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By Sarah Brenner, JD
Director of Retirement Education

On May 5, the House Ways and Means Committee unanimously passed the Securing a Strong Retirement Act of 2021. According to lawmakers, the proposal is designed to pick up where the SECURE Act of 2019 left off and help increase retirement savings even more. The so-called “Son of SECURE” would make more big changes to retirement accounts. Here are some highlights:


The trend toward more Roth accounts continues as Congress is proposing allowing both SIMPLE and SEP Roth IRAs. In addition, plan catch-up contributions would be required to be made to Roth plan accounts, and plans could allow participants to have employer matching contributions made as Roth contributions. Congress likes Roths because they bring in immediate revenue since they are funded with after-tax dollars.

Other Changes

Other changes include the following:

  • Increasing the required first-year required minimum distribution (RMD) age over time from age 72 to age 75.
  • Indexing $1,000 IRA catch up contributions for inflation.
  • Increasing the limit on catch-up contributions to 401(k) and other plans for individuals who have attained age 62, 63, or 64.
  • Allowing matching contributions on student loan payments.
  • Eliminating the requirement that premiums for QLACs be limited to 25% of an individual’s account balance.
  • Reducing the penalty for failure to take RMDs from 50% of the shortfall to 25%.
  • Expanding the IRS self-correction program (EPCRS) to include IRAs.
  • Indexing the $100,000 QCD limit for inflation and allowing a once-in-a-lifetime QCD to a split-interest entity such as a charitable remainder unitrust.
  • Expanding the age 50 exception to the 10% early distribution penalty to private-sector firefighters.
  • Changing the rules for when the statute of limitations begins for the excise tax on excess IRA contributions.
  • Limiting the repayment of qualified birth or adoption distributions to three years.
  • Allowing penalty-free withdrawals from IRAs and retirement plans for individuals in cases of domestic abuse.
  • Limiting the loss of tax-deferred treatment to the portion of an IRA t involved in a prohibited transaction.


Stay Tuned

While the “Son of SECURE” does enjoy wide bipartisan support, there is still a long road ahead before this proposal could become a law. The next step would be a vote of the full House. Then the Senate would need to take up the proposal. If there are any differences between the House bill and the Senate bill, those would have to be resolved and approved. Finally, the President would have to sign the bill into law. That process can take time and is far from certain. One thing that you can count on though is that we at the Slott Report will be watching developments in Washington DC closely and will keep you up-to-date on all breaking news.



By Sarah Brenner, JD
Director of Retirement Education


I am 83 years old with an IRA rollover account, regular IRA account and a small Roth IRA. If I convert a portion of either the rollover or regular IRA to a Roth IRA and die before 5 years after the conversion, is there any penalty to me or the beneficiaries?  Also, can I convert to the existing Roth IRA or should I start a new Roth IRA?  I do not plan to make any withdrawals from any Roth IRA. Does it make a difference from which IRA I convert funds?

Thank you for your response,



Hi George,

You can convert either the regular IRA or the IRA that was funded by a rollover. From a tax perspective it will make no difference. Unless you have some after-tax dollars in either IRA, the conversion will be fully taxable. You can also add the conversion to your existing Roth IRA. Starting a new Roth IRA would have no tax benefit.

When it comes to distributions to your beneficiaries, there would be no 10% penalty regardless of whether a five-year period has been satisfied. That is because the 10% early distribution penalty never applies to distributions from inherited IRAs. The only issue would be that your beneficiaries would have to wait out your five-year period to receive a qualified tax-free distribution of earnings.


If I have a client (husband and wife filing jointly) with earned income. Can they continue to contribute to a Traditional IRA beyond age 73?

Thank you,



Hi Curt,

The SECURE Act brought good news for older individuals with earned income looking to contribute to a Traditional IRA. Starting for 2020 contributions, the rule prohibiting contributions once an individual reaches age 70 1/2 no longer exists. If your clients have earned income they can go ahead and make Traditional IRA contributions regardless of their ages.



By Andy Ives, CFP®, AIF®
IRA Analyst

When visiting the doctor, does he or she ask foundational questions to help determine your medical condition? Of course. “How are you feeling?” “Are you a smoker?” “What hurts?” Does the doctor take some basic measurements – height, weight, blood pressure? Does he listen to your heart and lungs? Most assuredly.

The doctor is establishing an overall picture of health so as to make informed medical decisions. Without such elemental knowledge, how could a proper diagnosis be made? How could “next steps” be recommended with any confidence? It is not possible to provide appropriate care or guidance simply by looking at a person. Assumptions could be a death sentence.

Who else needs to ask elemental questions? Who else needs to poke and prod to identify foundational information? Financial advisors. It is impossible to chart a path forward without a general understanding of a person’s overall financial goals and wellbeing. Probing questions are how advisors identify the suitability of certain transactions. They are how advisors can confidently make investment recommendations. Investigative inquiries uncover needs and other issues that are literally impossible to know without asking.

Yet for some reason, I keep hearing stories about financial advisors failing to address a certain topic: Roth conversions. In fact, my own parents fell victim to this financial oversight. Out of respect for their privacy I stayed out of their financial affairs. Sadly, I learned later, their previous advisor never broached the subject of Roth conversions. Partial Roth conversions, systematically implemented over a few years, coordinated with their tax advisor so as maximize tax brackets, would have been a prescription for financial health. My folks could have transitioned their IRAs from “forever taxed to never taxed.”

Alas, they missed all those years of maximum conversion tax efficiency. Yes, they can still do Roth conversions now, even though they are of RMD age, but it is a little less potent. RMDs must be taken first, and it is expected that taxes could rise in the near future.

Like a doctor administering a basic blood pressure test, a financial advisor inquiring about Roth conversions is critical. If your advisor fails to ask, then broach the topic yourself. Know that a Roth conversion is no panacea, and it is not always a good fit for every situation. But at least you can rest easy knowing you had the conversation.

I am frequently asked, “When is the cutoff when Roth conversions stop making sense?” The answer is never. There is no such end date. I don’t care how old a person is or how much money they have or what tax bracket they exist in. Simply assuming a person won’t do a Roth conversion based on any data point is borderline malpractice. Maybe a person’s supreme goal is to leave a tax-free inheritance to their heirs. If that is the ultimate objective, then tax brackets and additional tax on Roth conversions after taking an RMD be damned.

Roth conversions: have the conversation…or risk a sickly doctor/patient relationship. That is my professional “medical” opinion.



By Sarah Brenner, JD
Director of Retirement Education

Good news for retirement savers! There is more time to make your 2020 IRA contribution.

On March 17, 2020, the IRS extended the 2020 federal income tax-filing deadline to May 17, 2021. The extension also extends the deadline until May 17 to make a 2020 prior year contribution to a traditional or Roth IRA. If you have an extension to file your taxes beyond May 17, your IRA contribution deadline is not extended. You must make your IRA contribution by May 17. If you live in Oklahoma, Louisiana, or Texas, the federal tax filing deadline had already been extended to June 15. As such, the IRA contribution deadline in those states is also June 15.

If you are a sole proprietor, the due date for making a 2020 employer contribution to either a SEP or SIMPLE IRA is different. That deadline is the federal tax-filing deadline, plus any extension you might have. If you have an extension to October 15, 2021, you can make your SEP or SIMPLE contribution until that date. If you don’t have an extension, your deadline would be May 17, 2021 (unless you live in one of the states mentioned above).

Example: Jose is a sole proprietor. His business did well in 2020 and he would like to make both a SEP IRA and a Roth IRA contribution for 2020. He has an extension to file his federal income taxes until October 15, 2021. He must make his 2020 Roth IRA contribution by May 17, 2021. However, he has until October 15, 2021 to make his SEP contribution.

An IRA contribution will be considered “timely” as long as it is postmarked by May 17. This is true even if the contribution gets “held up in the mail” and does not arrive to the IRA custodian until weeks later.

Be careful! Any contribution made for the prior year should be clearly marked as such to avoid any confusion. If it not marked for the prior year, the custodian may report it as being for the current year.

The tax-filing deadline is a hard deadline for IRA contributions. If missed, there is no relief available, and the IRA custodian will report the contribution for the current year.



By Ian Berger, JD
IRA Analyst

If you sponsor a solo 401(k) plan, beware!

The IRS recently announced that it is targeting several employer plan areas for stepped-up auditing. One of those areas is solo 401(k) plans.

The fact that solo plans made the list is a signal that the IRS believes there are widespread compliance issues with these plans. While solo 401(k) plans don’t have as many rules to follow as employer-based 401(k) plans, there are still several requirements. The IRS announcement should be a warning to business owners with solo plans to make sure they are obeying those rules.

