The Slott Report | Ed Slott and Company, LLC

The Slott Report

6 Ways That Roth IRAs and Roth 401(k)s Are Different

Both Roth 401(k)s and Roth IRAs offer the ability to make after-tax contributions now in exchange for tax-free earnings down the road if the rules are followed. However, there are some important differences between the two retirement accounts that you will want to understand. 1. Contributions limits are higher for Roth 401(k)s One major difference is in the amount that you may contribute. Your Roth IRA contribution is limited to a maximum of $6,000 for 2020 if you are under age 50.

IRS Issues New RMD Tables . . . for 2022!

Good news! You can look forward to somewhat smaller required minimum distributions (RMDs) from your IRA and company retirement savings plan beginning in 2022. That’s because, on November 6, the IRS released new life expectancy tables that are used to calculate RMDs. The new tables are not effective until 2022. RMDs are waived for 2020, and RMDs for 2021 will be calculated under the current tables.

RMDs Under the CARES Act: Today's Slott Report Mailbag

Great work you all do. Been a reader of Ed for a long time. How would this scenario work? New client of mine's husband passed away in 2019 and he had not taken his RMD. The plan was to transfer the account to my firm and take the RMD when it got to my firm as there was plenty of time. However, the insurance company kept rejecting the transfer paperwork (as they did not tell the client everything they needed to submit).

10% Penalty Exceptions – IRA Only!

When a person under the age of 59 ½ takes a withdrawal from their IRA or company plan - like a 401(k) – there is a 10% penalty. However, this penalty can be avoided if the withdrawal qualifies for an exception. Some exceptions apply to both IRAs and plans, some to plans only, and some to IRAs only. With the craziness that is our current world, the three IRA-only exceptions (including SEP and SIMPLE plans) may provide a lifeline for those in need. A general description of each is as follows:

CRDs Are Still Available

The year 2020 has been a challenging one. With coronavirus cases rising in most of the country and economic relief stalled in Congress, many individuals may be looking to find funds to pay urgent bills. One possibility is a coronavirus-related distribution (CRD). While the first phase of the pandemic may be gone, the economic turmoil is still with us and so are CRDs. CRDs are still available through December 30, 2020. These are distributions, up to $100,000, from a company plan or IRA made anytime during 2020 (through December 30) to affected individuals.

TRUSTS AS IRA BENEFICIARIES AND NUA: TODAY’S SLOTT REPORT MAILBAG

Question: Our estate planning attorney prepared trust documents a few years ago and he advised us to name the trust as a beneficiary. This was done after discussion with him regarding a situation in case our son(s) divorce their wives. The trust is prepared so that our sons are designated beneficiaries. I've been reading your Slott Report article that advises against naming a trust as IRA beneficiary. Please let me know how to make sure half of the inherited IRA funds don't go to our son's divorced spouse. Thanks in advance.

MORE ON AFTER-TAX PLAN CONTRIBUTIONS

The October 19, 2020 Slott Report article, "Don't Overlook After-Tax Contributions!," explained how after-tax contributions in company plans work and discussed the dollar limits on them. This article will explain how distributions of after-tax contributions are taxed and can be rolled over separately. If you have both pre-tax deferrals and after-tax contributions in your 401(k), you can’t just take out your after-tax funds to avoid paying taxes on the withdrawal. Instead, a pro-rata rule treats part of your distribution as taxable.

IRA Trick-or-Treat!

Trick-or-treating in the time of a pandemic is a challenge. Social distancing while handing out candy requires some creativity. The Slott Report has elected to place a big bowl of random treats in front of our house for the kids to pick from. We bought a lot of candy, so feel free to take more than one… Twix. Do not name your estate as your IRA beneficiary.

IRA Rollovers and Deductions: Today's Slott Report Mailbag

Question: Hello, If an individual has a solo 401(k), is this considered a "retirement plan at work" that would limit the deductibility of IRA contributions? Thanks! Susan Answer: Hi Susan, Being an active participant in a retirement plan for the year can limit your ability to deduct your traditional IRA contribution, depending on your income. Participating in a solo 401(k) would count as active participation for this purpose.

Now is the Time to Consider NUA

For many people, 2020 has meant leaving a job. Some jobs have disappeared. Some workers are taking early retirement. This means that many workers are receiving distributions from employer plans. Many individuals may assume that the right move is to roll over those retirement funds to an IRA. Not so fast! For many people, a rollover will be a smart decision. However, don’t assume that is always the way to go. In some cases, as strange as it may sound, taking a lump sum distribution and paying taxes is a smart choice. You may be wondering how that could be possible. Well, a tax break called Net Unrealized Appreciation (NUA) may make taking that lump sum distribution a good choice in 2020.
 

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