Slott Report Mailbag: Can I Contribute to a Roth IRA?

By Joe Cicchinelli, IRA Technical Expert

Follow Me on Twitter: @JoeCiccEdSlott

This week’s Slott Report Mailbag includes some of the more popular questions we receive each week. Can I contribute to a Roth IRA? What happens to my deceased parent’s required minimum distribution (RMD)? We answer those questions and more in the question-and-answer below.  As always, we stress the importance of working with a competent, educated financial advisor to keep your retirement nest egg safe and secure. Find one in your area at this link.

1.

I made a Roth contribution for this year, but my accountant says I will make too much money to be eligible to make a contribution. What are the rules for making Roth contributions? I thought everyone could make a Roth contribution now.

Answer:
As of 2010, everyone can do a Roth conversion, but the rules for Roth contributions did not change. So, even though you can convert millions in your IRA accounts to a Roth IRA, you may not be able to contribute a mere $5,000.

First of all, you must have earned income or compensation in order to make a Roth contribution. Social Security, pension payments, rental income, interest and dividends are NOT earned income – even if you worked hard to get them.

You can make Roth contributions even after you are 70 ½, as long as you have earned income.

There are income limits for making Roth contributions. For 2013, if you are married filing jointly and your income is more than $188,000 you cannot make a Roth contribution. The ability to make a contribution phases out for income between $178,000 to $188,000. If you file your return as single or head of household, the ability to contribute phases out between $112,000 and $127,000. If you are married, filing separate, the phase-out range is $0 to $10,000. The formula for calculating the amount of your contribution when you are in the phase-out range can be found in IRS Publication 590.You can find that on the IRS website, www.irs.gov. On the left hand side of the screen, click on Forms and Publications.

The numbers for the phase-out ranges are not your gross income; they are your modified adjusted gross income (MAGI).

2.

My mother died this year before taking the full amount of her required minimum distribution (RMD) from her IRA. What happens now?

Answer:
The full amount of the required distribution must be taken in the year of death. The beneficiary named on the beneficiary form for the IRA must take any distribution not taken. It does not go to the decedent or on their return. It does not go to the estate unless the estate is named on the beneficiary form. When there are multiple beneficiaries, generally the RMD amount will be split between them according to the percentages of the account that they inherit. But if one beneficiary wants to take out their share in full, that distribution can be used to satisfy any remaining RMD. The general rule is that the first funds out of the IRA account (that are payable to an individual), will satisfy the RMD.

3.

I have an irrevocable trust named as my IRA beneficiary. Does that mean I can’t change my beneficiary?

Answer:
No, you can still change the beneficiary. The trust may be irrevocable, but chances are your beneficiary form is not. So if you are no longer happy with the irrevocable trust as your beneficiary, simply contact your IRA custodian and/or advisor and name a new beneficiary. You can even name a new irrevocable trust.