• By Beverly DeVeny IRA Analyst IRA owners can clearly combine the accounts they own and they can combine the required minimum distributions (RMDs) from multiple IRAs and take them from any one or combination of their IRAs. But what are the rules for inherited IRAs? An IRA owner cannot combine IRAs they own with IRAs that they have inherited, unless the inherited IRA came from their current [...]

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    By Jeremy T. Rodriguez, JD IRA Analyst Legal training is less about memorization and more about understanding how to break down complex problems. With that mind, I often suggest that people understand the law and not try to memorize it. Why was it enacted and what is it trying to prevent, or encourage? Of course, there are exceptions to this general rule. In this arena, I’m talking about [...]

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    By Jeremy T. Rodriguez, JD IRA Analyst Question: Hi, I am an advisor and attended the Instant IRA Success workshop in 2017 and found it really useful in my practice. I have a client situation I am trying to clarify and am sure you can help. The client ( husband )passed away on December 27, 2017 at age 82 and was taking RMDs from his IRA. His spouse was the sole IRA beneficiary and is age 75 [...]

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    By Beverly DeVeny IRA Analyst I just had a call from an advisor with a “complicated” scenario. “Ralph” died and left his IRA to his spouse “Alice.” Ralph was 62 in the year he died. Alice did nothing with the IRA. It remained an inherited IRA and there were no required minimum distributions (RMDs) until the year Ralph would have been 70 ½. Alice did not name any beneficiaries.[...]

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    By Jeremy T. Rodriguez, JD IRA Analyst Generally, taking distributions from an IRA or qualified plan before retirement age should be a last resort. Of course, life has its unexpected pitfalls and at times, earlier access to these funds is necessary. One of the ways the Tax Code tries to help taxpayers in difficult financial situations is through exceptions to the 10% early distribution [...]

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    By Jeremy T. Rodriguez, JD IRA Analyst Generally, taking distributions from an IRA or qualified plan before retirement age should be a last resort. Of course, life has its unexpected pitfalls and at times, earlier access to these funds is necessary. One of the ways the Tax Code tries to help taxpayers in difficult financial situations is through exceptions to the 10% early distribution penalty.[...]

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    By Sarah Brenner, JD IRA Analyst Question: Hi Ed: I have been reading you for more than 20 years – thank you for all your contributions to our industry. I have a client (about to be over 70 ½) whose new employer told him that he should roll all of his old employer plans and IRAs over to the new employer’s 403b plan (in which he is participating), for the purpose of avoiding [...]

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    By Sarah Brenner, JD IRA Analyst The news has been filled with reports of the flooding and damage in North Carolina in the wake of Hurricane Florence. As the cleanup continues, the IRS has announced tax relief for the storm’s victims. On September 15, the IRS postponed various tax filing and payment deadlines that occurred starting on Sept. 7, 2018. These deadlines will be extended until [...]

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    By Jeremy T. Rodriguez, JD IRA Analyst Qualified plans are required to provide participants with a number of notices and information. There’s the Summary Plan Description, the Summary Annual Report, annual safe harbor notices (if applicable), plan account statements (either quarterly or annually), and the Special Tax Notice for distributions. The timing for these notices varies, with some [...]

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    By Sarah Brenner, JD IRA Analyst After last year’s passage of the Tax Cuts and Jobs Act, which overhauled the tax code, you might think Congress would be done with tax legislation for a while. That is not the case. While Republican efforts to unleash as second round of tax reform are likely to hit Democratic resistance and are not widely seen as likely to succeed this year, proposed [...]

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    By Sarah Brenner, JD IRA Analyst Question: Good Morning, I have a question in regards to Roth 401k vs Roth IRA. Can you roll over your Roth 401k to a Roth IRA to avoid the RMD that must be taken when the individual reaches 70 1/2 with a Roth 401k? Thank you. Carol Answer: Hi Carol, You are right that that the required minimum distribution (RMD) requirements are an [...]

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    ROTH IRAS AND THE 5-YEAR RULES

    September 12, 2018

    By Jeremy T. Rodriguez, JD IRA Analyst We constantly see questions regarding the distribution rules for Roth IRAs. Personally, I’ve always thought that the failure to understand these rules prevents many from truly appreciating the benefits of these accounts. Traditional IRAs are easy. Unless we are talking about nondeductible contributions, the money is deductible when contributed and taxable[...]

