The Slott Report

Question: Hi, My question is: Does the SECURE Act affect inheritors of a Roth IRA account? If so, in what way, and why - since it is not a pre-tax account? I look forward to your reply. Thanks. Regards, Vikram Answer: Vikram, Yes, the SECURE Act does affect inherited Roth IRAs for those who inherit in 2020 or later. (Any Roth IRAs inherited prior to 2020 fall under the old rules.) Under the SECURE Act, only eligible designated beneficiaries (spouses, minor children of the account owner, disabled individuals, chronically ill individuals, and beneficiaries not more than ten years younger than the deceased IRA owner) can stretch RMD payments over their own life expectancy.

With markets down, many IRA owners are thinking this may be the time for a Roth IRA conversion. Converting when account values are down can be a good bargain. You pay a tax bill on a lower balance now in exchange for potential tax-free growth down the road when the markets bounce back. This can be a great strategy, but you need to be careful in executing your conversion transaction. We have heard more than one horror story of IRA owners who have gotten into trouble trying to convert IRA funds online on a custodians’ website, sometimes accidentally pressing a wrong button or putting a decimal point in the wrong place.

The coronavirus-related distribution (CRD) rules for Roth conversions have a gaping hole. An “affected person” (as we have defined in previous blogs), is entitled under the CARES Act to withdraw up to $100,000 from their IRA or workplace retirement plan. A CRD avoids the 10% early distribution penalty for those under 59 ½, can be repaid to a qualified retirement account within three years, and allows the account owner to spread the income (and subsequent taxes due) over a three-year period.

Sir: The CARES Act includes a waiver of RMDs for this year from company savings plans and IRAs. I am in the minority of retirees that took my 2020 RMD in January 2020, withheld 20% for taxes and am now finding out that I "missed" the 60-day rollover window to put the money back into my IRA by no fault of mine. Since RMDs are essentially eliminated for 2020, why can't I put the entire amount into my Roth IRA? Assuming I can do that "conversion," is there a time limit to do that? Thank you for considering my dilemma.

The evil genie in the IRA lamp wants your money. He roars with laughter at the thought of you facing hard times. Given an opportunity, he will line the pockets of creditors with your IRA dollars, and he will serve your remaining non-qualified financial assets to the vultures, who will drag the accounts into the gutter and pick them clean. The evil genie must be forced to remain inside the IRA lamp. Fortunately, there are protections in place to keep creditors from rubbing the lamp and intentionally releasing the genie. These protections, which provide shields for bankruptcy and lawsuits, include the following:

The recently passed CARES Act includes some changes that impact your HSA. These changes will allow you to access more medical services without worrying about your deductible, and also enable you to take more tax-free distributions from your HSA. Here’s what you need to know. Telemedicine Without Meeting Deductible HSAs are designed to work with a high-deductible plan. To be considered a high-deductible plan, a health plan must meet certain requirements. One of them is that the health plan cannot waive the deductible for medical expenses, unless they are considered preventative.

Question: I have been taking my RMDs on a monthly basis in 2020. Since the Cares Act has suspended RMDs for 2020, I would like to rollover my past 2 distributions. I would like to aggregate those two distributions and roll them over. I have not performed any rollovers within the last 12 months. This is where it gets hairy. Some people are telling me I cannot aggregate the past two months distributions and roll them over as ONE rollover. However, those people who have taken their entire RMD as one lump sum vs. monthly are allowed to rollover the entire amount, which doesn't seem fair.

Under the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), certain individuals can take up to $100,000 of distributions from IRAs and company plans during 2020 and receive special tax relief. Those distributions are known as coronavirus-related distributions (CRDs). On May 4, the IRS released a set of Q&As pertaining to CRDs. The IRS did not address many of the questions about CRDs left unanswered in the CARES Act itself. However, the IRS did promise additional guidance “in the near future.”

For a number of years, the “mega backdoor Roth” strategy has been touted as a way for employees to convert large amounts of after-tax employee contributions to Roth IRAs. Unfortunately, in most cases the strategy won’t work. Here’s why. First, a little background. The mega backdoor Roth is simply the company retirement plan version of the backdoor Roth IRA. The backdoor Roth IRA is designed for individuals whose income exceeds the IRS limit for making Roth IRA contributions directly. The backdoor strategy allows for higher income employees to make Roth contributions indirectly by making a traditional IRA contribution and subsequently converting it to a Roth IRA.

Question: Dear Mr. Slott, I seem to have gotten myself into a jam with my 2020 RMD withdrawal and the CARES Act, as it stands now. Hoping you are able to help, or make a suggestion on how to proceed. In January, over three withdrawals, I took my entire 2020 RMD from an IRA. Then the CARES Act seemed to forgive/not require distributions during 2020. I returned the money to my IRA. Now the law has made a determination that RMD withdrawals beginning February 1, 2020 through May 15, 2020 and placed back into IRA accounts are forgiven. Well, my January RMD withdrawal was not forgiven, but I had already placed it back into the IRA account.