These are the areas that the IRS will likely be looking at:

Have you hired employees? If you have any employees (besides your spouse), you can’t have a solo 401(k). Hiring an employee would cause the plan to become a standard 401(k) and lose the administrative benefits of a true “solo(k).” Be aware that the definition of “employee” has recently expanded to include part-time workers. Previously, someone was not an employee if she did not work at least 1,000 hours in a 12-month period or was under age 21. Starting this year, someone who has worked at least 500 hours in three consecutive years and is age 21 or older by the end of the three-year period is considered an employee. (However, years before 2021 don’t have to be counted for the three-consecutive-year rule.) Keep in mind that, if your business must be aggregated with another business under IRS common control rules, the “no-employee” rule applies across both businesses.

Have you exceeded contribution limits? If you have a solo 401(k), you wear two hats – an employer and an employee. The good news is this allows you to make both elective deferrals and deductible employer contributions. The bad news is you must worry about three different contribution limits, First, annual elective deferrals can’t exceed a dollar amount — $19,500 for 2021 ($26,000 if age 50 or older). Remember that this deferral limit is per person (not per plan). So, if you have a solo 401(k) for your side job and a traditional 401(k) in your regular job, the most you can defer between both plans is $19,500 (or $26,000). Second, yearly employer contributions are limited to an amount that is normally 20% of adjusted net earnings. Finally, there’s an overall annual limit on combined contributions. For 2021, that limit is $58,000 (or $64,500 if the $6,500 catch-up deferral was made).

Are you filing Form 5500-EZ when required? Once solo plan assets reach $250,000, an annual Form 5500-EZ must be filed.

Is your plan document in order? Every solo 401(k) plan has an official plan document which sets forth the provisions of the plan. Make sure you are operating the plan exactly in sync with what the plan document says. Also, documents must be updated periodically to account for tax law changes. Make sure yours is up-to-date.

Doing your own compliance audit (with the help of a knowledgeable financial advisor) before the IRS comes knocking could save you a significant amount of money and aggravation.



By Ian Berger, JD
IRA Analyst


Your newsletter is so helpful, and your book was a great resource to me when my mom passed away 5 years ago and I inherited her IRA.

I am 76 and have not taken my RMD for 2021. Should I pass away and my wife age 69 transfers my IRA to hers, must my RMD for 2021 be taken first?

Thanks much. A columnist in the Chicago Tribune led me to you years ago.

F. Perry


Thanks for the kind words! If you die in any year before taking your full RMD for the year, your wife as beneficiary must take your RMD for that year. If she does a direct transfer of your IRA to hers, the year-of-death RMD doesn’t have to come out first. Instead, that RMD can be paid from your wife’s IRA – as long as it happens by the end of the year. If, however, she does a 60-day rollover, the RMD would have to be paid out first.


Good afternoon!

I have a question about a client that has a traditional IRA funded with rollover funds from a DB plan.  Client wants to make IRA Contributions to his IRA.  He was told by another advisor that the IRA he has now carries special liability protection because it was rolled over from a DB Plan years ago.  She told him not to add any funds to it or it would lose that protection.  Is that true?  Should we open a separate IRA for the contributions?

Thanks so much!




Hi Becky,

Your client’s rollover funds enjoy unlimited protection against creditors if he files for bankruptcy. IRA contributions and earnings (non-rollover monies) are also protected in bankruptcy.  But that protection is lost once the non-rollover funds exceed a certain dollar limit ($1,362,800 in 2021) – still a very high amount. Adding new contributions to the existing rollover account won’t cause the rollover funds to lose their unlimited protection. However, it wouldn’t hurt to keep the funds in separate accounts to more easily keep track of which IRA monies have unlimited protection and which don’t. (Creditor protection against lawsuits outside bankruptcy depends on the law of the state where the IRA owner lives.)



By Andy Ives, CFP®, AIF®
IRA Analyst

This question (or a derivation of it) has been popular as of late: “I only participated in my 401(k) for a couple of months in 2020 before I was laid off. Does that still make me a ‘covered’ employee, and can I contribute to my Traditional IRA?

It seems innocent enough, but there is a heck of lot going on in this little question.

Let’s address the second part first: “Can I contribute to my Traditional IRA?” A person with earned income can always contribute to a Traditional IRA. It does not matter if you only had $25,000 of earned income, and it does not matter if you had $250,000 or more of earned income. The issue is whether or not the contribution to the Traditional IRA is deductible or not. In fact, the person with only $25,000 in earned income could possibly be restricted from taking the deduction, while the person who made $250,000 could potentially take a full deduction.

