The Slott Report

Suppose you inherit 401(k) (or other ERISA plan) funds and then file for bankruptcy before receiving those funds. Can you lose those 40(k) dollars to your bankruptcy creditors? According to a recent decision of a Bankruptcy Court in North Carolina, you don’t have to worry.

We all know that if you want tax-free earnings in your Roth IRA, you must wait five-years. The Roth IRA owner has to have some “skin in the game,” so to speak, before the IRS grants the tax break. One must demonstrate a commitment to retirement savings in order to receive the tax-free carrot. Makes sense. But five years is so long! That’s more time than it takes to complete high school! Over the next five years there will be a Winter Olympics in Beijing and a Summer Olympics is Paris and we will be preparing for another Winter Olympics in Italy. So, if you want tax-free earnings in your Roth IRA by the time competitors are slaloming down the Dolomites, you better make that contribution or complete that Roth IRA conversion ASAP.

Question: If you are an employee who participates in a 401(k) who retires at age 73, do you have to take an RMD in the year you retire, or can you take your RMD by April 1 of the year following retirement? If you can take your RMD by April 1 of the following year, does that mean you have to take two RMDs in that year?

You may be familiar with Health Savings Accounts (HSAs). These accounts have been around now for a while. They work with high deductible health insurance and are known for their triple tax benefits. Contributions can be deducted. Earnings are tax deferred while in the HSA account and, if HSA funds are used for qualified medical expenses, both contributions and earnings are tax-free when distributed. While you may know the basics, here are 5 HSA benefits that may surprise you:

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:

Question: Hi, I have a client who died in 2021 before taking his 2021 RMD. He designated various charities as beneficiaries of his IRA. The IRA custodian is advising the executor to take the RMD, however according to a previous post by Mr. Slott, Revenue Ruling 2005-36 states in this scenario the RMD is to be paid to the beneficiaries. I suggested the client ask the custodian to request confirmation from their legal department. Any other steps? Thank you, LP

1. What is the NUA (Net Unrealized Appreciation) tax break? It is the opportunity to pay tax at long-term capital gains rates on the appreciation of company stock held within a company plan vs. paying ordinary income rates on that growth. 2. Who is a potential candidate for NUA? Anyone with highly appreciated company stock in their workplace plan, like a 401(k).

On July 15 and 16, financial advisors from around the country gathered virtually for Ed Slott and Company’s Instant IRA Success workshop. We took a deep dive into the rules governing retirement accounts and engaged in some lively discussions of issues that advisors on the front line are facing regularly as they help their clients plan for a secure retirement. Here are five takeaways to share from our recent meeting:

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,

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.