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    By Sarah Brenner, JD IRA Analyst A recharacterization is a tax-free transfer of funds from one kind of IRA to another. If you converted a traditional IRA to a Roth IRA and now are reconsidering, recharacterization allows you to undo the transaction and move the funds back to a traditional IRA. You can also recharacterize a tax-year traditional IRA contribution from a traditional IRA to a Roth [...]

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    By Jeremy T. Rodriguez, JD IRA Analyst Question: Hi Read your column in the Chicago Tribune and have learned a lot.  I have a question I don't think you have addressed. I have multiple Roth IRA's that I converted years ago, paid the taxes and they are continuing to grow.  I am single, have no dependents and have currently listed my estate as the beneficiary.  I have a will that [...]

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    By Jeremy T. Rodriguez, JD IRA Analyst Every so often, the IRS or the courts remind us that the exceptions to the 10% early distribution penalty are narrowly interpreted. That means if your situation doesn’t fit the letter of the law to a “t,” then the exception will not apply, and the tax will be due. Such was the case for Mr. and Mrs. Thompson, a married couple struggling with [...]

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    By Sarah Brenner, JD IRA Analyst You may understand the basics of how an HSA works. The fundamental premise is not so complicated. If you have a qualifying high deductible health plan you may contribute to an HSA. Then, you can take tax-free distributions to pay for qualified medical expenses. Sometimes, those payments come in the form of a reimbursement. Other times you can pay for the [...]

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    By Beverly DeVeny IRA Analyst Question: Hello, I met Ed Slott at an FPA function where he spoke in Independence Ohio, several years ago. I have purchased books written by him, however I am not presently a subscriber to your service. I would appreciate your response to a question. *If a direct rollover is attempted by issuing a check payable to the custodian (In this case TD [...]

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    By Jim Glass, JD IRA Analyst As summer ends and fall approaches, so does the season for taking required minimum distributions (RMDs). There is a 50% penalty for failing to take an RMD, so don't miss one. But don't just take an RMD, plan ahead now to make it work for you. Possibilities... RMD strategies Use withholding to escape a tax underpayment penalty. Tax withheld from an RMD is [...]

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    By Sarah Brenner, JD IRA Analyst You may ask if you should leave your IRA to a trust. This can be a complicated question. Trusts can be complex and retirement accounts are not like other assets. How a Trust Beneficiary Can Get the Stretch If you are thinking a trust is the right beneficiary for your IRA, you will want to be familiar with the requirements for trust a to be a qualified [...]

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    By Sarah Brenner, JD IRA Analyst Question: To whom it may concern, Quick question.  Client’s daughter died at age 41. Client is age 71.  Can she combo her daughter’s 401k into her current Traditional IRA since she has to take RMD’s on the traditional and a Beneficiary/Inherited IRA would be based on her (Mom’s 71) current age for Beneficiary/Inherited RMD’s, OR does she have [...]

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    By Beverly DeVeny IRA Analyst For years we saw and heard the commercials – rollover your 401(k) to an IRA. They suggested that this was the only option – and the best option – for you. But it was not the only option; and it might not be the best option for you. Here are your six, yes six, options. They should all be carefully considered before you decide the best option for you. These [...]

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    By Jeremy T. Rodriguez, JD IRA Analyst One of the most important things you learn in law school is how the law is structured. You are better able to analyze the rule (and predict outcomes) when you understand how it is was created and how is has been treated ever since. Every law starts with a broad concept. After that exceptions are created through regulations, agency rulings, case law, and [...]

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    By Jim Glass, JD IRA Analyst Question: Mr. Slott, My 45 year old daughter’s financial advisor has recommended for her NOT to put retirement contributions into a Roth IRA! His reason being that by paying taxes up front for a Roth, there is less money to grow!  Also, that by the time my daughter gets to retirement age, the Roth benefits may have changed! I disagree with her advisor due to [...]

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    By Jim Glass, JD IRA Analyst IRAs have beneficiaries and "designated beneficiaries," and it is important to know the difference. If you wish your heirs to have the opportunity to take full advantage of "stretch" IRAs, and to avoid other possibly costly mistakes, be sure your heirs are designated beneficiaries. Here's the difference and why it matters. Basics The beneficiary that [...]

