Before he transformed into the Incredible Hulk, Bruce Banner once said to his antagonist, “Don't make me angry. You wouldn't like me when I'm angry.” That’s a little how I feel when I hear stories about lazy financial professionals giving bad advice. Not that I’m about to turn green and rip through my clothes, but I do feel my blood start to boil.
Hello,
I have two IRA annuities with different insurance companies. One of my annuities is maturing and I would like to transfer it upon maturity to a different insurance company. Do I need to take my 2025 required minimum distribution (RMD) from the current insurance company prior to transferring the funds to a new insurance company offering a higher rate, or can I take it after the transfer?
Regardless of the topic, we could all use an occasional refresher. Retirement account rules are incredibly complicated, and we all have our blind spots. Even seasoned financial advisors with extensive client lists can overlook certain details. I had a conversation recently with a respected professional who was operating on a misconception regarding the still-working exception. Fortunately, we were able to identify the oversight and make the necessary corrections. But the conversation confirmed, once again, that understanding the rules is paramount to success.
Regardless of the topic, we could all use an occasional refresher. Retirement account rules are incredibly complicated, and we all have our blind spots. Even seasoned financial advisors with extensive client lists can overlook certain details. I had a conversation recently with a respected professional who was operating on a misconception regarding the still-working exception. Fortunately, we were able to identify the oversight and make the necessary corrections. But the conversation confirmed, once again, that understanding the rules is paramount to success.
Thank you for all you do to educate the public. I’m hoping you guys can settle a debate that’s been going on with a few financial advisors and CPAs regarding the 5-year rule for Roth IRA conversions. I was under the impression that a non-taxable conversion can be withdrawn at any time, even within 5 years of the "backdoor" contribution/conversion, without a 10% penalty.
There are two ways to move money from one IRA to another: a direct transfer or a 60-day rollover. With direct transfers, the funds are sent directly from one custodian to another. The IRA owner has no ability to use the dollars while they are in transit, and the transaction does not create any tax reporting. A direct transfer can be processed electronically, or a check can be sent.
Roth IRAs follow strict distribution ordering rules. Contributions come out first, then converted dollars, and then earnings. It does not matter how many Roth IRAs a person has, or if the accounts are held at multiple custodians. The IRS doesn’t care. All the IRS sees is one big Roth IRA bucket, and within that consolidated Roth IRA bucket, there are only three types of dollars: contributions, conversion, and earnings. Any distribution from any Roth IRA follows the ordering rules – contributions first, converted dollars second, earnings last.
QUESTION:
My wife and I created a Roth IRA when our two children were young to pay for their college education. Our daughter is finishing her second year of school, and our son will be entering college this fall. We have withdrawn $30,000 so far from our contributions to pay her expenses. The current value of the Roth IRA is over $150,000.
When a person under the age of 59½ needs access to his IRA dollars, there is a 10% early withdrawal penalty applied to any distribution, unless an exception applies. One of the many 10% penalty exceptions is a 72(t) “series of substantially equal periodic payments.” Due to the possibility of errors over the required duration of such distribution schedules, it is our opinion that establishing a 72(t) should be the last resort.
Question:
Are rollovers done by a spouse beneficiary subject to the once-per-year IRA rollover rule? The IRA funds were never distributed to me. They were directly transferred from my deceased husband’s IRA to my own IRA. Everything was done electronically at the same firm. I’m being told that the second transfer is taxable
