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.
As we have written on many occasions, the “Coronavirus Aid, Relief, and Economic Security Act” (CARES Act) waives required minimum distributions (RMDs) for 2020. This waiver applies to company savings plans and IRAs, including both inherited traditional and inherited Roth IRAs. While that sounds like a straightforward announcement, the RMD waiver has generated a landslide of inquiries and confusion since the CARES Act was passed in late March. Here are a dozen of the most popular and widely applicable Yes/No questions and answers:
After a six-month sprint through a diabolical obstacle course of new laws, a pandemic, record unemployment, deaths, confusion and complete disruption of everyone’s professional and personal lives, this seems like a good time to recap the madness of the pr
Question:Thank you for all the great resources you provide. I have been looking for an answer to my specific situation and have not been able to find a clear answer to what I think is a pretty straight forward situation/fact pattern.I take my RMDs spread over a monthly basis on the 6th of each month. (I have taken four in 2020 - Jan, Feb, Mar, Apr). Under the new legislation that extends the "60-day rollover window" for distributions taken on or after February 1, 2020 to July 15, 2020, am I able to roll back all three distributions (Feb, Mar and Apr) in one contribution (rollover) into my IRA, or am I limited to only being able to roll back one month's worth of distributions?Thanks for your help and all you do.Dale
By now, most IRA owners have heard the bad news. The SECURE Act eliminates the stretch IRA for the majority of beneficiaries who inherit in 2020 or later. Instead, for most, a 10-year payout rule will apply. Here is how this new rule works and how, for some beneficiaries, there may be new planning opportunities available.How It WorksThis new 10-year rule works like the old 5-year rule worked. There are no annual RMDs. Instead, the entire account must be emptied by the 10th year after the year of death. In the 10th year following the year of death, any funds remaining in the inherited IRA would then become the required minimum distribution (RMD).
Like most people’s lives, the retirement world is upside down. This is made evident by a single statement: “Required minimum distributions (RMDs) can be rolled over.”Yes, that is the new normal – at least for this year. RMDs are considered the first money out of an IRA and workplace plan. Typically, these dollars are ineligible to be rolled over to either another plan or IRA. The RMD always had to be taken first. If an RMD was erroneously rolled over, it was an excess contribution and the appropriate fix-it steps had to be followed.But those hard-and-fast rules are no more for 2020. As we have written in the Slott Report, the “Coronavirus Aid, Relief, and Economic Security Act,” or the “CARES Act,” was signed into law on March 27. The Act includes a waiver of RMDs for this year from company savings plans and IRAs. In addition, the CARES Act impacts 2019 RMDs for those who reached age 70 ½ in 2019 and have a required beginning date of April 1, 2020.
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:Hi Ed,Question on the new SECURE Act: Do you know if there were any changes to the payout period if an estate is the beneficiary of an IRA. Is it still a 5-year payout? Or is it now 10?Thanks, appreciate your help.JanetAnswer:Dear Janet,The SECURE Act made lots of changes to the IRA rules. But one change it did not make is to the payout rules when the estate -- or any other non-individual (except for certain trusts) – is the IRA beneficiary.As was the case before the SECURE Act, the required distribution depends on whether the owner dies before the owner’s “required beginning date.” That date is April 1 of the year after the year in which the owner attains age 72. If the owner dies before the required beginning date, the entire account must be paid out by December 31 of the fifth year following death. If the owner dies on or after that date, annual required distributions must be made over the remaining life expectancy of the owner (had he lived) under the IRS Single Life Expectancy Table.
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
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