Matt Smith

Roth IRAs offer a trade-off. You decide to pay taxes now on your contribution (or conversion) in exchange for tax-free earnings down the road. Don’t miss out on Roth IRA benefits by making mistakes when you take a distribution. Here are six rules you need to know to make sure money comes out of your Roth IRA tax-free. 1. Aggregate your Roth IRAs. For tax purposes, all of your Roth IRAs are considered one Roth account. There is no tax benefit gained by keeping conversions in a separate Roth IRA from your contributions. This is sometimes called the aggregation rule. 2. Follow the ordering rules. Funds leave your Roth IRAs in a certain order. Contributed amounts are distributed first. Converted amounts are distributed next, first in, first out. Last out would be earnings.

Question: Hi Mr. Slott: I turn 70 ½ years old this year (D.O.B. 5-28-49) and must commence RMDs for an IRA total asset value as of 12/31/2018. When do I have to report this RMD on my tax return - before or no later than 4/15/2019? I have all my IRA funds with one custodian. Do they calculate the RMD or do I have to calculate? Also, my spouse has an employer 401a - can she aggregate the employer plan with all her other IRA funds for the RMD and withdraw from one of the IRA accounts, or does she need to segregate these two retirement classes (IRA vs 401a) and withdraw the RMD from each? Thanks for your help and looking forward hearing from you soon. Your Friend, Bob

When it comes to tax law and retirement planning, there are two things I like to talk about at the beginning of a new year: (1) some of most important rulings issued and laws passed in the prior year; and (2) the steps you can take today to improve your savings for retirement in the future. Since the topic du jour has been New Year’s resolutions, I want to tackle the second topic in this installment.

Question: I am 64 and opened my only Roth IRA over 5 yrs ago. I originally contributed $32.5K ($6.5K for 5 yrs) to this Roth IRA but now find it at $22.5K in value. Can I close this account and take a $10K capital loss? Kaptain Kurt Answer: The option to deduct losses in an IRA or Roth IRA is no longer available. Before the Tax Cuts and Jobs Act was passed, you could deduct losses as miscellaneous itemized deductions subject to a 2% floor. However, that deduction was eliminated beginning January 1, 2018. Additionally, investment losses in an IRA or retirement plan are not eligible for capital loss treatment. Thus, you cannot deduct the loss under those rules either.

It’s Time to Retire After working with some of the best IRA minds in the business for the past 14 years, it is time for me to try out the “other side” – retirement. I have truly enjoyed working with all the advisors and clients I have met. I have spoken to large groups and small ones. I have travelled coast to coast to educate others about the IRA rules. I will miss it all. But it is time to move on and do some of the things that I have put off for a long time because I was “too busy” working to do them. It is time to slow down a little and smell the roses. Thank you everyone for all you have done for me and taught me. I leave you in good hands with Sarah, Jeremy and Andy, and, of course, with Ed.

Happy holidays from Slott Report! We would like to wish all of our readers and their families a joyous holiday season and a Happy New Year! Thank you for taking your valuable time to read the Slott Report in 2018. Throughout the year we have heard from many of you. We welcome your questions and input. Keep it coming! The end of the year is always a time to look back. 2018 has been a busy year at the Slott Report. The Tax Cuts and Jobs Act became effective and changed the tax landscape. While we said a sad goodbye to the recharacterization of Roth conversions, we welcomed new tax brackets that made conversion more attractive. The Bipartisan Budget Act brought relief to wildfire victims and expanded hardship distributions. The Supreme Court gave its stamp of approval to state statutes revoking beneficiary designation upon divorce. The list goes on and on….

Question: Hello IRAHelp, I have a copy of Your Complete Retirement Planning Road Map and find it to be an extremely useful resource. I have uncertainty regarding optimum means for funding a Health Savings Account (HSA). I am 61. In 2018, I made a one-time Qualified HSA Funding Distribution (QHFD). I’ve utilized high deductible health plans (HDHP) with HSA contributions for a number of years. I am retired. In 2019, I will have a HDHP. I hope to find an optimum means to make HSA contributions until I get to Medicare. I would like to roll money from a traditional IRA into the HSA without taking taxed distributions. I welcome any help you might provide in making HSA contributions. Regards, John

In mid-November 2018, the IRS issued proposed regulations altering some of the rules governing hardship distributions from 401(k) and 403(b) plans. Most of the rules weren’t new; instead the IRS adopted changes that were issued in previous pieces of legislation, such as the Tax Cuts and Jobs Act, the Bipartisan Budget Act of 2018, and the Disaster Tax Relief and Airport/Airway Extension Act of 2017. The key takeaway from the proposed regulations is that the IRS has continued to chip away at some of the restrictions imposed by the tax code on hardship distributions.

Jerry sells widgets for the ACME Widget Company. Jerry is a hard-working employee who participates in the ACME Widget Company 401(k) Plan. Jerry also contributes annually to an IRA account at a local bank. The widget business is a fickle one. Some years Jerry can make up to $200,000, while in the down years he might only make $50,000. When Jerry’s income is high, he cannot deduct his IRA contribution because he is an active participant in his employer’s 401(k) plan. In those years, he makes nondeductible contributions to his IRA and diligently files Form 8606 to report them as such. In the slow years, when Jerry and his wife’s income is below the deductibility phase-out range for active participants, Jerry contributes to his IRA and takes the appropriate deduction on his taxes. Jerry maintains excellent records and knows exactly how much deductible vs. nondeductible money he has in his IRA.

Question: Hello Mr. Slott, Thanks for your educational broadcasts. I have run into something that might hold your interest. In two separate situations I have asked that retirement checks be made payable to an IRA at another large institution mailed FBO “my name” then mailed to me. One is IRA to IRA, the other is Qualified retirement plan by a former employer to an IRA. In both cases the sender has wanted to term the distribution as a rollover. I was able to get the coding on one changed after the fact (with much ado) and have not yet done the other. The IRS is clear that these are NOT rollovers: IRS publication 590-A: https://www.irs.gov/publications/p590a#en_US_2017_publink1000230589 “A transfer of funds in your traditional IRA from one trustee directly to another, either at your request or at the trustee's request, isn’t a rollover. This includes the situation where the current trustee issues a check to the new trustee but gives it to you to deposit. Because there is no distribution to you, the transfer is tax free. Because it isn’t a rollover, it isn’t affected by the 1-year waiting period required between rollovers.”