Question:
Does the SECURE Act have any implication to Roth IRA account inheritance longevity? Please let me know. Thank you.
Regards,
Vikram
Answer:
Hi Vikram,
The SECURE Act does affect inherited Roth IRAs in the same way it affects inherited traditional IRAs. Most beneficiaries who inherit a Roth IRA in 2020 or later will be subject to a 10-year payout period.
Question:
In December of 2018 I did my first partial Roth IRA conversion into a new Roth IRA. I’m older than 59 ½.
In December of 2019 I did my second partial Roth IRA conversion into the same Roth IRA opened in December of 2018. The traditional and Roth IRA’s are held at the same company, so the conversions are easy. Does the 5-year waiting period apply to each conversion, or just the first one?
Answer:
We get a lot of questions about the five-year rule for Roth IRA distributions! What makes this area so confusing is that there are, in fact, two different five-year rules that may come into play.
Dollar cost averaging is a tried-and-true investment strategy that has existed for decades. Using this technique, an investor divides up their entire amount to be invested and makes smaller periodic purchases over a desired time. The goal of dollar cost averaging is to minimize the potential volatility of a single large investment. Essentially, dollar cost averaging seeks to reduce the possibility of making a big purchase just before the value drops.
Example: Roger has $10,000 and wants to invest in a mutual fund. Roger is unsure what the market’s direction will be over the next few months. To avoid the possibility of investing the full $10,000 all at once and then having the market immediately drop, Roger elects to dollar cost average.
Question:
For COVID "special" Aug 31 rollovers, am I allowed to return my 401(k) required minimum distribution (RMD) to my IRA?
Thank you,
Maria
Answer:
Hi Maria,
Yes, the CARES Act and subsequent IRS guidance allows unwanted
The King of the Land wanted to send 100,000 of his greatest warriors off to battle. However, he was told that 20,000 of the warriors needed to remain behind to protect the castle. The King of the Land did not like this news. He wanted a full complement of soldiers in the fight. So, the King of the Land decided to send all 100,000 warriors off to battle, and he used an additional 20,000 warriors from another army to protect the castle.
The investor wanted to convert $200,000 of his traditional IRA to a Roth IRA. However, it was recommended that he withhold 24% for taxes. The investor did not want to send only $152,000 to his Roth.
An initial ROTH conversion was completed in 2018 for tax year 2018. A second conversion was completed in 2019 for tax year 2019. There was no ROTH IRA account prior to 2018 and the account owner is over 59 ½. The 5-year holding period will be satisfied on 1/1/2023. Does each ROTH conversion transaction have a separate 5-year clock to determine whether earnings are tax free or is it just the initial transaction? Thank you in advance for your assistance.
Dan
Answer:
Dan,
For those under the age of 59 ½, yes, each Roth conversion has its own 5-year clock. However, the account holder you are inquiring about is already over 59 ½. As such (and since this is his very first Roth IRA account), he only has to concern himself with the 5-year clock on the 2018 conversion.
As of the writing of this Slott Report submission, it is Monday, December 23, 2019. T-minus 8 days before the end of the year, which means IRA owners have a tight window to complete any year-end transactions. Once the calendar turns, if not finalized in time, some items will be forever lost. Here are six transactions that absolutely must be completed within the next 8 days to avoid penalty and/or a lost opportunity:
Over 70 ½ RMDs. While the first RMD for the year a person turns 70 ½ can be delayed until April 1 of the next year, all future RMDs must be taken before the end of the calendar year. There is no wiggle room.
Question:
Hello. I am an avid reader. Thank you for the information you provide. About opening/establishing a Roth IRA:
I opened my 1st and only Roth IRA on April 12 of 2018 at the age of 59 ½, funding it with an initial deposit and designating that deposit as a 2017 deposit/contribution. In August of 2018 I made a 2nd deposit as my 2018 Roth IRA contribution. Does the 5-year rule (to withdraw earnings tax free) begin in 2017 or 2018? Does the 5-year rule start on April 12, the actual date of the Roth IRA establishment, or does the date default to January 1st regardless of the actual establishment date?
Thanks again,
Jeff
Answer:
Jeff,
The start date for your Roth IRA is officially January 1, 2017.
Question:
Hello Ed,
I have received differing views on making a 401(k) conversion to a Roth IRA. I'm a 64 year old retired federal employee and plan to transfer all my funds from the TSP to my traditional IRA. From there I plan to make annual conversions to my long established Roth IRA. Is there an issue with the five-year rule that would prevent me from being able to make withdrawals from the Roth during the next few years? Thanks for your help.
Dan
Answer:
Hi Dan,
Your plan works! You can roll over your TSP to a traditional IRA and make series of conversions to a Roth IRA without worries about taxes and penalties on any Roth distributions. How is this possible? Well, all your converted funds can be accessed tax and penalty free because you are over age 59 ½.
Question:
Hello,
I’ve been a follower of Ed’s expertise for over 10 years. The information has always been helpful and clearly explained.
At this time, I’m looking to help a client minimize her taxes. She recently inherited an IRA from her father. She has taken the “Stretch IRA” option and is now receiving her required distributions.
Can she utilize a Qualified Charitable Distribution to her church (verified 501c3) to reduce her tax liability and still maintain the stretch IRA?
Answer:
Yes. Qualified Charitable Distributions (QCDs) are available to beneficiaries.
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