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I grew up in the northeast, where snow squalls sweep across Lake Ontario and cede to blue skies, where 85-degree summer days change to a biting rain at a moment’s notice. The folksy phrase around town was, “If you don’t like the weather, just wait a minute.” Only nine days ago I wrote in the Slott Report about rolling over required minimum distributions (RMDs). Since the “Coronavirus Aid, Relief, and Economic Security Act,” (CARES Act) waived 2020 RMDs (and first-time 2019 RMDs not withdrawn by April 1), my article addressed how many of these RMDs, if already taken, can now be rolled over - as long as the account owner follows the normal rollover rules.

Like most people’s lives, the retirement world is upside down. This is made evident by a single statement: “Required minimum distributions (RMDs) can be rolled over.” Yes, that is the new normal – at least for this year. RMDs are considered the first money out of an IRA and workplace plan. Typically, these dollars are ineligible to be rolled over to either another plan or IRA. The RMD always had to be taken first. If an RMD was erroneously rolled over, it was an excess contribution and the appropriate fix-it steps had to be followed. But those hard-and-fast rules are no more for 2020. As we have written in the Slott Report, the “Coronavirus Aid, Relief, and Economic Security Act,” or the “CARES Act,” was signed into law on March 27. The Act includes a waiver of RMDs for this year from company savings plans and IRAs. In addition, the CARES Act impacts 2019 RMDs for those who reached age 70 ½ in 2019 and have a required beginning date of April 1, 2020.

Question: With the COVID-19 changes to push the tax filing back to July 31st, can someone still make a 2019 contribution until that date or do all contributions need to be made by the usual April 15th deadline this year? Jerry Answer: Hi Jerry, This is a question we have been getting a lot! The IRS has confirmed that the deadline for making both traditional and Roth IRA prior year contributions has been delayed to July 15, along with the tax-filing deadline.

By their nature, small businesses struggle in the shallows. Now they face a tsunami. However, when the shutters are removed and customers return and the employees are back on the payroll, normal day-to-day concerns will be a welcome relief. My guess is that many small business owners will create improvements, look to reward dedicated employees, and try to build a better safety net for themselves and their teams should another calamity strike. We could see this materialize in the establishment of more retirement plans. A recent editorial suggested that plan participants be allowed to invade their workplace retirement accounts – without penalty – as a financial crutch during the coronavirus shutdown.

By their nature, small businesses struggle in the shallows. Now they face a tsunami. However, when the shutters are removed and customers return and the employees are back on the payroll, normal day-to-day concerns will be a welcome relief. My guess is that many small business owners will create improvements, look to reward dedicated employees, and try to build a better safety net for themselves and their teams should another calamity strike. We could see this materialize in the establishment of more retirement plans. A recent editorial suggested that plan participants be allowed to invade their workplace retirement accounts – without penalty – as a financial crutch during the coronavirus shutdown.

It’s common for IRA owners to leave their assets to multiple beneficiaries – for example, their children. Before the SECURE Act, it usually made sense to split the IRA into separate accounts either before or after death. That’s because beneficiaries could stretch payment of their shares over their life expectancy. But, if there were multiple beneficiaries and the account was not split, each beneficiary was required to use the life expectancy of the oldest beneficiary – the one with the shortest life expectancy. Splitting accounts allowed each beneficiary to use her own life expectancy. Under the SECURE Act, most non-spouse beneficiaries must use the 10-year payout rule, which requires the entire IRA to be emptied by December 31 of the tenth year following the owner’s death. No annual distributions are required. Life expectancy is no longer used to calculate payouts for beneficiaries subject to the 10-year rule.

Question: A daughter who has been diagnosed with rheumatoid arthritis is listed as the beneficiary on her father’s Roth IRA. Does this disease qualify as a “chronic illness” for purposes of the exception to the 10-year rule? Is there a definition that the IRS uses for chronic illness? If she doesn’t take the inherited IRA after 10 years but withdraws it based on her life expectancy, will the IRS send a letter to her where she has to prove chronic illness? If the IRS doesn’t agree, what will they assess her since the amount is not taxable? Answer: There is no list of illnesses that qualify as “chronically ill.” Instead, to meet the criteria as a chronically ill individual under the SECURE Act, the daughter must be certified (by a licensed health care practitioner) to be unable to perform at least 2 activities of daily living for at least 90 days, or require “substantial supervision” due to a severe “cognitive impairment.”

The coronavirus has been wreaking havoc on markets and millions of retirement account balances have suffered significant losses. This has left many IRA owners looking at lower account balances after several years of gains and wondering what the next step should be. One strategy to consider in a market downturn is a Roth IRA conversion. Why Convert Now? When you convert your traditional IRA to a Roth IRA, your pretax traditional IRA funds will be included in your income in the year of the conversion. This increased income may impact deductions, credits, exemptions, phase-outs, the taxation of your social security benefits and Medicare Part B and Part D premiums; in other words, anything on your tax return impacted by an increase in your income.

When a person takes a distribution from his IRA or workplace plan, he has 60 days from the day of receipt to redeposit (i.e., roll over) those dollars into another qualified account. This assumes no other disqualifying rollovers have been done in the past 12 months and these dollars are otherwise eligible to be rolled over. If he fails to redeposit all or a portion of the withdrawal within the 60-day window, whatever amount remains outside of the IRA or workplace plan will potentially be subject to tax and potential penalties. How common are 60-day-rollover fails? Very. Unfortunately, people take withdrawals from retirement plans all the time, fully intent on rolling the money back. However, the reality is that many miss the deadline. But what if there were extenuating circumstances as to why the dollars were not rolled over within the 60-day period? After all, sometimes life gets in the way of the best intentions.

The amount of annual elective deferrals you can make to a 401(k) or 403(b) plan is limited by the tax code. If you discover that you’ve over-contributed in 2019, time is of the essence to correct the error. If you don’t act quickly, the tax consequences are serious. What is the limit? For 2019, you were limited to $19,000 in elective deferrals (plus an additional $6,000 if you were at least age 50 at the end of the year). It’s important to remember your deferrals to each company savings plan are normally aggregated for purposes of this limit. (There is an exception if you participate in both a 457(b) plan and a 403(b) plan.) How do you know whether you’ve exceeded the limit? Most plans have mechanisms in place to prevent you from exceeding the deferral limit in that plan.