Thanksgiving is behind us, and the end of the year will be here soon. (Many of us are truly thankful for that!) This is a good time to remind you of certain tax breaks that will expire before we turn over the calendar to 2021. Many of these actions require cooperation from third-party IRA custodians and plan administrators, so you need to act fast. As that great philosopher Yogi Berra once said, “It gets late early out there.”
Question:
Good Morning,
We have a client that passed away in November of 2019 at the age of 85. Her beneficiaries would be required to take their RMD in 2020. Are they eligible under the CARES Act to forgo that RMD for this year?
Thank you,
Linda
Both Roth 401(k)s and Roth IRAs offer the ability to make after-tax contributions now in exchange for tax-free earnings down the road if the rules are followed. However, there are some important differences between the two retirement accounts that you will want to understand.
1. Contributions limits are higher for Roth 401(k)s
One major difference is in the amount that you may contribute. Your Roth IRA contribution is limited to a maximum of $6,000 for 2020 if you are under age 50.
Trick-or-treating in the time of a pandemic is a challenge. Social distancing while handing out candy requires some creativity. The Slott Report has elected to place a big bowl of random treats in front of our house for the kids to pick from. We bought a lot of candy, so feel free to take more than one…
Twix. Do not name your estate as your IRA beneficiary.
Question:
Hello,
If an individual has a solo 401(k), is this considered a "retirement plan at work" that would limit the deductibility of IRA contributions?
Thanks!
Susan
Answer:
Hi Susan,
Being an active participant in a retirement plan for the year can limit your ability to deduct your traditional IRA contribution, depending on your income. Participating in a solo 401(k) would count as active participation for this purpose.
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.
Question 1:
I have a very simple ROTH IRA question. I borrowed money from my ROTH IRA with the intention of paying it all
back in 60 days. To avoid any penalty, must I make one repayment of all the money I borrowed? Or, can my repayment be made in two parts, all within the sixty days?
Question 2:
Am I allowed to convert my inherited Traditional IRA to a Roth IRA?
It happens. You have made a 2019 contribution to the wrong type of IRA. All is not lost. That contribution can be recharacterized. While recharacterization of Roth IRA conversions was eliminated by the 2017 Tax Cuts and Jobs Act, recharacterization of IRA contributions is still available and can be helpful in many situations.
Maybe you contributed to a traditional IRA and later discovered the contribution was not deductible. Or maybe you contributed to a Roth IRA, not knowing that your income was above the limits for eligibility.
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.
Audrey
Answer:
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.
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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