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A Syllabus on Penalty-Free IRA Withdrawals for Higher Education Expenses

It’s that time of the year! College bills for the Fall semester are arriving, and you may be thinking of tapping into your retirement savings to help with the costs. If you’re under age 59 ½, be careful. Your withdrawal may be subject to a 10% early distribution penalty unless you are able to take advantage of an exception to that penalty. (Remember that, even if you qualify for the exception to the penalty, distributions from traditional IRAs will be taxable.) Here’s what you need to know about the higher education expense exception:

ONCE-PER-YEAR ROLLOVER RULE AND ROTH CONVERSIONS: TODAY’S SLOTT REPORT MAILBAG

Mr. Slott, Would a person who took a Coronavirus-Related Distribution from his IRA in 2020, with intent to repay within 3 years, be disqualified from taking a distribution and making a 60-day rollover in 2021 if it is within 12 months of the CRD Thank you,

How Do the RMD Rules Work When a Pension Plan Lump Sum is Paid?

In the May 17, 2021 Slott Report, we discussed the rules governing required minimum distributions (RMDs) from defined benefit (DB) plans, also known as “pension plans.” We said that DB plan payments usually have no problem satisfying the RMD rules, but there are two special rules that sometimes apply.

The “Mega QCD” Offers a Way Around the Qualified Charitable Distribution Restrictions for 2021

Would you like to make charitable donations from your IRA but aren’t eligible for a qualified charitable distributions(QCD) because you’re under age 70 ½? Are you eligible for QCDs but want to donate more than the $100,000 annual limit? Are you interested in making charitable gifts from your 401(k) or other company savings plan? If you answered “yes” to any of these questions, you should be aware of a tax strategy just just for 2021 that we call the “Mega QCD.”

Clarifying the Rollover/Transfers Rules When an RMD Is Due

In the June 16, 2021 Slott Report, we discussed how an in-service distribution made in the year of separation from service can inadvertently create an excess IRA contribution if that distribution is rolled over when a required minimum distributions (RMD) is due. A related issue is how rollovers and transfers from 401(k) plans (or other company plans) and IRAs are treated differently when an RMD is required.

IRS Rectifies Mistaken Interpretation of 10-Year Payout Rule

On April 14, we reported that the IRS was apparently interpreting the SECURE Act's 10-year payout rule in a surprising way – to require annual required minimum distributions (RMDs). Now, the IRS has made it clear (without actually saying so) that its prior interpretation was a mistake. The SECURE Act changed the payout rules for most non-spouse beneficiaries of IRA owners who die after 2019. Those beneficiaries can no longer use the stretch IRA. Instead, they are subject to a 10-year payout rule, which requires the entire IRA to be paid out within 10 years of the owner’s death.

ROTH CONVERSIONS & 401(k) RMDs: TODAY’S SLOTT REPORT MAILBAG

Hi! I attended the February 2021 IRA seminar and had a question re: Roth conversions. he seminar discussed rolling over assets held in a company plan into a Roth IRA. I’m dealing with a client that wants to roll over a lump sum from a state pension plan into a Roth IRA. Can you tell me if in your experience this is generally permitted (assuming tax is paid on the conversion amount)?

How the Once-Per-Year Rollover Rule is Misunderstood

One of the cardinal sins you can commit with an IRA rollover is to run afoul of the IRS “once-per-year” rollover rule. Violating that rule triggers a taxable distribution and the 10% early distribution penalty if you are under age 59 ½. Plus, the forbidden rollover would be treated as an excess contribution subject to an annual 6% penalty unless timely corrected. Unlike missing the 60-day rollover deadline, violating the once-per-year rule is a mistake that cannot be fixed.

How Do RMDs Work in DB Plans?

Rules governing defined benefit (DB) plans are typically more complicated than defined contribution (DC) plan rules. But required minimum distributions (RMDs) are one area where the DB plan requirements are easier to understand. If you’re in a DB plan, your benefit payments must begin no later than your “required beginning date” (RBD) – just like with IRA distributions or DC plan benefits. Your RBD is generally the April 1 following the year you reach age 72. However, if your DB plan allows the “still-working exception,” you can delay your RBD until you retire.

SPOUSAL ROLLOVERS AND SUCCESSOR BENEFICIARIES: TODAY’S SLOTT REPORT MAILBAG

Question: Good afternoon. We have a client who was 19 years younger than her spouse. He passed away this year. We are planning to keep this as an inherited IRA for now. Can we move the assets to her own IRA at any time? Thank you, stay safe and have a great day, Julie

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