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Question: Late in December, 2021, a taxpayer (under age 59 ½) takes a distribution of his (traditional, not Roth) 401(k), and has 20% withheld for Federal tax. Early in January, 2022, the full 100% of the distribution is deposited in a Roth IRA. Does this avoid the 10% penalty for early distribution? Is this reportable as a Roth conversion in 2022 or 2021?

How Are Roth 401(k) Distributions Taxed?

More and more 401(k) plans now offer Roth contributions. At the same time, Americans are changing jobs and receiving 401(k) distributions in record numbers. So, it’s a good time to review the tax rules that apply to Roth 401(k) withdrawals. (The same rules also apply to Roth 403(b) and Roth 457(b) withdrawals.)

The Limits of ERISA Spousal Protection

A recent federal court case from West Virginia illustrates that the spouse of a 401(k) participant usually has no right to prevent the plan from paying the participant a lump sum distribution. In Gifford v. Burton, a Mr. Gifford (his first name is omitted in the decision) was an optician at Walmart and a participant in the Walmart 401(k) plan. He was married to Sara Gifford, who was his sole beneficiary under the plan. In February 2021, Mr. Gifford received a distribution of all of his 401(k) funds and deposited those funds into an IRA. He then designated his daughter, Emma Gifford, as 90% beneficiary of his IRA and wife Sara as 10% beneficiary.

Caught in a Trap: RMDs from 401(k) Plans in the Year of Retirement

Here’s a common question: An employee retires in or after the year he turns 72 and wants to roll over his 401(k) funds to an IRA. Does an RMD have to be taken before the funds are rolled over?

A Retirement Account Scorecard

Here’s a line from one of the manuals we use in our education seminars for advisors: “Missed stretch IRA RMD by an EDB, when the IRA owner dies before the RBD.” An old baseball expression says: “You can’t tell the players without a scoreboard.” In the world of retirement accounts, you can’t understand the rules without knowing the abbreviated terms. Here’s 18 common ones you should know:

Roth IRA Conversions and Roth 401(k)-to-Roth IRA Rollovers: Today’s Slott Report Mailbag

Question: When converting an IRA to a Roth IRA, do the investments (stocks, bonds, ETFs, etc.) have to be sold or can they be transferred directly from the IRA into the new Roth account?

The Unpleasant Surprise of the Accuracy-Related Penalty

If a retirement account transaction becomes a taxable distribution, you probably know you will owe taxes and possibly the 10% early distribution penalty (if under age 59 ½) on the distribution. But what you may not know is there might be an unexpected surprise. On top of the additional taxes and 10% penalty, you might also be liable for what’s called the “accuracy-related penalty.” Here’s what you need to know about this unpleasant revelation.

So You Think You Know A Lot About IRAs?

The Investment Company Institute (ICI) is an association representing mutual fund companies and similar investment companies. Recently, the ICI issued the results of a survey on traditional and Roth IRAs.

Beneficiary RMD Rules and 401(k) Contribution Limits: Today’s Slott Report Mailbag

Question: Someone participates in a 401(k) through his regular employer and has a solo 401(k) for a side job (self-employed). That person maxed out his 401(k) pre-tax deferrals for 2021 through the regular 401(k) and utilized the remaining limit up to $58,000 for a Mega Backdoor Roth contribution via after-tax contributions. Is he eligible for any solo 401(k) contributions for 2021 (not catch-up eligible)? What am I missing here?

Sidestepping the New IRS Private Letter Ruling Fees

Like most everything else these days, the price for receiving an IRS private letter ruling (PLR) has recently gone up. A person will request a PLR to receive the IRS’s blessing that a specific tax transaction won’t violate the tax code or IRS regulations. A PLR is specific to the particular tax situation of the person requesting it. This means that PLRs shouldn’t be relied on by anyone other than that person.

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