The deciding factor for deductibility is if you are an “active participant” (covered) by a retirement plan at work. If you have no retirement plan through your employer – no 401(k), no SEP, no SIMPLE, etc., – then you are not considered to be “covered.” Your W-2 will usually provide this information. If you are not covered by a work plan, there should NOT be a check in the “retirement plan” box (Box 13) on that form. If there is no check, it does not matter what your income was – high, low, or somewhere in the middle. As long as you had earned income, you can make a Traditional IRA contribution and deduct it. (Be careful – sometimes employers mistakenly complete Box 13, so it is advisable to check with the employer if you are still unsure.)

On the other hand, if you were an active participant in a plan at work (the “retirement plan” box IS checked on your W-2), then you must now consider the phase-out ranges for Traditional IRA deductibility. You can certainly make the Traditional IRA contribution, but you may not be able to deduct it. For 2020, the income phase-out ranges for Traditional IRA deductibility were $104,000 – $124,000 for those married/filing joint, and $65,000 – $75,000 for single filers. (In 2021, those numbers move to $105,000 – $125,000 and $66,000 – $76,000, respectively.)

So why might a person who only made $25,000 be restricted from deducting his Traditional IRA contribution? If he was married/filing joint and the combined income for the couple was too high, he could be phased out. Note that there is another phase-out range when one spouse is covered by a work plan and the other is not. The covered spouse uses the married/filing joint phase-out ranges listed above. The uncovered spouse is allowed a higher phase-out range ($196,000 – $206,000 for 2020; $198,000 – $208,000 for 2021).

As for the first part of the initial question above [“I only participated in my 401(k) for a couple of months in 2020 before I was laid off”], there is no benefit for minimal participation in a work plan. You either were a participant or you were not. True/False. Yes/No. Minimal participation is enough to make a person an active participant. A person who is an active participant for any part of the year is deemed to be an active participant for the entire year.

Be aware that a Traditional IRA contribution is always permitted for those with earned income. It is the deductibility of that Traditional IRA contribution that is the question. Work plan coverage and income levels must be considered to determine deductibility.



By Sarah Brenner, JD
Director of Retirement Education

The IRS has delayed the deadline for filing federal income taxes until May 17, 2021. This also extends the deadline for making a 2020 Roth IRA contribution. A Roth IRA offers the promise of tax-free withdrawals in retirement if you follow the rules. If you are deciding whether a 2020 Roth IRA contribution is the right move for you, here are some things to keep in mind.

Contribution Limits

If you were under age 50 in 2020, the maximum contribution that you may make to a Roth IRA for 2020 is $6,000. For those who reached age 50 in 2020, the maximum contribution limit is $7,000. The annual limit is aggregated for traditional and Roth IRAs. For example, you could contribute $4,000 to your Roth IRA and $2,000 to your traditional IRA. But you may not contribute $6,000 to your traditional IRA and $6,000 to your Roth IRA for 2020.

You or your spouse must have taxable compensation or earned income to make a Roth IRA contribution. Passive income such as investment income will not work. Social Security income will not work either.

You are never too old to contribute to a Roth IRA. You may make Roth IRA contributions at any age if you are otherwise eligible.

Do you already contribute to a retirement plan at work? That is not a problem. Your participation in your company plan does not affect your eligibility to make a Roth IRA contribution.

May 17, 2021 Deadline

The deadline for contributing to a Roth IRA for 2020 is May 17, 2021. If you have an extension to file your taxes, that does not give you more time. Sooner is better than later. Don’t wait until the last minute. You never know what may happen.

Be sure to let the IRA custodian know the year for which you are contributing. To avoid confusion, be sure you designate your contribution as a 2020 prior year contribution. Interesting fact – You don’t have to tell the IRS about your Roth IRA contribution. There is no requirement that you report a Roth IRA contribution on your 2020 federal tax return. It is good practice, however, for you or your tax preparer to keep track of your Roth IRA contributions.

Backdoor Roth IRA Contributions

Your income must be under certain limits to make a Roth IRA contribution. When your modified adjusted gross income (MAGI) exceeds $124,000, if you are single, or $196,000, if you are married filing jointly, your ability to contribute to a Roth IRA for 2020 begins to be phased out.

If your income is too high, you might consider a back-door Roth IRA. You simply contribute to a traditional IRA, which has no income limits, and convert. Sounds intriguing? Check with a knowledgeable tax or financial advisor to see if this is a good strategy for you. If you have pre-tax funds in any IRA, the pro-rata rule will apply to your Roth conversion.



