The Slott Report

Last Friday afternoon (August 25, 2023), the IRS gave employer plans two more years to comply with the controversial SECURE 2.0 rule requiring “catch-up contributions” for high-paid employees to be made on a Roth basis. The effective date of the rule was postponed from January 1, 2024 to January 1, 2026. The delay is set forth in IRS Notice 2023-62.

QUESTION: Hello! I recently came across one of your articles and decided to reach out to you in hopes of getting some clarification re: the Secure Act 2.0 and distributions as a qualified public safety employee. In a nutshell, I am a 17-year career firefighter for a county government. With the new Secure Act 2.0, it seems as though I can take distributions after 25 years of service, OR age 50, whichever comes first, without penalty. If this is true, would I be eligible to begin taking distributions at age 47, without penalty?

We are often asked how the Roth IRA 5-year rule works. This is a borderline trick question because there is not one 5-year rule for Roth IRA distributions. There are actually two different 5-year rules. So, to avoid confusion, let’s talk separately about each 5-year rule.

When an IRA or retirement plan owner reaches a particular age, that account owner typically must begin taking required minimum distributions (RMDs.) The RMD is calculated based on the year-end account balance divided by a life expectancy factor. Of course, there is a parade of variables to consider, including:

Question: I am struggling to find an answer to my situation. My wife’s 82-year old father passed away about 8 years ago and he was taking IRA distributions. A portion of his IRA was inherited. Since then, my wife had been taking RMDs based on her life expectancy as an old stretch IRA.

If you are subject to required minimum distributions (RMDs) and have annuitized part of your IRA, a recent law change could drastically reduce your RMDs. But, without IRS guidance, it may be difficult to take advantage of that change.

The IRS unleashed massive confusion last year. To the surprise of many, it released proposed SECURE Act regulations requiring beneficiaries (on some occasions) to take required minimum distributions (RMDs) during the 10-year payout period.

Question: I’m age 76. My brother died in December 2022 at 84. Do I take required minimum distributions (RMDs) for the inherited account based on my age or on my brother’s age at death?

As already-complicated IRA rules spiral further into an abyss of confusion, it comes as no surprise that irregularities exist. Up is down and left is right. Green means stop, red means throw your hands up in exasperation.

If you’re facing the unpleasant prospect of paying college bills for the fall semester, you may be thinking of tapping into your retirement savings to help with the costs. If you’re under age 59 ½, there is an exception to the 10% early distribution penalty for higher education expenses. But there are several rules you need to follow: