The Slott Report

Question: Good Morning, We have a client that passed away in November of 2019 at the age of 85. Her beneficiaries would be required to take their RMD in 2020. Are they eligible under the CARES Act to forgo that RMD for this year? Thank you, Linda

We continue to get questions about the limits that apply for folks who participate in multiple company savings plans at the same time or who switch jobs in the middle of the year. What’s confusing is that there are two limits – the “deferral limit” and the “annual additions limit,” and you need to comply with both. Deferral limit. The deferral limit is based on the total pre-tax and Roth deferrals (but not after-tax contributions) you make to ALL your plans for the year. The limit is indexed periodically and for 2020 (and 2021) is $19,500, or $26,000 if you’re age 50 or older by the end of the year.

With Veterans Day being just last week, an overview of two military retirement benefits felt like an all-important and appropriate topic of discussion. One benefit pertains to a penalty exception for accessing retirement dollars prior to the age of 59 ½. The other relates to the treatment of military benefits when a soldier has made the ultimate sacrifice. Active Reservists’ Exception The Pension Protection Act of 2006 created the Active Reservists’ Exception. This penalty exception allows active reservists to avoid the 10% penalty if they withdraw funds from either their IRA or workplace retirement plan before reaching the age of 59 ½.

Question: Is there any problem with someone who is self-employed and has an active SEP making a deductible SEP contribution and an IRA QCD after age 70 1/2? In this case, the QCD would come from the IRA while the SEP continues to be funded. Does any offset apply? Bill Answer: Hi Bill, This is an interesting question!

Both Roth 401(k)s and Roth IRAs offer the ability to make after-tax contributions now in exchange for tax-free earnings down the road if the rules are followed. However, there are some important differences between the two retirement accounts that you will want to understand. 1. Contributions limits are higher for Roth 401(k)s One major difference is in the amount that you may contribute. Your Roth IRA contribution is limited to a maximum of $6,000 for 2020 if you are under age 50.

Good news! You can look forward to somewhat smaller required minimum distributions (RMDs) from your IRA and company retirement savings plan beginning in 2022. That’s because, on November 6, the IRS released new life expectancy tables that are used to calculate RMDs. The new tables are not effective until 2022. RMDs are waived for 2020, and RMDs for 2021 will be calculated under the current tables.

Great work you all do. Been a reader of Ed for a long time. How would this scenario work? New client of mine's husband passed away in 2019 and he had not taken his RMD. The plan was to transfer the account to my firm and take the RMD when it got to my firm as there was plenty of time. However, the insurance company kept rejecting the transfer paperwork (as they did not tell the client everything they needed to submit).

When a person under the age of 59 ½ takes a withdrawal from their IRA or company plan - like a 401(k) – there is a 10% penalty. However, this penalty can be avoided if the withdrawal qualifies for an exception. Some exceptions apply to both IRAs and plans, some to plans only, and some to IRAs only. With the craziness that is our current world, the three IRA-only exceptions (including SEP and SIMPLE plans) may provide a lifeline for those in need. A general description of each is as follows:

The year 2020 has been a challenging one. With coronavirus cases rising in most of the country and economic relief stalled in Congress, many individuals may be looking to find funds to pay urgent bills. One possibility is a coronavirus-related distribution (CRD). While the first phase of the pandemic may be gone, the economic turmoil is still with us and so are CRDs. CRDs are still available through December 30, 2020. These are distributions, up to $100,000, from a company plan or IRA made anytime during 2020 (through December 30) to affected individuals.

Question: Our estate planning attorney prepared trust documents a few years ago and he advised us to name the trust as a beneficiary. This was done after discussion with him regarding a situation in case our son(s) divorce their wives. The trust is prepared so that our sons are designated beneficiaries. I've been reading your Slott Report article that advises against naming a trust as IRA beneficiary. Please let me know how to make sure half of the inherited IRA funds don't go to our son's divorced spouse. Thanks in advance.