More and more 401(k) plans now offer Roth contributions. At the same time, Americans are changing jobs and receiving 401(k) distributions in record numbers. So, it’s a good time to review the tax rules that apply to Roth 401(k) withdrawals. (The same rules also apply to Roth 403(b) and Roth 457(b) withdrawals.)
A recent federal court case from West Virginia illustrates that the spouse of a 401(k) participant usually has no right to prevent the plan from paying the participant a lump sum distribution.In Gifford v. Burton, a Mr. Gifford (his first name is omitted in the decision) was an optician at Walmart and a participant in the Walmart 401(k) plan. He was married to Sara Gifford, who was his sole beneficiary under the plan. In February 2021, Mr. Gifford received a distribution of all of his 401(k) funds and deposited those funds into an IRA. He then designated his daughter, Emma Gifford, as 90% beneficiary of his IRA and wife Sara as 10% beneficiary.
Here’s a common question: An employee retires in or after the year he turns 72 and wants to roll over his 401(k) funds to an IRA. Does an RMD have to be taken before the funds are rolled over?
Here’s a line from one of the manuals we use in our education seminars for advisors: “Missed stretch IRA RMD by an EDB, when the IRA owner dies before the RBD.”An old baseball expression says: “You can’t tell the players without a scoreboard.” In the world of retirement accounts, you can’t understand the rules without knowing the abbreviated terms. Here’s 18 common ones you should know:
Question:When converting an IRA to a Roth IRA, do the investments (stocks, bonds, ETFs, etc.) have to be sold or can they be transferred directly from the IRA into the new Roth account?
If a retirement account transaction becomes a taxable distribution, you probably know you will owe taxes and possibly the 10% early distribution penalty (if under age 59 ½) on the distribution. But what you may not know is there might be an unexpected surprise. On top of the additional taxes and 10% penalty, you might also be liable for what’s called the “accuracy-related penalty.” Here’s what you need to know about this unpleasant revelation.
The Investment Company Institute (ICI) is an association representing mutual fund companies and similar investment companies. Recently, the ICI issued the results of a survey on traditional and Roth IRAs.
Question:Someone participates in a 401(k) through his regular employer and has a solo 401(k) for a side job (self-employed). That person maxed out his 401(k) pre-tax deferrals for 2021 through the regular 401(k) and utilized the remaining limit up to $58,000 for a Mega Backdoor Roth contribution via after-tax contributions. Is he eligible for any solo 401(k) contributions for 2021 (not catch-up eligible)? What am I missing here?
Like most everything else these days, the price for receiving an IRS private letter ruling (PLR) has recently gone up.A person will request a PLR to receive the IRS’s blessing that a specific tax transaction won’t violate the tax code or IRS regulations. A PLR is specific to the particular tax situation of the person requesting it. This means that PLRs shouldn’t be relied on by anyone other than that person.
Should I Accept a Lump Sum Buyout Offer?With economic uncertainty increasing, more companies with defined benefit (DB) pension plans will likely attempt to improve their bottom line by offering lump sum buyouts. A lump sum buyout is a limited opportunity for DB plan participants to elect a one-time cash payment in exchange for giving up future periodic payments. Some buyouts are offered to participants who are near retirement age, while others target those already receiving benefits.Deciding whether to accept a lump sum buyout is an important choice that you shouldn’t make without consulting with a knowledgeable financial advisor. Here are several factors you and your advisor should be looking at:
