The Slott Report

Are you looking for a better investment for your IRA? Are you thinking about making the move to another IRA custodian or financial advisor? You do have this opportunity. The IRA rules are set up to allow portability. However, if you are taking required minimum distributions (RMDs) from your IRA, you can still more your money, but things are a little more complicated and you will want to be especially cautious. One way to move your IRA funds is to do a rollover. You will take a distribution of the funds in your IRA. The way the rules work is that the first money distributed from your IRA in a year when you are required to take an RMD will automatically be considered your RMD. With a rollover, there is no ability to take the RMD later. This rule is sometimes called the “first money out rule.” The RMD cannot be rolled over.

For those who inherit IRA accounts in 2020 or later, the SECURE Act permits five groups of people to stretch required minimum distribution (RMD) payments over their life expectancy. As I touched on in a recent Slott Report article (“The Stretch on a Stretcher,” Jan. 13), these five groups fall under the new term “Eligible Designated Beneficiaries,” or EDBs. Two of the five EDBs are self-explanatory: 1.) Spouses. 2.) Those not more than 10 years younger than the deceased account owner. These people do not need to be related to the deceased account owner. The third group requires a little more detail. 3.) Minor children of the account owner. The minor child cannot be a grandchild of the account owner and qualify for the stretch. He or she cannot be the minor child of the neighbor, and cannot be a niece or nephew and qualify. The minor must be the deceased account owner’s child. Even then, the stretch is only allowed until the minor child reaches the age of majority or is still in school, up to age 26.

Question: Hi Ed, Question on the new SECURE Act: Do you know if there were any changes to the payout period if an estate is the beneficiary of an IRA. Is it still a 5-year payout? Or is it now 10? Thanks, appreciate your help. Janet Answer: Dear Janet, The SECURE Act made lots of changes to the IRA rules. But one change it did not make is to the payout rules when the estate -- or any other non-individual (except for certain trusts) – is the IRA beneficiary. As was the case before the SECURE Act, the required distribution depends on whether the owner dies before the owner’s “required beginning date.” That date is April 1 of the year after the year in which the owner attains age 72. If the owner dies before the required beginning date, the entire account must be paid out by December 31 of the fifth year following death. If the owner dies on or after that date, annual required distributions must be made over the remaining life expectancy of the owner (had he lived) under the IRS Single Life Expectancy Table.

Part-time employees in companies with 401(k) plans won a big victory when the SECURE Act was signed into law on December 20, 2019. Before the SECURE Act, 401(k) plans could exclude employees if they did not work at least 1,000 hours of service in a 12-month period or were under age 21. These rules have prevented many long-term part-time employees from the chance to save in 401(k) plans. The SECURE Act provides relief beginning with the first plan year after December 31, 2020 (for most plans, January 1, 2021). Any employee who has worked at least 500 hours in three consecutive years and is age 21 or older by the end of the three-year period must be allowed to start making elective deferrals. However, years beginning before January 1, 2021 do not have to be counted for purposes of meeting the three-consecutive-year rule.

The SECURE Act has upended the rules for inherited IRAs. One area the new law completely changes is the rules for successor beneficiaries. Here is what you need to know: Who are successor beneficiaries? The successor beneficiary is the beneficiary of the original beneficiary. IRA owners should always name a beneficiary on their IRA. The beneficiary form controls who gets the funds after the death of the IRA owner. This is because IRAs are not usually probate assets where the will determines who gets the money.

Question: According to the IRS website: Beginning in 2015, you can make only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs you own (Announcement 2014-15 and Announcement 2014-32). The limit will apply by aggregating all of an individual’s IRAs. Trustee-to-trustee transfers between IRAs are not limited. Rollovers from traditional to Roth IRAs ("conversions") are not limited. If I am reading this correctly, we can "roll over" (hand carry checks) for multiple IRA accounts, as long as we are rolling over funds to a Roth IRA. Is that correct? Thank you, Shirley Answer: Hi Shirley, The once-per-year rollover rule causes a lot of confusion. You can only do one 60-day rollover between IRAs of the same type in a 365-day period. This rule applies to your traditional and Roth IRAs in the aggregate.

As we gradually peel back the layers of this legislative onion called the SECURE Act, more and more discoveries come to light. One revelation is how qualified charitable distributions (QCDs) are potentially affected. Could a QCD become, effectively, a taxable distribution? A looming cloud could soon peer over the shoulders of otherwise generous and giving individuals. As a reminder, QCDs can be done by IRA owners (and inherited IRA owners) who are age 70½ or older. (The SECURE Act raised the age of RMDs to 72. However, the Act did not increase the age for QCDs - 70½ is the status quo.) IRA assets are transferred directly from an IRA to an eligible charity, and the dollar amount of the QCD is excluded from the account owner’s taxable income up to a maximum of $100,000 annually.

The new SECURE Act contains three provisions that are designed to promote annuities in company savings plan. The January 8, 2020 Slott Report described the first of these three changes – new protection for companies if the insurance company selected by the plan to provide annuities later runs into financial difficulties and cannot make payments. Today, we will discuss the other two new provisions. Congress believed that plan sponsors were reluctant to offer annuity products in savings plans not only because of potential liability, but also because of uncertainty over whether the company could later eliminate that option.

Question: Hoping you might be able to offer some guidance. We have a client who has two IRA accounts. The client is 80 years of age. He wants to convert the full amount in one of his IRA accounts to a Roth. The IRS says that distributions from IRA accounts are treated as satisfying the RMD first, so we need to take the RMD before we process the conversion. My questions are: 1.) The client has plenty of money in IRA #2 to satisfy the RMD for both IRA accounts. I presume that doesn't matter and we still need to take the RMD before we convert? 2.) Is the RMD that must be satisfied ONLY the RMD for IRA #1 that we plan to convert to a Roth, or is the RMD that must be satisfied the aggregate of both IRA accounts that must be met before we convert IRA #1 to a Roth? Thank you. Jamie

On December 20, 2019 the Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law. This new law includes some big changes for your retirement account. Here are the top 10 things you need to know: No more age limits for traditional IRA contributions. Beginning in 2020, the new law eliminates the age limit for traditional IRA contributions (formerly 70 ½). Required minimum distributions (RMDs) can start a little later. The new law raises the age for beginning RMDs to 72 for all retirement accounts subject to RMDs. IRA owners age 70 ½ in 2020 catch a break and will not have to take their first RMD for 2020.