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    By Sarah Brenner, JD IRA Analyst Follow Us on Twitter: @theslottreport Even rock stars get older. Although it may seem hard to believe, both Steven Tyler of Aerosmith fame and rock legend and reality tv star Ozzy Osborne celebrate their 70th birthdays in 2018. Steven Tyler turned 70 on March 26, 2018 and Ozzy will reach that milestone on December 3, 2018. Do rock stars have [...]

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    MY FIRST RMD

    August 8, 2018

    By Beverly DeVeny IRA Analyst Follow Us on Twitter: @theslottreport Both my husband and I turn 70 this year but only one of us has a required minimum distribution (RMD) from our retirement accounts. Here is why. RMDs begin in the year you turn 70 ½, not 70. He turned 70 in January, so he turned 70 ½ in July. That means that he has an RMD for this year from his retirement accounts. I [...]

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    By Jeremy T. Rodriguez, JD IRA Analyst Follow Us on Twitter: @theslottreport As you accumulate money in an employer retirement plan, somewhere along the line you are going to be faced with one question: should I leave it in the plan or roll it out? For many, that question doesn’t arise until they separate from service or reach age 59 ½. Employees that participate in plans with in-service [...]

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    There has been talk in Congress about indexing capital gains for inflation. This has largely been under the radar… until this week when the story hit the front page of the New York Times, where the story states that the White House might try to do this on its own without legislation. The legality of this end run around Congress remains to be seen. But regardless, this proposal will get people [...]

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    IRA distributions and Roth IRA conversions can affect the size the Medicare premiums you pay. Here's how, and what to do about it. Means Testing Medicare Medicare consists of four "parts."  Part A, which covers hospital costs, is paid for by the government. But the costs of Part B, which pays doctor, equipment and outpatient costs, and Part D, the prescription drug benefit, are partially [...]

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    Do you have after-tax dollars in your IRA? This could be from making nondeductible contributions to your IRA or rolling over after-tax funds from your company plan to your IRA. If so, you will want to know about the pro-rata rule. The pro-rata rule is a rule that almost always determines the taxation of an IRA distribution when the IRA owner has any IRA containing after-tax amounts. How the [...]

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    Not all contributions to IRAs belong there. When a contribution is not permitted in an IRA, it is an excess contribution and needs to be fixed. Some excess contributions are easy to understand. Others may be a bit trickier to grasp. Here are 7 ways an excess IRA contribution can happen to you: 1. Blowing Past the Annual Limit If you contribute more than the annual limit to an IRA for the [...]

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    Question: Hi, I have a friend, 45 years old, who has both an individual Roth IRA and an individual rollover IRA. The Roth is over 5 years old. He would like to know if he can use either to pay off a debt he incurred several years ago. He is aware that a straight withdrawal from the individual IRA will be treated as ordinary income and be subject to a 10% penalty. Is the same true for a [...]

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    Contributing to a Roth IRA is generally considered to be a good idea. But not everyone is eligible to make an annual contribution. We have seen several cases recently of individuals who contributed for many years until they discovered they were not eligible to make any Roth contributions. Here is what you need to know. First, you must have earned income in order to make a Roth IRA contribution.[...]

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    As Americans live longer, more are eventually coming to need long-term nursing home care.  The cost of this can be devastating to a family. Nursing home care now costs an average of over $85,000 per year, and much more than that in some parts of the country. Medicaid is a government program that can pay for long-term nursing home care. But it is intended to help low-income and low-wealth [...]

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    Question: Can you do trustee-to-trustee transfer from an Annuity Trad IRA to Mutual Fund Trad IRA? Answer: Yes. If you own a traditional IRA that has invested in an annuity, you can make a transfer from it to another traditional IRA to be invested in mutual funds. And the best, safest way make the move is through a trustee-to-trustee transfer, so funds go directly from one IRA to the [...]

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    LATE 401(K) DEPOSITS

    July 11, 2018

    Every retirement plan custodian has an interactive website that participants can visit, if their employer offers that feature. While all are a little different, the websites all contain access to vital information about your account under the plan. You can review your beneficiary designations, investment lineup and performance, contribution rates, and loan information. Sadly, statistics show only [...]

