The Slott Report

My November 29 Slott Report entry was titled “The Pro-Rata Rule Explained – You are Not Getting Taxed Twice.” I closed that article by stating there are exceptions to the pro-rata rule and ways to clean up an IRA that contains a mix of pre-tax and after-tax dollars (basis). Included here are three exceptions to pro-rata and how IRA owners could potentially “isolate basis” – reduce an IRA to only after-tax dollars, thereby setting the stage for a tax-fee Roth conversion.

In volatile times like these, when inflation is looming, retirement savers may look to invest their IRAs in gold. Advertisements on the internet and cable tv make it look easy, but that is not the full story. The recent Tax Court case of McNulty v. Commissioner shows the risks to retirement savings if the rules are not carefully followed.

Question: Good afternoon, Mr. Slott. I am trying to complete my taxes for last year, and the tax agent is stating that, because I had two 401(k) rollovers (each from a different employer), that I would be charged a penalty for one of these.

Many sections of the tax code are confusing, but section 457(b) is one of the major offenders. Within that section are the rules for two different types of company retirement plans -- governmental plans, and “top hat” plans for management employees of tax-exempt employers like hospitals.

SCENARIO: Teddy, age 60, has an existing Traditional IRA with a current balance of $93,000. This is all deductible, pre-tax money. Teddy would like to contribute to a Roth IRA, but his income level exceeds the Roth IRA income threshold. To skirt this problem, Teddy makes a 2021 $7,000 non-deductible contribution to his Traditional IRA with the idea to then covert the $7,000 as a Backdoor Roth.

Thanksgiving 2021 is upon us. This is the time of the year when we gather together and express our gratitude. When it comes to our retirement accounts, we often complain about the negatives. There are restrictions that are not logical and rules that are complex and confusing.

Are you considering opening up a new solo 401(k) and looking to maximize your 2021 contribution? If so, you may need to act quickly. There is a December 31, 2021 deadline for establishing a new plan if you want to make 2021 elective deferrals.

Question: Can someone take an in-service withdrawal from their 401(k) and directly transfer it to their IRA, then take a QCD from the IRA to satisfy the RMD amount attributed to the 401(k)? I am 72 years old and I am still working, but own more than 5% of the company; therefore I can’t use the “still working” exception.

As we careen into the holiday season, there remains a deceitful underbelly of dirtbags operating their typical scams. Giant inflatable Christmas decorations in front of your home or a menorah in the window will not dissuade criminals from working a dishonest angle. “Good cheer” is the perfect cover for bad deeds. (See: The Grinch.)

The IRS has released the cost-of-living adjustments (COLAs) for retirement accounts for 2022. As expected, due to inflation in the economy, many of the dollar limit restrictions on retirement accounts will increase next year.