Year after year, many of the same IRA errors happen again and again. Based on the volume of times these mistakes occur, it seems appropriate to create a short list of repeat offenders…and offer some advice on how to properly move forward. In no particular order, here is a handful of common IRA mistakes, along with the proper corrective measures.
An advisor called and said his 75-year-old client had just passed away. He had questions about the payout rules applicable to the three IRAs the client left behind: a traditional IRA, a Roth IRA, and an inherited IRA from his sister. I asked who the beneficiaries were.
QUESTION:On September 6th in a piece titled, “Rules for Inherited IRAs that May Surprise Nonspouse Beneficiaries,” Sarah Brenner from Ed Slott and Company wrote, “If you inherited the IRA funds in 2020 or later, as a nonspouse beneficiary you will most likely be subject to a 10-year payout-period, possibly with annual RMDs during the 10-year period.”My brothers and sisters and I are non-spousal beneficiaries, and my understanding is that there is no rule or code yet that states we must take some out of the inherited IRA account each year, only that it must be drained by end of the tenth year as required by the SECURE Act. My sibling says we must take some each year. Which of us is correct? We are all under the RMD age, in our sixties and our parents passed September of 2022.
If you are subject to required minimum distributions (RMDs) and have annuitized part of your IRA, a recent law change could drastically reduce your RMDs. But, without IRS guidance, it may be difficult to take advantage of that change.
Question:Hello and thank you for all the great, helpful information you continue to send out.I am due to take my first RMD (required minimum distribution) in 2024 which would make my required beginning date April 1, 2025 if I understand correctly. My intention is to empty my traditional IRA next year and convert it to my existing Roth. My question is, if my traditional IRA shows a zero balance by my required beginning date, would that still require a RMD be taken for 2024? I’d like to know if I can convert the entire account or if I have to take an RMD and then convert the rest. I think the answer is I would have to take an RMD, but am not 100% sure.Thanks so much,Dana
QUESTION: Do required minimum distributions (RMDs) apply to inherited Roth IRAs?ANSWER: It depends on who the beneficiary is.Owners of traditional IRAs must start taking RMDs when they reach their required beginning date (RBD). That date is generally April 1 of the year after a person turns 73 (or 72 prior to SECURE 2.0, or 70 ½ prior to the original SECURE Act).
Last week the Ed Slott team hosted another highly successful and sold-out 2-day advisor training program at Caesar’s Palace in Las Vegas. Over 250 financial professionals from across the country attended, and we plowed through our 400-page manual. During the two day event we discussed IRA beneficiary rules, trusts as beneficiary, net unrealized appreciation, backdoor Roth IRAs, SECURE 2.0 changes, QCDs, the pro-rata rule, gifting strategies, etc.
When it comes to IRAs and workplace plans, the concept of the “required beginning date” (RBD) is a “really big deal” again.The RBD is the first date you’re required to start required minimum distributions (RMDs). For traditional IRAs, the RBD is April 1 of the year following the year you turn age 72. (But if you were born before July 1, 1949, your RBD was April 1 of the year after the year you turned 70 ½.) There are no lifetime RMDs for Roth IRA owners, so they are always considered to have died before the RBD with respect to their Roth IRAs.
SECURE Act regulations shoved the required beginning date (RBD) to the front of the stage. No longer can the RBD hide from the bright lights. What was once somewhat of a minor date in people’s lives has blossomed into an important event with cascading impacts on generations of potential beneficiaries.
Question:As we did 2 years ago, will we be able to skip taking a 2022 required minimum distribution (RMD) without penalties?Answer:Sorry, but RMDs are in full effect for 2022. The CARES Act waived RMDs in 2020, but that was a one-time deal. RMDs were back in play for 2021, and are still required for 2022 as well.
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