The Slott Report

One of the many unfortunate effects of the coronavirus pandemic is the number of folks who have lost their jobs. Besides the loss of income, many of these individuals also face unexpected and unpleasant tax consequences if they have an outstanding 401(k) plan loan.

It is early 2021 and two ingredients mix again: retirement money in motion, and required minimum distributions (RMDs). This may not appear to be a dangerous concoction, but when improperly combined, the results can be a bitter beverage. Required minimum distributions cannot be rolled over, period.

Question: I am going to turn 72 in December of 2021. When I take my RMD, what is the dollar amount I use to calculate my RMD? Is it the account value ending December 31, 2020, or December 31, 2021? Thank you for any clarification. Bob

A Simplified Employee Pension (SEP) is a popular choice for many small employers. Although these plans are in fact designed to be less complex than other types of retirement plans, there are many ways to go wrong and make errors. Here are three tips to avoid tax problems with your SEP.

The Internal Revenue Code is over 4,000 pages of often unintelligible tax jargon. So, it shouldn’t surprise anyone that the law contains more than its share of baffling and inconsistent provisions. Here are four examples pertaining to IRAs and company retirement plans:

Question: I hope you can help me with this, as I cannot find the answer anywhere or from anyone. In 2019, my client Frank, passed away. His cousin, Lisa, inherited his IRA. In 2020, Lisa passed away. Her husband, Rob, inherited the IRA. They are all the same age.

Here we go again…barreling headlong into another tax season. This year will be like no other. With all the crazy that was 2020, many tax filers will discover some new and interesting items on their tax returns. For example – did you take a Coronavirus-related distribution (CRD) last year? That will require some additional reporting (Form 8915-E). Did you take your required minimum distribution in 2020, but then repay it after the CARES Act RMD waiver? That will generate a form you may not be familiar with (Form 5498).

The rules for rolling over IRA distributions can be complicated at any time of the year. They are especially challenging at the end of the calendar year. Surprisingly, sometimes IRA owners have doubts as to whether a distribution taken in one calendar year can even be rolled over in the next. There is no problem with this! Nothing prevents you from taking an IRA distribution in December, 2020 and rolling it over in January, 2021, as long as you follow all the usual rollover rules that always apply.

Question: We had a client who died with no beneficiaries on his $500k 401(k). He wasn’t married and only 45 years old. His parents are disclaiming rights to the inheritance, so it’s going to his siblings. Is there any way these two siblings can stretch the retirement account into an inherited IRA? If so, what does that look like? Thanks, Patrick Answer: Hi Patrick, The siblings may still be able to use the stretch even after the SECURE Act eliminated it for most beneficiaries.

Coronavirus-related distributions (CRDs) are no more. Millions of Americans took advantage of the opportunity to make penalty-free withdrawals from their IRAs and 401(k) plans in 2020. But unless Congress resurrects them, CRDs are no longer available. Yet the economic damage caused by the pandemic is still very much with us. So, without CRDs, where do you turn for money to pay your bills?