By Andy Ives, CFP®, AIF®
IRA Analyst

With all the recent changes to IRAs under the SECURE Act [i.e., required minimum distribution (RMD) age raised to 72, new rules for beneficiaries, etc.], combined with the CARES Act waiver of RMDs last year, it comes as no surprise that we are hearing rumors and conspiracy theories about what will happen next. Here are a couple of the more popular speculations:

Will RMDs be waived again in 2021?

I highly doubt it. Any definitive claim that they will be waived again is unjustified speculation. It makes no sense. Why? RMDs have only been waived twice in the past – 2009 and 2020. In both instances we were experiencing total market meltdown.

For example, last year the Dow Jones Industrial Average (DJIA) was over 29,000 in early February. By mid-March, as news and effects of the pandemic swept across the world, the DJIA had tumbled to just over 19,000. IRA and 401(k) balances plummeted. Businesses were shuttered. Unemployment skyrocketed. Forcing account owners to withdraw retirement dollars in such a chaotic atmosphere would have been unconscionable. Hence, the CARES Act RMD waiver at the end of March 2020 and subsequent guidance for returning unwanted RMDs.

Where are we today? The DJIA has surged and is currently over 33,000. IRA and 401(k) account balances have rebounded. We have vaccines for the virus and are administering millions of shots per day. Businesses and states are reopening. Air travel is up. Despite the dire news on television, the future is far brighter than the past 12 months. Why would RMDs be waived in such an atmosphere? It makes little sense.

Will Roth IRA earnings become taxable?

Once again, highly doubtful. Of course, the CPA mantra is that “tax laws are written in pencil.” However, while anything is possible, there are a few reasons why I do not think Roth IRA earnings will be taxed.

Politically, it would be an extremely risky move. If government were to go back on its promise of a tax-free retirement savings account, it could be detrimental to political careers. Congress is already somewhat paralyzed as is, so a big reversal decision like this does not appear to be in the cards.

Second, Roth IRAs are funded with after-tax dollars. Therefore, the federal government collects taxes on the front end. If taxes are also imposed on Roth IRA earnings (the back end), there would be no reason to fund them, so the government would lose current tax revenues. Additionally, the trend in recent proposed legislation is more “Rothification,” not less.

Can we trust the federal government to keep its word about certain tax laws? No. Look at what the SECURE Act did to most IRA beneficiaries and their ability to stretch payments. However, the rumors about RMDs being waived again in 2021 and Roth IRA earnings getting taxed appear to be nothing more than unfounded conspiracy theories.



By Sarah Brenner, JD
Director of Retirement Education


A new customer came to me asking for help with an IRA. Unfortunately, he had already accepted a check from the 401(k) plan made out to him personally. He sat on the check for 5 months and deposited it into his checking account last week. He is only 50 years old. Since we are well after the normal 60-day rollover period, is there any way that this can be repaired? Perhaps under the CARES act of 2020 if his departure was Covid related?

Any direction you can provide would be appreciated.



Hi Sally,

If this individual meets the definition of an “affected individual” under the CARES Act, the 2020 distribution from the 401(k) could be treated as a coronavirus-related distribution (CRD). An affected individual is generally someone who had the virus, had a family member who did, or who experienced financial hardship due to the virus. If this distribution qualifies as a CRD, then the individual would have up to three years from the date of the distribution to repay it to a retirement account.

If the individual is not an affected person under the CARES Act, another possibility to extend the usual 60-day rollover deadline would be through the self-certification procedure. The IRS has provided a list of situations where retirement account holders can do late rollovers by self-certification. These include a death of family member and illness, among others. If the individual can fit into any of these categories, a late rollover could be possible.


Has the deadline for 2020 SEP IRA plan contributions been extended to May 17?


The SEP contribution deadline has only been extended to May 17 for sole proprietors. S-Corps, LLCs and partnerships remain March 15; C-Corps remain April 15.  However, note that the SEP deadline works a little differently because it includes any extensions that a taxpayer has. The IRA contribution deadline does not include such extensions. Therefore, even without a federal extension, the SEP contribution deadline could be as late as October 15, 2021 for those who file for an extension.



By Ian Berger, JD
IRA Analyst

Just a few weeks after the start of the baseball season, the IRS has thrown us a curveball by apparently interpreting the SECURE Act 10-year payout rule in a totally-unexpected way.

We say “apparently” because the IRS explanation isn’t very clear. And even if it was clear, the IRS offered the information in an informal publication that should not be relied on.

