution (QCD) for 2018, time is running out. The deadline is December 31, 2018. Many people are missing out on this valuable tax break.

Tim and Robert are identical twins. They wear the same clothes. They have similar hair styles. They have similar jobs and similar incomes. Tim and Robert are both concerned about taxes, and they agree that saving money for the future is very important.

Thanksgiving is only a few days away. This is a time when we gather together and express our gratitude for all the good things in our lives. When it comes to our retirement accounts, we too often complain about the negatives, such as the restrictions that are not logical and the complicated and confusing rules.