The Slott Report

A required minimum distribution (RMD) from a 401(k) (or other employer plan) must be taken prior to rolling remaining plan dollars to an IRA. An RMD cannot be rolled over, so it must be withdrawn before any rollover is completed. While this concept appears somewhat basic, it is easy to get sideways with the rules. Additionally, unexpected changes in employment, combined with the still-working exception, can retroactively create RMD problems.

June is PRIDE Month. This June also marks the sixth anniversary of the landmark Supreme Court case Obergefell v. Hodges, which legalized same-sex marriage. In the wake of this decision, millions of same-sex couples headed to the alter over the past few years. Many of these newlyweds, never expecting to see a day when they would be allowed to marry, may not have paid much attention to the special breaks that married couples receive under the tax code. When it comes to IRA rules, spouses have many advantages, and couples in same-sex marriages are no exception. Here are four special IRA rules for spouses that same-sex couples should know about:

Question: How can the beneficiaries of an estate roll a 401(k) paid to the estate to a Roth IRA? What steps must be taken? Bob Answer: Bob, Inherited IRAs cannot be converted to inherited Roth IRAs, but inherited 401(k) plans can be converted. This is an anomaly in the rules, but it is allowed. However, if the 401(k) was already paid to the estate, those former plan dollars cannot be rolled back to a traditional IRA or converted.

On April 14, we reported that the IRS was apparently interpreting the SECURE Act's 10-year payout rule in a surprising way – to require annual required minimum distributions (RMDs). Now, the IRS has made it clear (without actually saying so) that its prior interpretation was a mistake. The SECURE Act changed the payout rules for most non-spouse beneficiaries of IRA owners who die after 2019. Those beneficiaries can no longer use the stretch IRA. Instead, they are subject to a 10-year payout rule, which requires the entire IRA to be paid out within 10 years of the owner’s death.

With the passage of the SECURE Act, once common IRA beneficiary planning strategies have been upended. For example, no longer can just anyone stretch payments on an inherited IRA. You must qualify as an “eligible designated beneficiary” (EDB) to stretch using your single life expectancy.

Hi! I attended the February 2021 IRA seminar and had a question re: Roth conversions. he seminar discussed rolling over assets held in a company plan into a Roth IRA. I’m dealing with a client that wants to roll over a lump sum from a state pension plan into a Roth IRA. Can you tell me if in your experience this is generally permitted (assuming tax is paid on the conversion amount)?

It has been well over a year since the SECURE Act became a reality, transforming the rules for inherited IRAs and doing away with the stretch IRA for most beneficiaries. While the SECURE Act statute gave us framework for the new rules, there are large gaps that need to be filled in and many unanswered questions remain.

Question: We have a client that owns two substantial IRA accounts plus a smaller beneficiary IRA. Does the beneficiary IRA have its own RMD rules (the client has owned it for 10 years and has been taking RMD’s from it based on the old stretch IRA rules)? Or can the beneficiary IRA be lumped together with the other IRA’s for RMD calculation purposes? If so, can this year’s total RMD be withdrawn from the beneficiary IRA without having to touch the other two IRA’s?

One of the cardinal sins you can commit with an IRA rollover is to run afoul of the IRS “once-per-year” rollover rule. Violating that rule triggers a taxable distribution and the 10% early distribution penalty if you are under age 59 ½. Plus, the forbidden rollover would be treated as an excess contribution subject to an annual 6% penalty unless timely corrected. Unlike missing the 60-day rollover deadline, violating the once-per-year rule is a mistake that cannot be fixed.

An IRA owner can contribute only so much to a Traditional and/or Roth IRA annually. The IRA owner must also have earned income. The contribution limit for 2021 is $6,000, with a catch-up provision of another $1,000 for those age 50 and over. If a person does not have earned income, he is ineligible to contribute (not counting spousal contributions). If he makes too much, he will be ineligible to make a Roth IRA contribution. (Roth IRA income phase-outs for 2021 are $198,000 - $208,000 for those married, filing joint; $125,000 - $140,000 for single filers.).