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    Change can be good. Is your IRA ready for a change? Maybe you are looking for a new type of investment or maybe a new IRA custodian. To change it up with your IRA, you may need to move your IRA funds. Here are 10 things everyone should know before they move their IRA. The best way to move your money from one IRA to another is to do a trustee-to-trustee transfer. Your funds will not be [...]

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    Question: My husband passed away this April at 83. I’m 68 and sole beneficiary of his traditional IRA.  I was advised that it didn’t matter if I rolled his IRA into mine and then took his RMD for the year as long as I do so by 12/31/2018.  I rolled his IRA into mine early May.  I proceeded and took his RMD June 13. I now understand that this could be a mistake. Should I file IRS  [...]

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    When someone keeps telling you not to worry about them doing a certain thing, you know they are thinking about doing that very thing. That’s what Congress is doing with so called “Rothification.” As a review, “Rothification” – as it has become known –  is a way to raise revenue for the government by, in effect, taxing 401(k) contributions. Rothification would eliminate the tax[...]

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    After retiring, your taxable income may consist entirely of IRA distributions and investment returns. You'll have two ways to remit the tax owed on this income to the IRS: (1) make quarterly estimated tax payments, (2) have tax withheld from the distributions. Which is the best to use?  Here's what you need to know when making your choice. Quarterly payments If you choose this method the[...]

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    Question: Client is over 70 1/2 and passed away in 2018 and did not take their 2018 RMD yet. There are 4 non-spouse beneficiaries who are opening new inherited IRA accounts for their share.  Does the 2018 RMD for the deceased client need to be paid prior to the rollover to each inherited IRA? Or can it be rolled into the new inherited IRA’s and distributed at a later date, but before 12/31?[...]

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    An inherited IRA can be a great thing for the beneficiaries. It is almost like winning the lottery or the Reader’s Digest sweepstakes. You get income for life, or do you? It is all too easy to miss out on this opportunity. The following apply to beneficiaries who are named on the beneficiary form. Beneficiaries who inherit through an estate or trust have different rules. 1. Relying on the IRA[...]

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    In the recent case of Sveen v. Melin, the Supreme Court ruled that life insurance proceeds would not go to an ex-spouse, even though her name remained on the beneficiary form after the divorce. Instead, the Court said the Minnesota state statute removing an ex-spouse as a beneficiary upon divorce is constitutional and awarded the life insurance proceeds to the contingent beneficiaries; children [...]

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    Question: Roll over all but $4000 of nondeductible IRA in my Traditional IRA into my SEP IRA, then rollover the $4K basis into my Roth IRA? Can I do that? Can I do both rollovers in quick succession in the same day so that the Traditional left with the $4K does not accrue the daily interest? Thank you very much. Fred Answer: Fred, A few things to consider. First, you can only do one [...]

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    Many individuals who open IRAs choose to invest in traditional asset classes, such as stocks, bonds, or mutual funds. But for a growing number of people, these options are not enough. Instead, they look to invest in other non-traditional assets. The tax code actually allows taxpayers to use IRA assets to invest in a much wider range of asset classes. In fact, the law doesn’t provide a list of [...]

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    When you own multiple IRAs and take an IRA distribution, the IRS treats all your non-Roth IRAs as one. This helps you when you reach age 70 ½ and must begin taking annual required minimum distributions (RMDs). Instead of taking a separate RMD from each IRA, you can take the total RMD for all of them from any one of the IRAs, or from across them in any way you wish. How: The IRS requires you [...]

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    Question:  Is this a question you can help me with? Client’s husband & Wife had a living trust. Attorney suggested that all holdings be put into the trust or make the Trust the beneficiary. Husband died several years ago, in January, 2018 the wife died. There are two beneficiaries, brother & sister. Brother in New York state sister lives in Toledo, Ohio as did mom. We recently paid [...]

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    A lot has changed in the last six months for certain federally declared disaster areas. The Bipartisan Budget Act of 2018 added relief for the California wildfires and mudslides of late 2017. The Disaster Tax Relief and Airport and Airway Extension Act of 2017 included relief for the victims of Hurricanes Harvey, Irma and Maria. The Tax Cuts and Jobs Act of 2017 granted retroactive relief to all [...]

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    Did you know your IRA could be escheated to the state as abandoned property? Not many IRA owners are aware of this possibility, but more and more are facing it. Escheatment - Bigger and Badder than Ever The legal theory of escheatment dates way back. It originally comes from old English common law. When a person with no heirs died, their property would revert back to the King. The goal was [...]

