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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 An RMD cannot be rolled over, so it must be withdrawn before any rollover is completed.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.

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.

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 If so, can this year’s total RMD be withdrawn from the beneficiary IRA without having to touch the other two IRA’s?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.).

Question:Dear Mr. Slott,I really enjoy your publications, website and educational programming on Public Television. You provide a tremendous service and information for investors and advisors alike. My questions pertains to distributions from an Inherited IRA and an Inherited Roth IRA for a non-spouse (daughter).

The SECURE Act may have upended the rules for inherited IRAs, but the rules for spouse beneficiaries remain as advantageous as ever. In fact, naming a spouse as an IRA beneficiary is a better option than ever before. Now, an older spouse beneficiary will get more favorable payout options than a much younger adult child. Why? That is because the adult child must use the 10-year rule. No such restrictions exist for spouses. The SECURE Act keeps all the special benefits for spousal beneficiaries intact.

Rules governing defined benefit (DB) plans are typically more complicated than defined contribution (DC) plan rules. But required minimum distributions (RMDs) are one area where the DB plan requirements are easier to understand.If you’re in a DB plan, your benefit payments must begin no later than your “required beginning date” (RBD) – just like with IRA distributions or DC plan benefits. Your RBD is generally the April 1 following the year you reach age 72. However, if your DB plan allows the “still-working exception,” you can delay your RBD until you retire.

Question:Good afternoon. We have a client who was 19 years younger than her spouse. He passed away this year. We are planning to keep this as an inherited IRA for now. Can we move the assets to her own IRA at any time?Thank you, stay safe and have a great day,Julie