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401K

Annuity Illustrations Are Coming Soon to Your 401(k) Statement

Those of you who participate in 401(k) plans or certain 403(b) plans should see something new on your next quarterly statement for the period ending June 30, 2022. For the first time, the statements must include illustrations of the monthly payments you would receive if your current plan account balance was used to purchase an annuity. This new requirement is part of the SECURE Act passed by Congress in December 2019. Congress intended that employees will see the illustrations and realize that their lump sum account balance may not produce high enough monthly income to last their lifetime. This, in turn, will persuade workers to increase their retirement plan savings rate.

One Roth IRA Bucket

SCENARIO: John owns multiple Roth IRAs. He believes it is necessary to maintain all these accounts to keep things properly organized and to track his 5-year conversion clocks. He has contributed to Roth IRA #1 for over a decade. He did a partial Roth conversion from a traditional IRA many years ago (to Roth IRA #2).

When a “Reverse Rollover” Makes Sense

Usually, rollovers involving 401(k) accounts and IRAs involve moving dollars from a plan to an IRA. But sometimes it makes sense to instead do a “reverse rollover” – from an IRA to a 401(k). Let’s get some bad news out of the way: Although 401(k)s (and other company plans) are required to allow rollovers out of the plan, they are not required to allow rollovers into the plan. So, before withdrawing your IRA, check with your plan administrator or HR to make sure you can do a reverse rollover. Also, the tax code only allows reverse rollovers of pre-tax (deductible) IRA funds. Roth IRA funds and after-tax (non-deductible) IRA accounts are not eligible.

Joe & Lucy – Different Rules Within the 10-Year Period

Some of the proposed SECURE Act regulations, released in February, are convoluted and unnecessary. We have made our opinions known. Fortunately, many of the confounding new rules – several of which we have written about – will be limited in their impact. However, a new discovery could affect a larger percentage of IRA and 401(k) beneficiaries. The combination of a few basic principles may lead to inherited IRA confusion. Does order + order = chaos? Example: Joe, age 75, has a traditional IRA (“IRA X”). Joe dies and leaves the IRA to his daughter Lucy. Lucy does NOT qualify to stretch payments as an eligible designated beneficiary (EDB) over her lifetime, so she must apply the 10-year rule. The entire IRA must be emptied by the end of the tenth year after the year of death. Additionally, Joe died after his required beginning date (“RBD” – April 1 of the year after he turned 72), so Lucy must also take required minimum distributions (RMDs) in years 1 – 9 of the 10 years.

How the Vesting Rules Work for Company Retirement Plans

Employees leaving their jobs are often surprised to discover they aren’t entitled to the full balance of their company plan account. The reason is that some plans impose a vesting rule on certain types of contributions. What do the vesting rules mean? They tell you how much of your plan benefit you actually own and cannot be taken away from you. If you’re fully vested, you’re entitled to your entire benefit. If partially vested, you only get a portion of your benefit.

401(k), 403(b), 457(b): Does it Really Matter?

There are three types of company savings plans: 401(k) plans if you work for a for-profit company; 403(b) plans if you work for a tax-exempt employer, a public school or a church; and 457(b) plans if you work for a state or local government.

401(k) PARTIAL ROTH CONVERSIONS AND USING QCDs TO OFFSET RMDs: Today's Slott Report Mailbag

Question: Hello, I’m learning a lot from Ed Slott’s latest book, “The New Retirement Savings Time Bomb,” but I do have a question on 401(k) Roth IRA conversions. I’m recently retired with a company 401(k). I’m leaning towards keeping the 401(k) (rather than rolling it into my IRA). Is it possible to do an annual direct conversion (partial) from my 401(k) to my Roth IRA, keep the remaining funds in the 401(k), and repeat the process every year until reaching RMD age? Thank you,

Deciphering Your 401(k) Statement

With many 401(k) (and 403(b) and 457(b) plans) offering multiple participant accounts, your plan statement is probably more complicated than ever. Here’s a brief primer to help you understand what each account represents: Pre-tax deferral account. All retirement savings plans allow for pre-tax deferrals. You make these contributions from before-tax pay. Both the contributions and earnings are taxable when paid out.

Act Now to Clean Up 2021 Excess 401(k) Deferrals

The amount of annual pre-tax deferrals and Roth contributions you can make to a 401(k) plan is limited by the tax code. If you exceeded that limit in 2021, time is of the essence to correct the error. If you don’t act quickly, the tax consequences can be serious. For 2021, you were limited to $19,500 in pre-tax deferrals and Roth contributions (plus an additional $6,000 if you were at least age 50 at the end of the year).

12/31/21 Deadline May Loom for Starting New Solo 401(k) Plan

Are you considering opening up a new solo 401(k) and looking to maximize your 2021 contribution? If so, you may need to act quickly. There is a December 31, 2021 deadline for establishing a new plan if you want to make 2021 elective deferrals.

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