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    Question: Hello, I am retired and have done a Roth in plan rollover within my work 401K. Am I able to do a Roth rollover within a Fidelity IRA to a Fidelity Roth IRA? Is there a rule that limits the number of Roth IRA Rollovers you can do in a year or period of time? Thanks, Dennis Answer:  There is no limit on the number of Roth conversions that can be done in one tax [...]

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    Most people know that, generally speaking, you cannot access traditional IRA money penalty-free until you reach age 59 ½. Early distributions are subject to a 10% early withdrawal penalty. Of course, like virtually every other retirement rule ever written, there are exceptions to this general rule. One of those exceptions is called the Series of Substantially Equal Periodic Payments (“SEPPs”)[...]

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    Suppose you unexpectedly incur a major liability, from a lawsuit or some other unforeseen cause. Will the funds in your IRA be protected from your creditors? Maybe ... or maybe not. Here are the rules: Federal Law Protection If you own an IRA that you've funded yourself with annual IRA contributions, then its complete value very likely will be protected from creditor claims if you are forced[...]

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    Question: I wondered if it’s possible to convert my traditional IRA to a Roth for 2017 and prior years, and then file an amended return? At least I could offset the higher taxes paid going forward, knowing I will have a tax-free Roth? Thanks very much for your help and thanks for all the provocative, timely advice. Sean   Answer: Hi Sean, When it comes to Roth IRA [...]

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    There is a lot of paperwork involved when you open an IRA account. You have to prove to the bank who you are and that your funds are legitimate. There is an account opening form and a beneficiary form to be completed. After you do all of that, then you get a multi-page, tiny print document, which is the IRA agreement. It does not require a signature, yet it is the contract between you and the IRA [...]

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    Question: Ed, great article on reasons for taking RMDs early in the year, but here's the other side of the argument, at least for me (which is why I am responding via email rather than online). My wife and I are both retired.  We have a pension, social security and then comparatively large RMDs.  We have no withholding and do not file quarterly estimated taxes.  Rather, we have all our [...]

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    Using Deferred Income to Fund Your Startup Business Could ROB Your Future One of the most difficult aspects of starting a business is obtaining proper funding. While banks have begun lending again, loans for startup businesses are still difficult to obtain. They require credit checks and substantial collateral, such as a home or other personal assets. That’s what makes using deferred [...]

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    Having just one IRA instead of several may simplify paperwork and minimize fees. But when you begin to think about leaving IRA funds to heirs, consider using more than one IRA to do so. Here are reasons why:   Preserve Funds for Bequests in a Roth IRA Statistics show that the great majority of IRA funds reside in traditional IRAs. However, traditional IRAs must make annual required [...]

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    Question: Dear Mr. Slott, In 2013, my husband was offered a buyout from his employer, Ford Motor Co.  He had been retired since 1999 and so was already receiving a monthly pension check. (My husband had been diagnosed with Alzheimer's Disease in 2011 and then passed away last November 2017.) In 2013, knowing that his life expectancy was shortened by the disease and still being able to [...]

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    It now appears that the new fiduciary rules proposed by the Department of Labor (DOL) back in June of 2016 are all but dead. Late last week, the Fifth Circuit Court of Appeals rejected a last-minute appeal of its March 15th decision to toss the DOL rules. The appeal was filed by the AARP and three states (New York, California, and Oregon), not the DOL. The original March decision was something[...]

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    Let's say you wish to contribute to an IRA in 2018, but have too much income to make a either a deductible contribution to a traditional IRA or a contribution to a Roth IRA. You still have the option to make a nondeductible contribution to a traditional IRA. Might this make sense for you?   Opportunities There are two basic, but quite different, reasons to make nondeductible [...]

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    Question: I want to leave my IRA accounts (money) to various charities. Should the beneficiary of these accounts be “my estate”? Jean   Answer: Hi Jean, It is wonderful that you are charitably inclined. Instead of naming your estate as the beneficiary of your IRA, you may want to name the charities directly as your IRA beneficiaries on the beneficiary designation [...]

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    If you have a Health Savings Account (HSA) with family coverage, determining your 2018 contribution limit has been an adventure. This in one of the many unintended consequences of the Tax Cuts and Jobs Act (TCJA). Many of the HSA limits are indexed annually for inflation. Back in May of 2017, the new numbers for 2018 were released. At that time, it was announced that the 2018 HSA [...]

