Although the U.S. divorce rate is in a steady decline, it’s still one of the highest in the world. And with divorces often come QDROs – “qualified domestic relations orders.” A QDRO is a state court order obtained by divorcing couples that requires a company plan to pay a portion of the benefit of the spouse participating in the plan to the other spouse.
Question:
If a 76-year-old is working full time and has a SIMPLE IRA and she does not own any of the company that sponsors the SIMPLE IRA, does she still have to take a RMD (required minimum distribution) from her SIMPLE IRA?
It looks like IRA owners will probably have to wait awhile to take advantage of a new program that allows them to self-correct IRA errors that previously couldn’t be fixed. In Notice 2023-43, the IRS said that self-correction for IRAs can’t be used until the IRS issues rules for the new program. And those rules aren’t required to be issued until the end of December 2024.
The “once-per-year” rollover rule is one of those IRA rules that has serious tax consequences and cannot be fixed if violated. Breaking the rule results in a taxable distribution and a 10% early distribution penalty if you’re under age 59 ½. Plus, any rolled over funds are considered excess IRA contributions that are subject to a 6% annual penalty unless timely corrected.
Question:
Hello,
Are you required to take out RMDs (required minimum distributions) on an inherited Roth IRA? The original owner was 82 when he passed away. The funds were left to his nephew, so I understand the 10-year rule will apply.
Thanks for your help,
David
One of the more controversial provisions of the new SECURE 2.0 law concerns 401(k) catch-up contributions.
Most 401(k) plans – as well as 403(b) and governmental 457(b) plans – permit employees who are age 50 or older to make catch-up contributions. The limit for catch-ups in 2023 is $7,500, allowing for total elective deferrals of up to $30,000.
It’s certainly not a bad problem to have. But employees with very high compensation cannot have their retirement plan benefits based on all of their pay. Instead, the tax code allows only compensation up to a certain dollar amount to be taken into account.
One important way that IRAs differ from company retirement plans is with respect to spousal financial rights. Most married IRA owners do not need spousal consent before designating a beneficiary other than the spouse. By contrast, most married plan participants do need to get their spouse to agree to a non-spouse beneficiary. And married participants in some types of plans also need spousal consent before taking a lump sum distribution from the plan.
Despite the reduction in the penalty for missing required minimum distributions (RMDs) in the new SECURE 2.0 law, it looks like you will still be able to get the IRS to waive the penalty altogether.
Before 2023, if you missed an RMD the IRS could impose a penalty equal to 50% of the missed amount. However, the IRS almost always waived the penalty if you took the RMD and filed Form 5329 (with a reasonable cause explanation) with the IRS.
Question:
In a recent blog post, you said that the deadline for contributing to a Roth IRA for 2022 is April 18, 2023. Does that include converting a traditional IRA to a Roth?
