IRS “Hypothetical RMD Rule” Prevents Surviving Spouses from Avoiding RMDs
Ed Slott and Company, LLC blogs
by Matt Smith
11h ago
By Ian Berger, JD IRA Analyst One of the more interesting rules (if any could be called “interesting”) from the 2022 IRS proposed regulations requires spouse beneficiaries in some situations to take RMDs (required minimum distributions) before doing a spousal rollover. The IRS calls these RMDs “catch-up” or “hypothetical” RMDs. At first, it was hard to figure out where the IRS was going with this special rule. But after some analysis, it is clear the IRS was trying to close a loophole that spouse beneficiaries could use in very limited situations to avoid RMDs. Here’s some background. When a s ..read more
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Inherited Roth IRAs and Qualified Charitable Distributions: Today’s Slott Report Mailbag
Ed Slott and Company, LLC blogs
by Matt Smith
3d ago
By Andy Ives, CFP®, AIF® IRA Analyst QUESTION: Do required minimum distributions (RMDs) need to be taken when a non-spouse beneficiary inherits Roth IRA? It seems this has been a point of confusion for some time. ANSWER: This is something that confuses a lot of people, and understandably so. The answer is – it depends on who the beneficiary is. Roth IRA owners are always deemed to have died before the required beginning date, regardless of age, because Roth IRAs have no lifetime RMDs. As such, annual RMDs do not apply during the 10-year payout rule when a Roth IRA is inherited by a non-eligibl ..read more
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12 QCD Rules You Must Know
Ed Slott and Company, LLC blogs
by Matt Smith
6d ago
By Sarah Brenner, JD Director of Retirement Education If you are charitably inclined and have an IRA, a Qualified Charitable Distribution (QCD) can be a great strategy. With a QCD, you can move IRA funds to the charity of your choice tax-free. Here are 12 QCD rules you must know. 1. QCDs are only available to IRA owners or beneficiaries who are age 70½ or older. 2. The maximum QCD amount is capped at $105,000 per person, per year. 3. Under the SECURE 2.0 Act, a one-time QCD of $53,000 (for 2024) can go to a split-interest entity, such as a charitable remainder annuity trust, charitable remain ..read more
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Excess Contribution Fix: Same IRA, Different Dollars
Ed Slott and Company, LLC blogs
by Matt Smith
1w ago
By Andy Ives, CFP®, AIF® IRA Analyst If I pour too much water into a glass, removing liquid from a different glass does not correct the problem. The excess water must be removed from the “offending” receptacle. Such is the case with excess IRA contributions. If too much money is deposited into a particular IRA, those excess funds must be removed from the same over-flowing IRA to avoid penalties. Excess IRA contributions can occur in a number of ways. A few examples include: Making too much money (being over the income threshold for a Roth IRA) but contributing anyway. Not having any taxable c ..read more
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IRS Gives Guidance on Penalty-Free Withdrawals for Financial Emergencies and for Victims of Domestic Abuse
Ed Slott and Company, LLC blogs
by Matt Smith
1w ago
By Ian Berger, JD IRA Analyst If you take a taxable withdrawal from your IRA or 401(k) (or other company plan) before age 59 ½, you normally have to pay a 10% penalty in addition to taxes. But Congress continues to carve out exceptions to this penalty, and there are now 20 available. In Notice 2044-55, the IRS recently gave us guidance on the new SECURE 2.0 penalty exceptions for withdrawals from IRAs and workplace plans to pay emergency expenses and for victims of domestic abuse. Both are effective this year. (Always think twice about withdrawing from your IRA or company plan. Even if the wit ..read more
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Rolling Over Your In-Plan Conversion? Watch Out for the Recapture Rule
Ed Slott and Company, LLC blogs
by Matt Smith
2w ago
By Sarah Brenner, JD Director of Retirement Education More and more Americans have retirement savings in Roth 401(k)s. With their rising popularity come some complicated tax issues. These funds are often rolled over to Roth IRAs at retirement or when a participant changes job. While the rollover process to the Roth IRA is fairly straightforward, the rules for determining the taxation of these funds when eventually distributed from the Roth IRA can be tricky. In a recent Slott Report post, Andy Ives tackled these rules: https://irahelp.com/slottreport/roth-401k-to-a-roth-ira-rollover-how-does-t ..read more
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Roth IRA Distributions and Self-Directed IRAs: Today’s Slott Report Mailbag
Ed Slott and Company, LLC blogs
by Matt Smith
2w ago
By Sarah Brenner, JD Director of Retirement Education Question: I have a question about the Roth IRA distribution ordering rules based on a client’s situation: 1. The client is 45 years old. 2. She has had a Roth IRA open for five plus years. 3. She made a $6,000 contribution to a Roth IRA when she originally opened it. 4. We transferred a Roth 401(k) balance of $10,000 to her Roth IRA in October 2023, with a basis of $9,000 according to the statement from the 401(k) provider. The client needs to take a distribution from her Roth IRA, and I want to ensure it’s done in the most tax-efficient w ..read more
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Beer Pong & IRA Custodial Rules
Ed Slott and Company, LLC blogs
by Matt Smith
2w ago
By Andy Ives, CFP®, AIF® IRA Analyst You know the game “beer pong?” Arrange 6 or 10 cups in a triangle, fill each one with a couple of ounces whatever beverage you are enjoying, and your opponent tries to toss a ping-pong ball into one of the cups. If a throw is successful, the contents of that cup are consumed, and it is removed from the table. Rinse the ball off, and it’s your turn to try and toss it into one of the other person’s cups. The first person to eliminate each of his opponent’s cups wins. What’s interesting is the number of permutations and in-house rules that can apply. Here at C ..read more
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Five Things to Know About Roth 401(k)s
Ed Slott and Company, LLC blogs
by Matt Smith
3w ago
By Ian Berger, JD IRA Analyst A recent survey found that over 80% of 401(k) plans now offer employees the option of making Roth 401(k) employee contributions. More and more employees are now taking advantage of that opportunity. (In this article, I use the term “Roth 401(k) contributions” to also include Roth employees made to 403(b) and municipal 457(b) plans.) Here are five things to keep in mind about Roth 401(k)s if your plan offers them: They have great tax benefits. Although Roth 401(k) contributions are made with after-tax salary, the contributions grow tax free, and earnings also come ..read more
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SIMPLE IRA RMDS AND IRS LIFE EXPECTANCY TABLES: TODAY’S SLOTT REPORT MAILBAG
Ed Slott and Company, LLC blogs
by Matt Smith
3w ago
By Ian Berger, JD IRA Analyst Question: Does a SIMPLE IRA owner who is over age 73 and still works for the same company that sponsors the SIMPLE IRA plan have to take an RMD (required minimum distribution)? He does not own any of the company. Answer: Yes. SIMPLE and SEP IRA owners cannot use the “still-working exception” to delay RMDs until retirement. For this purpose, SIMPLEs and SEPs are treated like IRAs – not plans. So, the first RMD would be due for the year the SIMPLE IRA owner turns age 73, regardless of employment status with the company. Question: Hi, I am trying to get information r ..read more
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