Question:Once the RMD’s for 2020 were suspended, I withdrew what would have been my RMD from my traditional IRA and deposited it in my Roth IRA. Can I now withdraw that amount from my Roth and repay it to my traditional IRA?Thank you.RussAnswer:Russ,Once you deposited the RMD amount into your Roth IRA, it became a conversion. Roth conversions can not be reversed (“recharacterized”).
The IRA and plan rollover rules have been in constant flux this year. We are now past the original July 15 extended rollover deadline. This was the first extension date created by IRS Notice 2020-23. Distributions from an IRA or company plan taken February 1 or later could have been rolled back to an IRA or company plan beyond the standard 60-day rollover window. This rule applied to any distributions that were otherwise eligible to be rolled over, including unwanted RMDs.
Question:I took 25% of my 2020 required minimum distribution (RMD) from an inherited IRA on March 15, 2020. Can that be “undone” in accordance with the CARES Act and if so, how? Thanks.AudreyAnswer:Hi Audrey,The CARES Act waives RMDs for 2020. The waiver does include inherited IRAs. However, any amounts already taken from an inherited IRA by a nonspouse beneficiary cannot be rolled over. That is because the regular rollover rules still apply, and those rules do not allow a nonspouse beneficiary to do rollovers. If you are a spouse beneficiary, the rules are different.
True or False? “It is mathematically impossible for an IRA account owner to have his first required minimum distribution (RMD) be due for the year 2020.”Here’s why this statement is true.First, we are not talking about inherited IRAs. If the account owner died in 2019, then the first RMD for the beneficiary needs to be taken by December 31, 2020. Inherited IRAs do not fit this statement.Next, we are not talking about workplace retirement plans – like a 401(k). The reason this statement does not apply to a 401(k) is because of the pesky “still-working” exception. If a plan has the still-working exception feature and an older employee separates from service in calendar year 2020, then the first RMD will also be due for 2020.
Question:Hoping you might be able to offer some guidance. We have a client who has two IRA accounts. The client is 80 years of age. He wants to convert the full amount in one of his IRA accounts to a Roth. The IRS says that distributions from IRA accounts are treated as satisfying the RMD first, so we need to take the RMD before we process the conversion. My questions are: 1.) The client has plenty of money in IRA #2 to satisfy the RMD for both IRA accounts. I presume that doesn't matter and we still need to take the RMD before we convert? 2.) Is the RMD that must be satisfied ONLY the RMD for IRA #1 that we plan to convert to a Roth, or is the RMD that must be satisfied the aggregate of both IRA accounts that must be met before we convert IRA #1 to a Roth?Thank you.Jamie
Question:Hi Ed,Hope all is well. I have a client that received the HEART benefit as her spouse passed away a few years ago. We immediately moved those dollars into a Roth for her. My question is, as we are doing some year-end planning, can I add to this Roth by doing a conversion, or do I need to open up a separate Roth for her?Answer:The HEART Act allows a beneficiary of military death gratuities to contribute those funds to a Roth IRA. The Roth contribution can be made without regard to the annual contribution or income limits. The contribution must be done within
Question:I am over 71 and have 2 IRAs, one in my name, the other is inherited.Can I take one RMD from the inherited IRA to satisfy both?Or must I treat them separately and do 2 separate RMDs?Thank you!TylerAnswer:Hi Tyler,You must treat the IRAs separately and take two separate RMDs.If you own more than one IRA (not inherited), you can aggregate them and take the RMD from any one (or more) of them.
Question:I am still working at age 71 and don't really need the required minimum distributions (RMDs) from my rollover IRA. The IRA was funded largely with distributions from a tax-qualified pension plan and a tax-qualified 401(k) plan. Some deductible contributions were made many years ago as well. I would like to transfer some of the IRA into my current employer's 401(k) so as to reduce RMDs until I terminate my employment with my current employer. I am not a 5% owner of the company, so I don't currently have to take RMDs from the 401(k).
People stumble over themselves all the time. Bad advice is provided, misinformation gets freely disseminated, and sometimes normally smart individuals do less-than-smart things. Stories of good folks fouling up their required minimum distribution are rife. After all, the RMD rules contain a veritable minefield of traps and potential tripping hazards. Based on nothing more than personal experience, anecdotal evidence and conversations with industry insiders, here is a Top 10 list of RMD Goofs, Gaffes and Blunders:10. Rolling over an RMD. RMDs are not eligible to be rolled over. This happens most frequently when company plan assets are rolled over to an IRA. If the RMD is not taken first, you now have an excess contribution in the IRA that needs to be corrected.
Many company retirement plans – like a 401(k) – offer company stock as an investment option. Under special tax rules, a plan participant can withdraw the stock and pay regular (ordinary) income tax on it, but only on the original cost and not on the market value, i.e., what the shares are worth on the date of the distribution. The difference (the appreciation) is called the net unrealized appreciation (NUA). NUA is the increase in the value of the employer stock from the time it was acquired to the date of the distribution to the plan participant.The plan participant can elect to defer the tax on the NUA until he sells the stock. When he does sell, he will only pay tax at his current long-term capital gains rate – even if the stock is held for less than one year. To qualify for the tax deferral on NUA, the distribution must be a lump-sum distribution. This means the entire plan must be emptied in one calendar year, including all non-company stock within the plan.
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