The SECURE Act & IRA Distributions: Today’s Slott Report Mailbag

Thursday, August 01, 2019

By Sarah Brenner, JD
IRA Analyst
Follow Us on Twitter: @theslottreport

Question:

Hi Ed,

I have heard conflicting reports. Would the proposed SECURE Act affect Roth IRAs? Or, is the elimination of the stretch only for Traditional IRAs?

Many thanks!

Chad

Answer:

Hi Chad,

There does seem to be a lot of confusion out there on this issue. Yes, the SECURE Act, if passed, would affect inherited Roth IRAs as well as inherited Traditional IRAs. The stretch would be eliminated for most beneficiaries and replaced with a 10 year rule. Remember, this is only proposed and still has yet to be passed into law.

Question:

I read your article on IRA distributions for education and also have been to a few of your limited seminars.

I have a question, my client took a distribution in 2018 from his IRA. They also had qualified educational expenses which they paid in 2018 which include tuition, and meal plan and rent charges (room and board).

My question is, the school charged the expense for the spring /winter 2018 tuition in Dec of 2017 along with room and board charges, however, we paid for the expense in early 2018.

Would those costs qualify to be exempt from the early distribution penalty?

Also in your article it does not mention room and board as qualified expenses. I think you can use them per my reading of the publications? (your article is from 2015)

Thanks for your help,

Jeff

Answer:

Hi Jeff,

When it comes to the exception to the 10% early distribution penalty for higher education expenses, timing is everything. The expense must be paid in the same year that the distribution is taken from the IRA. In this situation, it sounds like the distribution from the IRA was taken in 2018 and the education expense was paid in 2018. This would work for purposes of the exception.

You are right that room and board is also a qualified education expense.

 

 

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