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    Question: Can you please advise regarding the following: I’m 63 years old and am required to take a yearly RMD [required minimum distribution] from my deceased Mom’s IRA (BDA).  In order to save on taxes, am I allowed to have my financial institution send the RMD directly to a charity even though I’m not 70 ½ yet ? Also, when I’m retired and not able to itemize, is there any way[...]

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    Beware of making these 3 mistakes with your IRA... 1. Late Investments  If, like so many people, you made your IRA contribution for 2017 only recently in 2018, just before the 2017 tax return filing deadline, you missed earning up to 15 months of pre-tax investment returns on your contribution. Don’t repeat that mistake. Make your IRA contribution for 2018 now. This will provide an[...]

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    With the tax deadline having just passed, now is the perfect opportunity to start planning for next year. Last year’s return should be readily available, and you may even have many important items committed to memory. Additionally, four months into the year is the perfect time to begin making current year projections. Of course, this year is different. That’s because 2018 will be the first we [...]

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    Question: I was curious if a Roth conversion of post-tax money from an IRA is subject to the pro rata rules if the IRA owner also owns a SIMPLE IRA?  Is the SIMPLE excluded from the calculation? Thanks Joseph Answer: Joseph: The pro-rata rule looks at the balance of ALL your IRAs to determine which portion of a Roth conversion is pre-tax and post-tax. This includes any SEP or [...]

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    One of the greatest benefits of an IRA is its ability to provide tax-favored wealth for heirs. An IRA left to a beneficiary can be "stretched" to provide pre-tax compound investment returns for the rest of the beneficiary's life -- or even longer.  And these can be distributed totally tax free if it is a Roth IRA. How much can such a stretch IRA be worth in actual dollars?  Compound [...]

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    Question: Dear Mr. Slott, I am writing because I have what may be an unusual IRA reporting situation and would like advice, or if you will, a judgement as to how I may handle the reporting for 2017.  This particular situation is one I have not heard of or seen discussed in any article or seminar in over 20 years. Briefly, I have yet to make withdrawals from my IRAs, but in 2017, I [...]

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    One of the benefits of a Roth IRA is that contributions can always be distributed out of the Roth IRA with no tax, and no early distribution penalty for those that are under age 59½. But, you have to be able to prove to IRS that you are taking a distribution of contributions only. Under the distribution ordering rules, all Roth IRAs are treated as one Roth account, contributions are deemed to be [...]

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    With the 2017 tax filing date quickly approaching, many taxpayers are looking to take advantage of IRA contributions to lower taxable income prior to filing. However, before making that contribution, you want to be sure that you meet all the eligibility rules. The 2017 income eligibility limits for deductible contributions can be found at the [...]

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    Question: Thank you for your very interesting monthly articles.  I have the following Roth-related earned income question: Have any clever retirees and/or tax advisors figured out exactly how to justify claiming that either “conventional” pension payments or RMD distributions can be treated as “earned income” for Roth IRA purposes?  One possible justification is that the funds [...]

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    A QCD is a qualified charitable distribution. It is a way to transfer funds from your IRA to a qualifying charity as a non-taxable distribution. It can also satisfy your RMD (required minimum distribution) for the year. You must be at least age 70½ at the time of the transaction to qualify. The IRA custodian does not do any special tax reporting of your QCD. They simply report the total [...]

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    For many Americans, their IRA is their largest asset. It is not surprising then that in times of financial trouble they may want to turn to their IRA as quick source of cash. If this is your situation and you are thinking about using your IRA for a short-term loan, here is what you need to know. Some employer plans include provisions where participants can take loans, but IRAs are different. [...]

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    Question: Dear Mr. Slott, I have been receiving your e-mails for a number of years and have read your comments in The Wall Street Journallong before that - and have always found them of value. I have two questions I am hoping you can help me with that I believe have not been asked and/or addressed yet. I am in the "sweet spot" as you call it. I have a large Traditional IRA at a bank [...]

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    Tax return information is confidential. As the April 17th tax filing date approaches, pay attention to keeping your tax return information out of the hands of those who could cause you harm. Protecting Information on Your Tax Return Your tax return is full of private facts about you and your family. It includes names, Social Security numbers, income, investments, family relationships, [...]

