The Slott Report

Hidden within the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) signed into law last December is a provision giving businesses extra time to establish certain new tax-qualified retirement plans. Prior to the SECURE Act, a new workplace plan had to be adopted by the last day of the employer’s tax year. Despite that deadline for adopting a new plan, businesses were always allowed extra time to make retroactive employer contributions for any year (including the plan’s first year). The employer contribution deadline is the due date (including extensions) of the company’s federal tax return.

Last year the SECURE Act became law and eliminated the stretch IRA for millions of IRA beneficiaries. However, for some IRA beneficiaries the stretch lives on. For most beneficiaries, the stretch is now replaced with a ten-year payout period. Beginning for deaths in 2020, the ten-year rule will apply to designated beneficiaries who are not eligible designated beneficiaries under the SECURE Act. Eligible designated beneficiaries include spouses, minor children of the IRA owner, chronically ill and disabled individuals and beneficiaries who are not more than ten years younger than the IRA owner.

Question 1: I have a very simple ROTH IRA question. I borrowed money from my ROTH IRA with the intention of paying it all back in 60 days. To avoid any penalty, must I make one repayment of all the money I borrowed? Or, can my repayment be made in two parts, all within the sixty days? Question 2: Am I allowed to convert my inherited Traditional IRA to a Roth IRA?

A financial advisor contacted me about her client who had recently passed away. The advisor was legitimately concerned about a rollover check received by the now-deceased individual. It had not been deposited into his IRA prior to death. Was her client’s estate stuck with a taxable distribution? Could the financial institution refuse the rollover because the person was no longer of this earth?

With more 401(k) plans offering Roth contributions and more folks taking distributions from their plans, now’s a good time to review the tax rules governing Roth 401(k) distributions.

Question: Once the RMD’s for 2020 were suspended, I withdrew what would have been my RMD from my traditional IRA and deposited it in my Roth IRA. Can I now withdraw that amount from my Roth and repay it to my traditional IRA? Thank you. Russ Answer: Russ, Once you deposited the RMD amount into your Roth IRA, it became a conversion. Roth conversions can not be reversed (“recharacterized”).

It happens. You have made a 2019 contribution to the wrong type of IRA. All is not lost. That contribution can be recharacterized. While recharacterization of Roth IRA conversions was eliminated by the 2017 Tax Cuts and Jobs Act, recharacterization of IRA contributions is still available and can be helpful in many situations. Maybe you contributed to a traditional IRA and later discovered the contribution was not deductible. Or maybe you contributed to a Roth IRA, not knowing that your income was above the limits for eligibility.

The IRA and plan rollover rules have been in constant flux this year. We are now past the original July 15 extended rollover deadline. This was the first extension date created by IRS Notice 2020-23. Distributions from an IRA or company plan taken February 1 or later could have been rolled back to an IRA or company plan beyond the standard 60-day rollover window. This rule applied to any distributions that were otherwise eligible to be rolled over, including unwanted RMDs.

Question: For COVID "special" Aug 31 rollovers, am I allowed to return my 401(k) required minimum distribution (RMD) to my IRA? Thank you, Maria Answer: Hi Maria, Yes, the CARES Act and subsequent IRS guidance allows unwanted

Admittedly, it’s not such a bad problem to have. Nonetheless, it’s true that high-paid company plan participants can have their benefits limited by the IRS compensation limit. The compensation limit is $285,000 for 2020 and goes up most years based on cost-of-living increases. It was $280,000 for 2019 and $275,000 for 2018. Pay above the limit can’t be used in determining employer contributions made to 401(k) plans and SEP and SIMPLE IRAs. Excess pay also can’t count towards benefits earned in defined benefit pension plans.