Question:
Recently, I received two checks, one for all assets in a Traditional IRA and one for all assets in a Roth. Mindful of the 60-day rollover rules, I endorsed one of them to my brokerage company to complete an IRA-to-IRA transfer. When attempting to do the same with the Roth funds, I was told that this would create another rollover and run afoul of the IRS "one-every-12-months" requirement.
Bob is 40 years old. He is a single tax filer, participates in a 401(k) at work, and makes a healthy annual salary of $160,000.
Bob has consistently contributed $5,000 each year to his Traditional IRA for 5 years ($25,000 total). However, Bob could not deduct any of the contributions because he has always been over the phase-out range for tax filers covered by a company retirement plan.
Recently we became aware of a multi-layered tax strategy that we think is a bridge too far when it comes to Coronavirus-related distributions (CRDs). In fact, it may even be outright tax fraud.
As most readers are aware, the CARES Act created CRDs which waive the 10% early distribution penalty on up to $100,000 of 2020 distributions from IRAs and company plans. The tax would still be due, but could be spread evenly over three years.
Question:
My father passed away in 2019 and left me an IRA. Will the SECURE Act apply, or will it be grandfathered under the pre-2020 rules?
Thank you.
Aram
We have collectively crawled into the hollow of a 2020 tree and found ourselves in the Upside Down. (That is a “Stranger Things” reference, for the uninitiated.) The SECURE Act turned beneficiary options upside down. The CARES Act turned required minimum distribution rules upside down.
With Veterans Day being just last week, an overview of two military retirement benefits felt like an all-important and appropriate topic of discussion. One benefit pertains to a penalty exception for accessing retirement dollars prior to the age of 59 ½. The other relates to the treatment of military benefits when a soldier has made the ultimate sacrifice.
Active Reservists’ Exception
The Pension Protection Act of 2006 created the Active Reservists’ Exception. This penalty exception allows active reservists to avoid the 10% penalty if they withdraw funds from either their IRA or workplace retirement plan before reaching the age of 59 ½.
Great work you all do. Been a reader of Ed for a long time. How would this scenario work? New client of mine's husband passed away in 2019 and he had not taken his RMD. The plan was to transfer the account to my firm and take the RMD when it got to my firm as there was plenty of time. However, the insurance company kept rejecting the transfer paperwork (as they did not tell the client everything they needed to submit).
When a person under the age of 59 ½ takes a withdrawal from their IRA or company plan - like a 401(k) – there is a 10% penalty. However, this penalty can be avoided if the withdrawal qualifies for an exception. Some exceptions apply to both IRAs and plans, some to plans only, and some to IRAs only. With the craziness that is our current world, the three IRA-only exceptions (including SEP and SIMPLE plans) may provide a lifeline for those in need. A general description of each is as follows:
Trick-or-treating in the time of a pandemic is a challenge. Social distancing while handing out candy requires some creativity. The Slott Report has elected to place a big bowl of random treats in front of our house for the kids to pick from. We bought a lot of candy, so feel free to take more than one…
Twix. Do not name your estate as your IRA beneficiary.
Question:
An 85-year-old died in 2020 and left his IRA to his 53-year-old son. Father did not take 2020 $107,000 RMD. Does the son have to take it? Does the son have to take anything in first 9 years, including this RMD?
Thank you.
Answer:
The CARES Act waived RMDs for IRAs in 2020. Even if an IRA owner dies in 2020, his year-of-death RMD still falls under the waiver. So, the $107,000 did not need to be withdrawn by the father, and it does not need to be withdrawn by his son beneficiary.
