Question:
I hope you can help me with this, as I cannot find the answer anywhere or from anyone.
In 2019, my client Frank, passed away. His cousin, Lisa, inherited his IRA. In 2020, Lisa passed away. Her husband, Rob, inherited the IRA. They are all the same age.
The rules for rolling over IRA distributions can be complicated at any time of the year. They are especially challenging at the end of the calendar year.
Surprisingly, sometimes IRA owners have doubts as to whether a distribution taken in one calendar year can even be rolled over in the next. There is no problem with this! Nothing prevents you from taking an IRA distribution in December, 2020 and rolling it over in January, 2021, as long as you follow all the usual rollover rules that always apply.
Question:
We had a client who died with no beneficiaries on his $500k 401(k). He wasn’t married and only 45 years old. His parents are disclaiming rights to the inheritance, so it’s going to his siblings. Is there any way these two siblings can stretch the retirement account into an inherited IRA? If so, what does that look like?
Thanks,
Patrick
Answer:
Hi Patrick,
The siblings may still be able to use the stretch even after the SECURE Act eliminated it for most beneficiaries.
Coronavirus-related distributions (CRDs) are no more. Millions of Americans took advantage of the opportunity to make penalty-free withdrawals from their IRAs and 401(k) plans in 2020. But unless Congress resurrects them, CRDs are no longer available.
Yet the economic damage caused by the pandemic is still very much with us. So, without CRDs, where do you turn for money to pay your bills?
As we enter tax season and consider last year’s transactions, it bears repeating: Roth IRA contributions can be recharacterized, Roth conversions cannot.
A Roth IRA contribution can be recharacterized (changed) to a Traditional IRA contribution. The opposite is also true. A Traditional IRA contribution can be recharacterized to a Roth contribution. This can be done for any reason. As long as the recharacterization is done by October 15th of the year after the contribution, it is a perfectly acceptable transaction in the eyes of the IRS.
Question:
I recently retired and I plan to relocate to Tennessee. I would like to purchase a new home. Can I pull funds from my IRA to do so, and what would be the implications? Thank you.
Edna
Answer:
Edna,
If you are over 59 ½, you have full access to your IRA dollars with no strings attached – other than having to pay taxes on the distribution. If you want to withdraw some dollars to buy a new home, then go for it. However, if you are under age 59 ½, then there would be a 10% penalty on any early IRA distribution (plus taxes due) unless an exception existed.
The SECURE Act made many changes to the rules for beneficiaries who inherit retirement accounts. One of the most significant ones is the end of the stretch IRA for most beneficiaries. However, there are some beneficiaries called “eligible designated beneficiaries” (EDBs) who can still use the stretch. How well do you understand this new class of beneficiaries? Take our quick quiz. The answer may surprise you.
There’s been some confusion about the retirement plan aspects of the COVID-19 stimulus package signed into law on December 27, 2020.
One national news network has reported that the new law extends the CARES Act tax breaks for coronavirus-related distributions (CRDs) into 2021. This is incorrect! At least for the moment, CRDs are no longer available.
Hello Ed,
I have faithfully read the Slott Report for a long time. I must thank you for sharing your knowledge. However, it is finally my turn to write you with a question.
I was quite fortunate to work for a company with an employer 401(k) plan. So, I faithfully contributed for years and now have both 401(k) and Roth 401(k) — principal and earnings — to retire on. My employer’s plan rules state that after I retire, I must take it all or nothing.
We are just a few days into the new year, and many people are anxious to get their full IRA contributions in for 2021. However, a common question is, “It’s only the first week of the year and I haven’t received a paycheck yet. Can I still make my contribution now, or do I need to wait until I actually have earned income?”
