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
As we inch toward the extended 2020 tax deadline of May 17, many filers are still laboring over their returns. Some are completing the final return for a loved one lost in what was a brutal year. As is human nature, most taxpayers try to squeeze every last deduction and income-reducing item into their prior-year numbers. While maximizing all available and legal tax-cutting strategies is the proper way to file a return, be aware that not all tax benefits are available to all tax filers, especially after a person has passed away.
On May 5, the House Ways and Means Committee unanimously passed the Securing a Strong Retirement Act of 2021. According to lawmakers, the proposal is designed to pick up where the SECURE Act of 2019 left off and help increase retirement savings even more. The so-called “Son of SECURE” would make more big changes to retirement accounts. Here are some highlights:
Question:
I am 83 years old with an IRA rollover account, regular IRA account and a small Roth IRA. If I convert a portion of either the rollover or regular IRA to a Roth IRA and die before 5 years after the conversion, is there any penalty to me or the beneficiaries? Also, can I convert to the existing Roth IRA or should I start a new Roth IRA? I do not plan to make any withdrawals from any Roth IRA. Does it make a difference from which IRA I convert funds?
Thank you for your response,
George
Most of us have a pretty good understanding of how IRA and 401(k) plan benefits are taxed. But the taxation rules for defined benefit (DB) plans are less familiar, probably because there are fewer DB plans out there these days.
DB plans usually offer several types of annuity distribution options, but most do not offer a lump sum distribution option. Under the tax code, only “eligible rollover distributions” can be rolled over to an IRA or another company plan. Annuity payments do not qualify (unless payments are scheduled over a period of fewer than ten years). So, benefits payable from DB plans are typically fully taxable in the year received and cannot be rolled over.
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