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    One of the many issues facing self-employed individuals is how to save for retirement. Of course, one option is to open a traditional or Roth IRA. However, the annual maximum contribution is low in terms of retirement planning. In 2018, it $5,500 if you are under age 50 or $6,500 if you are age 50 and over. Therefore, the self-employed often look to adopt employer sponsored retirement plans. [...]

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    Question: Dear Sir, Greetings and wish you well. I heard about your helpfulness and appreciate if you can kindly advise me the following: We (mother and daughter) have an S corp and set up solo 401(k)s.  I made an error in profit contribution.  Unfortunately, I contributed more than allowed into a solo 401(k) in regards to the profit sharing contribution because of my misunderstanding [...]

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    Spousal IRAs are designed to allow a working spouse to make IRA contributions for a spouse who does not have enough earned income to make their own IRA contributions. There are some key requirements that must be met: The spouses must be legally married and file a joint federal tax return. This includes same-sex couples. The spouse receiving the contribution must have less [...]

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    If you have an IRA, you need to know about the “sweet spot.” What is the IRA sweet spot? Well, that is when you are between ages 59½ and 70½. Your Sweet Spot What makes this spot sweet? This is the time when you have the most flexibility with your IRA. When you reach age 59½, the 10% early distribution penalty becomes history. You can take distributions from your IRA for any reason [...]

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    Question: Dear Mr. Slott, I found your excellent article in Financial Planning concerning excess IRA contributions discovered after the filing deadline. I was hoping you could clarify one point: Your article states that the IRS does not require the withdrawal of the net income accrued. However, it was not clear in the article whether the 6% penalty applies to the net income accrued or [...]

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    The IRS website provides a host of free resources that can help minimize your tax bill and manage your taxes all year round. Yet, most taxpayers are unaware of them. Here are a dozen of the best. Reach them by clicking on the links below (every heading or blue-colored word is a link) or entering them in the search box at IRS.gov. 1. IRS Audit Technique Guides These are the same guides [...]

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    The pro-rata rule is an important, though commonly misunderstood, rule that affects the taxation of IRA money. It only comes into play when your traditional IRA consists of both pre-tax and after-tax monies. These after-tax dollars can come from non-deductible IRA contributions or rollovers of after-tax funds from employer plans. Either way, once those monies are in the account, subsequent [...]

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    Question: Husband died in 2015 at age 85.  Later that year, the surviving spouse (sole beneficiary) did trustee-to-trustee transfer to her Roth IRA.  She did not have a Roth IRA prior to that. Wife, age 90, took distributions in 2016 and 2017.  Are those qualified?  Are they subject to tax and/or penalty? Thank you, Erin Answer: Erin, It is very unlikely that the wife will[...]

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    NOTE: This article is not based on a complete review of all the inflation adjusted numbers. The Tax Cuts and Jobs Act revised the way inflation adjusted numbers will be calculated by IRS. The Act now mandates that these numbers be calculated using chained CPI. IRS has gone back and recalculated inflation adjusted amounts for use in 2018. Earlier, IRS had announced that there would be no [...]

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    Do you think you understand all the rules that govern your Roth IRA? Not so fast! There are many misconceptions as to how these complicated accounts work. Here are 5 Roth IRA facts that might surprise you: 1. You are never too old to contribute. If you have earned income and your modified adjusted gross income is below a certain level, you can contribute to a Roth IRA. Your age does not [...]

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    Question: The business is a sole proprietor operation with no employees other than the owner.  The owner is 71 and is still working.  Are contributions into this SEP allowable after the age of 70 1/2? Thank you, Lee Answer: Yes, the business owner can continue making contributions to the SEP after reaching age 70½. However, be aware that the owner must also begin taking [...]

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    Bitcoin is receiving a surge of publicity as a possible IRA investment, and a number of new firms have recently started targeting the "Bitcoin IRA" market. Here are six things to know about investing IRA funds in bitcoin:   1)  There is no such thing as a "Bitcoin IRA." Although the term is often seen in the media and advertising, there is no such thing any more than there are "stock market [...]

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    Question: Hello, I have a client who turns 71 this year and is still working and contributing to a Roth 401(k) through her company. My client plans to cut back to part-time next year, and as a part-timer, she will no longer be allowed to contribute to the plan. Does she have to begin taking required minimum distributions once she stops contributing or once she retires? Best, Doug[...]

