The federal ERISA law gives spouses of plan participants in ERISA-covered plans certain rights to the participant’s account. There are two types of ERISA financial protection for spouses. Spouses of IRA owners usually don’t have similar rights.
The first type of protection applies to all ERISA plans. Those plans must automatically treat a married participant’s spouse as his beneficiary – unless the participant designates another beneficiary and the spouse gives written consent. (Spouses in community property states also receive this protection for IRAs established during marriage.)
Question:
I am 66 years old and live on Social Security and other retirement income. Additionally, I have about a half million dollars in pre-tax 457(b) funds that I do not need for current expenses. Are these funds in the pre-tax retirement accounts eligible for Roth conversion?
The pandemic has upended the workforce. Many workers lost jobs. Some workers resigned by choice. Others were forced to leave jobs due to childcare issues. If you are not working outside the home, you may believe you are ineligible to make an IRA contribution. You may think that because IRA contributions are based on taxable compensation, if you personally have not been working, you are out of luck. Good news! If you are married but not working, you may be able to make a contribution to your IRA based on your spouse’s taxable compensation for the year.
Towards the end of each year, the IRS announces cost-of-living increases for several retirement-related dollar limits that will become effective for the next year. For example, last November, the IRS said that the limit on employee pre-tax deferrals and Roth contributions in company plans would increase to $20,500 for 2022. You may have also seen that the IRS compensation limit also increased for 2022 to $305,000. What is this limit all about?
Question:
I turn 72 this year.
I am getting notices from my many IRA custodians that they want a waiver on file if I am NOT using my account for the RMD (i.e., I am taking it somewhere else). They make it sound like if I do not contact them, that they will automatically cut me a check for the required RMD amount.
For IRA owners and retirement plan participants who are under age 59 ½, taking a distribution from a retirement account is typically off limits. The distribution will most likely be taxable, and there is a good chance that a 10% penalty will also apply. However, sometimes life gets in the way and a withdrawal needs to be made.
If you are under age 59 ½ and you converted your traditional IRA to a Roth IRA, you will need to watch out for the five-year rule for penalty-free distributions of converted funds. Not understanding how the rule works can result in unexpected penalties when you withdraw your Roth IRA funds.
Question:
I'm retired, over age 59 ½, and want to take a single 401(k) distribution and convert it to my Roth IRA. Do I follow same 60-day rollover rules and first have to rollover the distribution to a Traditional IRA and then convert it, or can I deposit it directly into my Roth IRA?
We continue to get questions about whether it’s wise to do a Backdoor Roth IRA or Mega Backdoor Roth IRA at this point, given the unsettled state of the Build Back Better (BBB) legislation in Congress.
As background, the Backdoor Roth IRA strategy allows you to make an indirect Roth IRA contribution if your income is too high to qualify for a direct contribution. (The income phase-out ranges for 2022 are $204,000 - $214,000 for married couples filing jointly and $129,000 - $144,000 for single filers). You simply make a traditional IRA contribution and then convert it to a Roth IRA. (No income limits apply for making traditional IRA contributions, but you must have taxable compensation or earned income.)
The “Martin Scenario”: Martin, age 40, has never done an IRA rollover before. He took a distribution from his traditional IRA in December 2021 for $10,000 and deposited it into his checking account. Martin took another distribution from his IRA in January 2022 for $50,000. He also deposited this into the same checking account.
