The Slott Report | Ed Slott and Company, LLC

The Slott Report

Missed RMDs and Retirement Plan Rollovers: Today's Slott Report Mailbag

Question: Hello, I have a question for a situation I have never come across before. I have a client that just found out they missed taking their RMD’s from one of their retirement accounts for the last 5 years! Assuming they take the missed distributions in March 2019, what form will the broker report this on? Will it be a Form 1099-R for 2019? Or will he get a corrected Form 1099-R for 2015, 2016, 2017…? Also, what code will be used in box 7 to indicate that this is a correction of the missed RMD’s? Thank you for any help you can give! Regards, Deborah Answer: Deborah, Missing RMDs is a common occurrence and there is a definitive fix. The missed RMD should be taken as soon as possible. The RMD will be taxable in the year it is withdrawn, so the missed RMDs will all be included on the 2019 Form 1099-R.

Sunk by a Rollover

Unfortunately, it happened again. Another person dove into the IRA rollover pool before checking the depth, temperature, or if the pool was even open for swimming. In this scenario, $125,000 was rolled from an IRA at Bank A to Bank B. A few months later, in a constant search for a higher paying certificate of deposit, the account owner rolled the same $125,000 to an IRA at Bank C. Spot the problem(s)? This relatively innocuous-looking transaction created a laundry list of snowballing issues. Probably the most penal is that the second rollover attempt was invalid and is treated as a distribution. The $125,000 is now taxable earned income for the year. Why? A person is permitted only one (1) 60-day rollover per 12-month period with their IRA accounts. This does NOT mean one rollover per calendar year.

Keeping the RMD Rules Straight

Most people are aware of the tax concept, Required Minimum Distributions or “RMDs.” These are the tax rules that force you to take a distribution from your IRA or qualified plan, even when you don’t want to. Moreover, that distribution is usually taxable, and it cannot be rolled over! The calculation is always the same: you divide the account balance as of December 31st of the previous year (adjusted for any outstanding rollovers and transfers) by the appropriate life expectancy factor. What often confuses people are the starting points and the applicable expectancy factor. Use the checklist below to keep some of these rules straight: IRA Owner: RMDs must be made by April 1st following the year you reach age 70 ½. After that initial distribution, the deadline shifts. You still receive an RMD, but it must be made by December 31st. Because of this, waiting until the April 1st deadline means while you pay taxes on two RMDs in the same year.

60-Day Rollovers and Required Minimum Distributions: Today's Slott Report Mailbag

Question: I have a 60 day rollover, and basically the client has what I believe is an uneducated tax preparer. The roll over occurred within the proper 60 days, the custodian sent out the 1099R as a distribution checking box 7, 1, because even they sent the check directly to the new custodian they did not receive a letter of acceptance, so they considered it a distribution. I explained to the tax preparer he needs to complete a 1040 now, and by the end of May the client will receive a 5498 form from the new custodian reflecting a 60 day rollover occurred. The tax preparer says I am mistaken it is taxable now because he has a 1099 form saying it is. Did I not explain this correctly? Thank you Stewart Answer: Hi Stewart, This is an area where we see a lot of confusion during tax season. You are correct. A 60-day rollover must be handled on the tax return by the taxpayer.

4 SEP IRA Plan Rules That May Surprise You

Are you a small business owner or a sole proprietor? If so, you may use a Simplified Employee Pension (SEP) IRA plan to save for retirement. These plans are a popular choice for small businesses because they are inexpensive and easier to administer than other retirement plans. While SEPs are pretty straight forward, there are some rules that may surprise you How a SEP Works Contributions, which are tax-deductible for the business or individual, go into a traditional IRA established by the employee. Only the employer can make SEP contributions. Employees do not make SEP contributions.

The House with Two Front Doors

A little house on Easy Street has one front door. It is a traditional IRA. There is a sign above the lone entry point the reads, “To All Those That Enter, Thy Earnings Will be Taxable.” It does not matter if the money that enters through the front door is a contribution or rollover or transfer. Most of the arriving dollars, and all of the earnings on those dollars, will be taxable when they leave. (Some money that passes through the front door of the traditional IRA house will receive a special wristband the reads “BASIS” and it will not be taxable upon departure. However, those “Basis” visitors will still enter through the single door beneath the “Earnings Will be Taxable” sign.) Every traditional IRA home can be decorated differently. This particular traditional IRA house has an ETF sofa, an individual stock leather chair, and a couple of mutual fund recliners. The traditional IRA across the street might have four ETF sofas, or the living room may well be adorned with a dozen mutual fund folding chairs.

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.


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.

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