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    There are certain events that will require the filing of special forms or tax documents when you file your income tax return. If you have received a distribution from any retirement account, real or deemed, during the year, or if you have done a Roth IRA conversion - even if you did a total recharacterization - or if you have incurred a penalty or additional taxes in a retirement account during [...]

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    Roth IRAs have been around for 20 years now. Lots of taxpayers have taken advantage of the tax-free benefits of these accounts by converting their traditional IRAs or employer plans to Roth IRAs. But many have hesitated. Maybe you are among those who held back. The year 2018 may be the year to change your mind. How Conversion Works When you convert your traditional IRA to a Roth IRA, your [...]

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    Question: I have a client who has some after-tax contributions in an IRA, along with pre-tax contributions.  They also have another IRA and 401(k)s.  My question is: Can we convert just the after-tax contributions to a Roth IRA or is it pro-rated as a % of the overall retirement assets? -William Answer: You will find the answer to this question on Form 8606. The form must be [...]

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    What is the simplest mistake you can make to cause major harm to your intended estate plan - and to the people you wish to provide for through that plan?   It is having outdated (or missing entirely) beneficiary designation forms for your IRAs, employer-provided retirement savings plans, life insurance policies and other valuable financial accounts. Happily, though, this is also the [...]

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    On Friday February 9, 2018, President Trump signed into law the Bipartisan Budget Act of 2018 (the “Act”). While the Act is best known for ending the nine-hour government shut down that took place on February 9, 2018, it also contained some tax-related provisions. One of the provisions broadly directed the IRS to make any changes necessary to ease the hardship distribution rules. This could[...]

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    A few weeks ago, I discussed the seemingly unintended impact the Tax Cut and Jobs Act (TCJA) had on the repayment of overpayments from employer plans. In essence, by eliminating the deduction of itemized miscellaneous expenses subject to 2% of adjusted gross income (AGI), the new law negatively impacted some repayments to employer plans - namely, repayments that are $3,000 or less. Similarly, by[...]

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    Question: Hi, I recently purchased your newsletter and I had an IRA question.  If a client dies before taking his required RMD for the year, does the estate need to take the RMD and pay the taxes before the account is transferred to the non-spouse beneficiary?  If not does the beneficiary have to take that RMD and pay the tax?  Thanks for your help Answer: This is a question that [...]

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    You may be interested in contributing to a Roth IRA but think your income is too high. You are probably aware that there are income limits that apply to Roth IRA contributions. For 2018, if you are married, your ability to make Roth IRA contributions phases out when your Modified Adjusted Gross Income (MAGI) is between $189,000 - $199,000 and between $120,000 - $ 135,000 if you are single. Are you[...]

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    Question: Hello, I was forced, due to health reasons, to retire at age 58 on December 8. I had been with my company for 34 years. I need to cash in my IRA fund for money to pay bills and insurance. What is the best way to avoid having to pay the IRS the 10% penalty before age 59½?  Thank you. Susan Answer: Dear Susan: First off, do you have any funds in the [...]

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    The U.S. Tax Code is a 74,000-page document with interrelating laws and regulations. Therefore, any time Congress enacts a piece of legislation as massive as the Tax Cuts and Jobs Act (TCJA), there are going to be unintended consequences, or as I like to call it, collateral damage. After passage, it's up to the IRS to sift through the damage and clarify any unresolved issues. IRS has already [...]

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    As you prepare your 2017 tax return, use the information you collect both to make the best IRA contribution choices for 2017 and plan IRA strategies for 2018. Six ways to consider: 1. Maximize IRA Contributions for 2017  2017 IRA contributions can be made until April 17, 2018, the due date for 2017 tax returns. The maximum IRA contribution for both 2017 and 2018 is $5,500 ($6,500 for persons [...]

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    Question: IRA Expert, I have a client that has $3M in a profit sharing plan (PSP). He is rolling over $1.5M of it to an IRA with me. He plans to take his RMD ($54,744) on that $1.5M after he turns 70½  on 4/3/2018 and give it directly to charities. He wants to wait until 2019 to take his RMD on the money staying in the PSP (and knows he must take it by 4/1/2019). Is it okay to take [...]

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