The Slott Report | Ed Slott and Company, LLC

The Slott Report

Qualifying Matching Contributions and Converting Your IRA: Today's Slott Report Mailbag

Question: Planning Question - for retirement plans that permit Non Roth After Tax Contributions, could the company use Qualified Matching Contributions (QMACs) for the NHCEs to satisfy the ADP & ACP testing allowing the HCEs to max out their 415(c) ceiling above their own deferrals and company match contribution? Or, is there a better way for the HCEs to max out up to the 415(c) ceiling? Rick Answer: Rick, Qualified Matching Contributions, or “QMACs,” are used to help plans pass the Actual Contributions Percentage Test (ACP). Since after-tax contributions are included in the ACP Test, QMACs can be used to help plans pass

Crossroads: Combining the Spousal Rollover Rules with the Separate Account Rules

Tax rules can be confusing, and that can especially be the case when we are talking about the application of two separate rules. It’s easy to get confused when two or more tax laws intersect. For many, that occurs when we discuss the separate account rules for IRA beneficiaries along with the special rollover rules afforded to spousal beneficiaries. If an IRA account has multiple beneficiaries, and that account is not split by December 31st of the year after death, then all beneficiaries are stuck using the life expectancy of the oldest amongst them. That treatment lasts until the account is emptied. For non-spouse beneficiaries, all post-death beneficiary Required Minimum Distributions (“RMDs”) must also begin by December 31st of the year after death. On the other hand, spousal beneficiaries can roll over inherited amounts to their own IRA accounts, essentially changing when RMDs begin. Spouses also get favorable treatment when calculating those RMDs. To illustrate, let’s take a fairly common example.

5 MUST-KNOW STRATEGIES TO CAPITALIZE ON - THE GREAT WEALTH TRANSFER

Are you ready for the Great Wealth Transfer? By some reports, 45 million Baby Boomers are expected to transfer over $68 trillion in wealth to the next generation in the coming 25 years. Increasingly, a larger portion of this wealth can be found in IRAs. Those dollars in motion represent an opportunity for proactive advisors who know how to move retirement assets to heirs in the correct and most tax efficient manner. HERE ARE 5 MUST-KNOW IRA STRATEGIES TO CAPITALIZE ON THE GREAT WEALTH TRANSFER. 1. Maximize the Stretch IRA. Most beneficiaries who inherit an IRA will probably want to leave the assets in the account to grow for as long as possible. Plus, if the inherited IRA is full of pre-tax monies, distribution to a beneficiary will be taxable as ordinary income. How can a beneficiary minimize taxes and leave inherited dollars in an IRA for as long as possible? By leveraging one of the biggest breaks in the tax code…the stretch IRA!

Rolling Over Your Plan? Pay Special Attention to Your RMD

Whether by choice or necessity, many Americans are still working long beyond what has traditionally been retirement age. If you are a member of this group, you may be keeping funds in your employer plan well into your seventies and maybe even later. There are some big benefits to extending a career. You can continue to contribute to your retirement account and may even be able to take advantage of rules that allow required minimum distributions (RMDs) to be delayed. Eventually, however, the time will likely come when you will want to take some or all of the funds out of your plan. You may want to roll over those funds to an IRA. A large percentage of employer plan funds do end up in an IRA eventually.

Spousal IRA Contributions and RMDs of Inherited IRAs: Today's Slott Report Mailbag

Question: Is it possible to take the RMD portion of an inherited traditional IRA and convert that each year as the distribution is done into a Roth IRA? Or, is the only way to accomplish this is to take the distribution and then make a contribution, which limits the amount I can put in each year? Thanks, Lynn Answer: Lynn, No, RMDs from an inherited IRA cannot be converted to a Roth IRA. “Required minimum distributions” are just that, required. Whether from an inherited IRA or from an IRA by the original owner, they must be removed from the account.

IRA Contributions, Rollovers & Updated Bankruptcy Cap

Edward was born in 1950. Traditional IRA accounts would not be established until the Employee Retirement Income Security Act of 1974 (ERISA). In 1975, Edward and many other Americans took full advantage of this tax-deferred savings opportunity. The maximum contribution limit in 1975 was $1,500, and Edward contributed the full amount to his IRA every year. Contribution limits increased to $2,000 in 1982 and to $3,000 in 2002, and each year Edward squirreled away the maximum amount. The over-50 catch-up contribution provision became effective with the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) when Edward was already over 50, so he leveraged the new rules to dial up his savings.

Direct Transfer (or Rollover) – The Best Way to Go!

I’m sure you’ve heard countless advisors mention that a direct transfer (or direct rollover) is the best way to move funds between IRAs or qualified retirement plans. But do you understand why? There are a number of reasons, and in this installment, we discuss some of those in greater depth. Background: Direct Transfer vs. 60-day Rollovers It is important to under the difference between a direct transfer (or direct rollover) and it’s alternative, a 60-day rollover (or indirect rollover). Direct Transfer – A direct transfer and a direct rollover have identical meanings. The only difference is the tax code uses the term “direct transfer” when discussing IRAs and “direct rollovers” when addressing qualified plans. In either event, we are talking about a distribution where the funds are payable to another tax-deferred account. They are not paid to the account holder. There are two ways to directly transfer/rollover IRA and qualified plan accounts:

Required Minimum Distributions: Today's Slott Report Mailbag

Question: I have a question about avoiding RMDs for a still-working 72 year old in a 401k plan. Suppose they don’t have to take 401k RMDs due to the still-working exemption from RMDs. Let’s say the person knows they will retire next year in February 2020 when they will be 73. If they do an IRA rollover while still employed in January 2020, would that avoid the RMD for the 401k plan? Is it correct to assume that the rollover amount from the 401k would not be included in the IRA RMD calculation for 2019, but would be included for 2020 (since 401k amount was not in IRA at end-2018, it would not be included in calculation)?

5 IRA Contribution Rules That May Surprise You

It’s that time of year again. Tax season is upon us. This is now the time when many individuals consider funding their IRAs. Contributing to an IRA may seem pretty straight forward and in many ways it is! But there can be twists. Here are five IRA contribution rules that may surprise you. 1. File now and fund later. Frequently, during tax season we are asked if an IRA contribution must be made before the tax return is filed. The answer is no. This is not required. You can claim a deduction for your IRA contribution now when you file your taxes and fund it later. Some people even fund their IRA contribution with their tax refund if the timing is right. Just don’t wait too long. If you claim the contribution, be sure you get it done.

The Disclaimer

A disclaimer is an interesting tool. It is a denial or disavowal of legal claim, or a formal refusal to accept an interest in something. “Release” and “waiver” are good synonyms. Oftentimes a disclaimer statement is used by a person looking to shield themselves from legal repercussions. A shady politician might disclaim any responsibility or liability from the things he “may or may not have said.” It would be nice if we could disclaim the bad things in life, like a stubbed toe or a failing grade in math class. Disclaimers are not just for people looking to cover their tails. They can certainly be used for the benefit of others, especially with retirement plans. For example: a husband dies but neglects to name a beneficiary on his IRA account.
 

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