Did you inherit an IRA from someone who is NOT your spouse? This is not uncommon. Maybe you inherited from a sibling or a parent or a friend. If this is your situation, you will want to proceed with caution. For nonspouse beneficiaries a wrong move can result in disastrous consequences. So, take your time and do it right.
Step one is to carefully explore your options. What are a nonspouse beneficiary’s options when it comes to the inherited IRA?
Under the tax code, nonspouse beneficiaries can take advantage of the “stretch” IRA. This means you can set up a properly titled inherited IRA and then take required minimum distributions (RMD)s based on your life expectancy.
Question:
Your advice, articles, publications and books I’ve purchased over the years have been great and most informative. Great job! My question is with regards to NUA – I retired recently (age 66) and had a company 401(k) to which I contributed over the years and will likely not make any withdrawals until required RMD’s. Within the company 401(k) plan I invested in selected bond funds, stock funds, small cap, a value fund, target funds, mid cap funds, international funds and our company stock fund option. (Some of the company stock I purchased and some was a company gift over the years).
Prior to 2002, a default option for paying out required minimum distributions from an inherited IRA to a beneficiary was the 5-year rule. If the IRA owner died before their required beginning date and an election was not made in a timely manner, the account had to be closed by December 31 of the 5th year following the year of death. In 2002, new regulations issued by the IRS changed the default payout to the life expectancy of the designated beneficiary. The 5-year requirement for most beneficiaries was eliminated.
Roth IRAs are a wonderful way to save for retirement. A person can sock away $6,000 a year (plus another $1,000 if they are age 50 or older) and the earnings will grow tax free. Plus, most custodians allow Roth IRA dollars to be invested in an incredibly wide array of options – mutual funds, stocks, ETFs - a veritable smorgasbords of choices. Can’t beat that with a stick!
Did I mention that Roth IRAs have no required minimum distributions at age 70 ½? (Put that in the “pro-Roth” column.) What about age restrictions on who can contribute? You’re telling me that anyone can contribute to a Roth IRA as long as they have earned income and do not exceed certain income limits?
Question:
I set up a Roth outside my employee retirement plan. I retired on 10-01-2018. I set up an automatic contribution to my Roth IRA from my checking account and, up to this day, still continue to contribute to the Roth IRA . Shall I opt out since I’m retired now? Your advice is deeply appreciated.
Thank you very much.
Sincerely,
Ester
Answer:
Hi Ester,
Contributing to a Roth IRA in addition to your employer plan is a great way to increase your retirement savings.
he road to retirement is long. Along the way you may need or want to move your retirement funds. Maybe you are leaving a job or maybe you are just looking for a new investment strategy. When the time comes to make a move, you will want to be sure that everything is done correctly. Rolling over retirement funds can be tricky and the consequences of a mistake can be serious. Here are 6 things about rollovers that every IRA owner needs to know.
1. How rollovers work
A 60-day rollover starts with a distribution from a retirement plan payable to you. The distribution can be from a company plan or an IRA. You will have receipt of the funds.
Every single month since January of 2014, Billy Joel has headlined a sold-out show at Madison Square Garden. Demand for tickets to see the Piano Man has not waned. Ticket sell out quickly. Millions of fans will attest that Billy Joel, who’s music career spans decades, still puts on an incredible show.
It’s hard to believe that Billy Joel just recently celebrated his 70th birthday on May 9, 2019. We don’t know for sure that Billy has an IRA, but if like millions of Americans he does, then 2019 is an important year for him.
Question:
I am over 70.5 and I have to take an IRA minimum distribution or else pay taxes and penalties on scheduled amount. My question is - can I take the mandatory distribution which I will pay taxes on anyway and then roll the distribution into my ROTH IRA? So far I have several YES and several NO answers. Your input would be the deciding vote for me. What say you??????
Thanks
Jimmy
Answer:
Jimmy,
As the deciding vote, we can say unequivocally that RMDs are not eligible for rollover to another IRA and are not eligible for conversion to a Roth IRA.
A time machine would be cool to have. Even if it only worked on financial assets, it sure would come in handy. One might jump into the future and see if an investment paid off, or you could look around to see where the smart money succeeded. And if the original investment turned out to be a loser, you could go back in time and sell it – or never even buy it in the first place.
Too bad financial time machines don’t exist. Bummer.
While literal time machines have yet to be invented and we can’t quantum leap,
The pro-rata rule is the formula used to determine how much of a distribution is taxable when an IRA account consists of both pre-tax and after-tax (basis) dollars. The rule requires that all SEP, SIMPLE, and traditional IRAs be considered as one giant “Starbucks Venti mug of money” for every distribution or Roth conversion. When both pre- and after-tax dollars exist, one cannot just withdraw or convert the basis. (It is important to note that Roth IRAs are NOT factored into the pro-rata equation.)
A popular analogy for pro-rata is the “cream in the coffee” comparison. Once a spoonful of cream goes into a cup of coffee, it becomes inexorably mixed and can never be removed as just cream. Each future sip will consist of a percentage of cream and a percentage of coffee.
