The Slott Report

Question: Is there a required minimum distribution (RMD) on a self-directed IRA? Answer: A “self-directed IRA” is nothing more than an IRA that invests in unconventional items that not all custodians will handle – like maybe crypto currency, real estate, or a hard-to-value assets. Otherwise, self-directed IRAs follow the same rules as every other IRA. As such, yes, self-directed IRAs do have RMDs.

Conduit IRAs, sometimes called “rollover IRAs,” typically contained only money rolled over from a company plan - and subsequent earnings on those dollars. But a 2001 tax law (Economic Growth and Tax Relief Reconciliation Act of 2001) opened all sorts of rollovers and plan portability. So, for the most part, a person could commingle his IRA contributions and rollovers from plans in the same IRA. The result was that, beginning in 2002, conduit IRAs were no longer necessary for most people rolling over plan funds.

A qualified charitable distribution (QCD) is a way for you to move funds out of your IRA to a qualifying charity income-tax free. If you are thinking this might be a good strategy for you, here are 4 QCD rules that may surprise you.

Question: Dear Sirs: I inherited a regular IRA upon my mother's death in 2015. I am now 75 years old and have been taking required distributions since then. She was taking distributions herself when she died. My question is: may I close out this IRA now by taking out the entire balance and paying taxes on it? Thanks.

Should I Accept a Lump Sum Buyout Offer? With economic uncertainty increasing, more companies with defined benefit (DB) pension plans will likely attempt to improve their bottom line by offering lump sum buyouts. A lump sum buyout is a limited opportunity for DB plan participants to elect a one-time cash payment in exchange for giving up future periodic payments. Some buyouts are offered to participants who are near retirement age, while others target those already receiving benefits. Deciding whether to accept a lump sum buyout is an important choice that you shouldn’t make without consulting with a knowledgeable financial advisor. Here are several factors you and your advisor should be looking at:

Question: I am 66 and would like to convert one of my IRAs to a Roth, but I am not sure if any of my old IRA accounts have any after-tax contributions. I have no records, so I assume they are all pre-tax but I am not sure. If I convert and pay taxes, does the IRS contact me regarding after-tax contributions if I ever made them?

Over the past couple of months I have been tasked with the unfortunate responsibility of helping my mother sort through her financial affairs after the death of her spouse. My dad passed in March, and it has been a steady stream of questions, conference calls with her financial advisor and one important decision after another. Of course, this doesn’t even scratch the surface of the emotional stress and strain on the family.

You may have heard how converting to a Roth IRA is a great move for younger people. This is no surprise. A younger person who converts has two big factors working in her favor. She may pay taxes on a smaller IRA balance, and she has many years to accrue tax-free earnings in her Roth IRA. But what about older people? It is a mistake to write off conversion just due to age. Older individuals should not overlook the potential tax benefits of converting later in life.

Question: Hi Ed, I’m 66 Years old. Less than a year ago I converted into my Roth from my traditional IRA with the intention of parking it there until I could finalize the details of a summer house purchase. I know I have taxes to pay on the conversion. However, now that I wish to use the money and remove it from the Roth, am I going to be subject to a penalty due to a 5-year rule? I was of the understanding that only “earnings” (which for me meant any money earned ON the money I had deposited into the Roth) had to stay in the Roth for 5 years. Does the 5-year rule actually apply to ALL the money I put into the Roth via conversion from the traditional IRA? I have spoken to a few different advisors and have gotten conflicting responses, so I’ve decided to go to the IRA Guru for an accurate, reliable answer. Thanks Ed!

Proposals to boost IRA and workplace plan savings are advancing, but they are not law yet. Several actions must occur before the proposals become law. On March 29, the House passed the “Securing a Strong Retirement Act of 2022.” Now, two different Senate committees are taking up the subject. On June 14, a Senate committee (Health, Education, Labor and Pensions) unanimously approved the “Retirement Improvement and Savings Enhancement to Supplement Health Investments for the Nest Egg Act” (the RISE & SHINE Act). The RISE & SHINE Act deals with company plans only.