Here we go again. In my March 14 Slott Report entry (“Monitoring Concurrent Life Expectancies? – SMH”), I railed against the IRS for a seemingly pointless rule in the new SECURE Act regulations directed at elderly IRA beneficiaries. (Subsequently, I saw other commentary criticizing that same rule as “nasty” and “mean spirited.”) In today’s article, I am back on my soapbox calling out more baffling guidelines.
Question:
Hey Ed-
Long time reader and listener of yours…and have bought a few copies of your latest book to share with clients! Prior to us being involved, my client made a Backdoor Roth contribution in 2021. He did this despite his income being below the threshold limits. Also, he had existing IRA balances. Is there anything he can do? Are the 2018 recharacterization rules such that he is stuck with any tax implications?
I am usually patient with the IRS. I understand the massive workload they have, and there are tax cheats lurking around every corner. The IRS does its best to ensure no loopholes exist for bad actors to circumvent tax laws to avoid paying their fair share. However, when it comes to some of the guidance in the recently released SECURE Act regulations, my patience has run out.
The 275 pages of proposed SECURE Act regulations, released by the IRS on February 23, are chock full of little details. Each of these tidbits will have some impact on particular IRA owners and retirement account participants.
One such new rule pertains to the age of majority. When is a minor child recognized as an adult? Existing IRS guidance deferred to the age of majority under state law. This created some confusion as most states said age 18, a couple said 19, and Mississippi said 21. Why is this important? The age of majority dovetails with the opportunity a minor beneficiary has to stretch inherited IRA account assets.
Question:
If an 80-year-old converts his IRA to a Roth account and dies the following year, when can the beneficiaries begin withdrawing money tax-free from the Roth? Do the beneficiaries have to wait for the expiration of the 5-year period following the conversion?
For IRA owners and retirement plan participants who are under age 59 ½, taking a distribution from a retirement account is typically off limits. The distribution will most likely be taxable, and there is a good chance that a 10% penalty will also apply. However, sometimes life gets in the way and a withdrawal needs to be made.
Question:
I'm retired, over age 59 ½, and want to take a single 401(k) distribution and convert it to my Roth IRA. Do I follow same 60-day rollover rules and first have to rollover the distribution to a Traditional IRA and then convert it, or can I deposit it directly into my Roth IRA?
The “Martin Scenario”: Martin, age 40, has never done an IRA rollover before. He took a distribution from his traditional IRA in December 2021 for $10,000 and deposited it into his checking account. Martin took another distribution from his IRA in January 2022 for $50,000. He also deposited this into the same checking account.
A person is allowed only one IRA-to-IRA or Roth-IRA-to-Roth-IRA 60-day rollover per year. This 12-month period is a full 12 months – it is not a calendar year. Accordingly, we refer to this as the “once-per-year rule.” For example, if a person received an IRA distribution in March that is subsequently rolled over, he is not eligible to initiate another 60-day IRA or Roth IRA rollover with a distribution received before the following March. The 12 months begin with the date the funds are received by the account owner. (Day of receipt is an important distinction. This could buy a person a couple of days when the 60-day deadline is approaching and a check was originally mailed to the IRA owner.)
Question:
Hi,
I turn 72 this year and have to take my first required minimum distribution (RMD). I am also in the process of converting most of my IRA into a Roth IRA. I know I have to take my RMD first before the conversion. Since this is my first year of RMDs, I know one of the options is to delay the RMD until April of next year.
