Matt Smith

1. What is a QDRO? A QDRO is a “qualified domestic relations order.” In plain English, it is a state court order obtained by divorcing parties that requires an ERISA plan to pay a portion of a participant’s benefit to the non-participant spouse. QDROs are an exception to the rule that prohibits an ERISA plan from paying benefits to anyone other than a plan participant or beneficiary. 2. Can a QDRO be used for IRAs? No. QDROs are generally only for ERISA plans, and IRAs are not covered by ERISA. In a divorce situation, IRAs can be split via a divorce decree or property settlement agreement. Funds are transferred through a direct trustee-to-trustee transfer to an IRA in the name of the non-owner spouse.

Question: As year-end approaches, I have just exceeded my 2019 RMD, combining total QCD's during the year and my regular monthly IRA withdrawals. If I make additional charitable contributions from my IRA this month, are they still considered tax-advantaged QCD's, or has my QCD opportunity ended because I've already exceeded the annual RMD? Answer: This is an area where there is a lot of confusion! While you can use a qualified charitable distribution (QCD) to count toward your required minimum distribution (RMD), your QCDs for the year are not limited to the amount of your RMD.

When the chips are down, the providers hold all the cards. This is true for both IRAs and workplace plans. Ultimately, the IRA custodian (through its custodial form) and retirement plan sponsor (through the plan document) will dictate what a person can and cannot do with his retirement dollars. Prior to sauntering into a local saloon and sitting down at the poker table, be sure to know the rules of the game before asking to be dealt in. For example, if a deceased IRA owner named both his son and daughter as beneficiaries, the custodian can refuse to allow the children to stretch the inherited IRA RMD payments over their own life expectancies. Additionally, what if the beneficiary son wants to disclaim his portion of the IRA? A custodian does not have to accept disclaimers, either.

It is hard to be believe it is December already. The holiday season is now in full swing. There are gifts to buy and wrap and parties to attend. It’s no wonder that during this time of year many people are not thinking too much about their retirement accounts. Don’t make this mistake! Year-end deadlines for IRAs can sneak up quickly at this time of year. Act now while you still have some time because missing these three IRA deadlines can be costly. Take your RMD for 2019 If you have a Traditional IRA (including SEP and SIMPLE IRAs) and you reached age 70½ prior to 2019, you must take your 2019 required minimum distribution (RMD) from your IRA by December 31, 2019.

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.

Just like eating too much pumpkin pie with whipped cream isn’t good for your waistline, being a “top-heavy” retirement plan also may not be healthy. Sponsors of certain retirement savings plans must have their plan tested each year to determine if it is “top-heavy.” The top-heavy test is designed to make sure that lower-paid employees receive at least a minimum benefit if most plan assets are held for higher-paid employees. Section 401(k) plans are subject to top-heavy testing, unless the plan uses a “safe harbor” contribution formula. SEP-IRAs are also subject to testing, but most will automatically comply. Section 403(b) and 457 plans and SIMPLE IRAs are exempt from the top-heavy test.

Jenny earns a salary of $1,000,000. She is single and is not an active participant in a company retirement plan. Jenny can contribute $6,000 to a traditional IRA and deduct the full amount on her taxes. Benny, also unmarried, has a modified adjusted gross income of $76,000. He participates in a 401(k) at work. Benny can make a $6,000 contribution to a traditional IRA, but he is not allowed to deduct it. What gives? A person making a million can deduct an IRA contribution, but the person with a MAGI of $76,000 cannot? Is this another example of the rich getting richer? No, not really. The key factor driving eligibility for a deduction of a traditional IRA contribution is not salary or MAGI, but participation (or lack thereof) in a company retirement plan. When a person or their spouse is an “active participant” in a company retirement plan for any part of the plan year,

The Macy’s Thanksgiving Day Parade is a river of sights and colors and sound. A snappy marching band flows to an army of volunteers clutching the ropes of a six-story inflatable SpongeBob, swaying in the wind. Flag bearers and cheerleaders give way to a giant turkey in a Pilgrim hat being towed by a pick-up truck. Singers and dancers stream past and stilt walkers in Nutcracker outfits move with gaping steps. More towering balloons and more trumpets and more characters follow while the crowd oohs and ahs.

Roth IRAs first arrived over twenty years ago. A lot has changed since 1998. That was the year that Google was founded and an electronic pet called a Furby was one of the most popular Christmas gifts. However, some things haven’t changed so much. Impeachment is once again all over the news and here at the Slott Report we are still being asked many questions about how the five-year rules for Roth IRA distributions work. We probably get more questions on this topic than just about any other.

Question: I am over 71 and have 2 IRAs, one in my name, the other is inherited. Can I take one RMD from the inherited IRA to satisfy both? Or must I treat them separately and do 2 separate RMDs? Thank you! Tyler Answer: Hi Tyler, You must treat the IRAs separately and take two separate RMDs. If you own more than one IRA (not inherited), you can aggregate them and take the RMD from any one (or more) of them.