Here’s the backstory: One of the major changes made by the 2019 SECURE Act was the elimination of the stretch for many beneficiaries of inherited IRAs. If an IRA owner died before 2020, his individual beneficiary could satisfy the required minimum distribution (RMD) rules by spreading annual payouts over the beneficiary’s life expectancy. For a young beneficiary, that could be 80 years or longer.

But Congress put an end to the stretch IRA for most non-spouse beneficiaries of owners who died after 2019. For those beneficiaries, the SECURE Act replaced the stretch with a 10-year payment rule. That rule requires the entire IRA to be paid out by the 10th anniversary of the IRA owner’s death.

Just about everyone thought the 10-year rule meant no annual RMDs were required. In that case, the beneficiary would have total flexibility: She could take out as much or as little from the inherited IRA in years 1-9, as long as she emptied the entire account by year 10.

That’s exactly how the IRS has interpreted the 5-year payout rule. Before the SECURE Act, the 5-year rule was a payment option for the beneficiary of an IRA owner who died before his required beginning date (RBD). Even after the SECURE Act, the 5-year payout is required when an IRA owner dies before his RBD without designating an individual beneficiary.

But the IRS surprised everyone in a recent revision of Publication 590-B by treating the 10-year rule differently than it has treated the 5-year rule. The IRS strongly hinted that that the 10-year rule requires annual RMDs to be paid in years 1-9 and the remaining IRA funds to be paid out in year 10. Here’s an example from Publication 590-B that seems to say that:

Example: Your father died in 2020. You are the designated beneficiary of your father’s traditional IRA. You are 53 years old in 2021, which is the year following your father’s death. You use Table I [the IRS Single Life Expectancy Table] and see that your life expectancy in 2021 is 31.4. If the IRA was worth $100,000 at the end of 2020, your required minimum distribution for 2021 would be $3,185 ($100,000 ÷ 31.4).

We need to stress that the IRS’s apparent interpretation in Publication 590-B is not official guidance. For this reason, we recommend that beneficiaries subject to the 10-year rule hold off from taking RMDs in 2021 until later this year by which time the IRS will hopefully clarify this mess with official guidance.



By Andy Ives, CFP®, AIF®
IRA Analyst


Hi, I inherited my husband’s 401(k) when he died last year. I kept the assets with the 401(k) administrator, believing I had to do that to take distributions without 10% penalty. (I am under 59 ½ years old). If I roll over the 401(k) to an inherited IRA, will I still be able to take penalty-free distributions?

Thank you




Yes, if you transfer the 401(k) plan dollars to an inherited IRA, you can still access those funds without penalty. An additional option is, at age 59 ½, you can do a spousal rollover and combine the inherited IRA assets with your “regular” IRA dollars if you have any. This consolidation should help reduce paperwork and administrative responsibilities. Based on your age at that time, you will have full access to all IRA dollars.



First, thank you for the great information you provide.  I have already read Ed’s new book 2 times and am beginning to make plans and take action on what I read.

In 2004 I inherited an IRA and I used the knowledge that I had read in one of Ed’s books to help the advisor title the IRA correctly to make it a stretch IRA. I still have it today, no “smash and grab” here. (I heard Ed say this on a show he was on.)

I am in the process of writing important information to my children and one of them is about my inherited (stretch) IRA, since I will be leaving it to them.

I was looking for how they need to title it and found your article from August 02, 2017.


Once again, great information here. I was wondering if you might consider updating this article to include how the SECURE Act now impacts inheriting an inherited IRA.

If they title the IRA correctly to continue it as a stretch IRA, will just the 10-year rule apply, or will they have to continue (at a minimum) taking what my RMD would have been each year and, of course, still have it drained by year 10?

Thank you,




Thank you for being a loyal reader of our material! We wrote an update to the successor beneficiary rules and how they were impacted by the SECURE Act back on January 27, 2020. The link is here: https://www.irahelp.com/slottreport/how-secure-act-impacts-successor-beneficiaries

In your situation (and as explained in the January 2020 Slott Report article), the question as to what a successor beneficiary can do with an inherited IRA has an easy answer: a successor beneficiary gets the 10-year payout. In your situation, since the IRA you have is already an inherited IRA, your children can no longer “step into your shoes” to continue the stretch payments. They are bound by the 10-year payout. This is true even if the successor beneficiary is an “eligible designated beneficiary” (i.e., a surviving spouse, minor child, disabled or chronically ill individual, or not more than 10 years younger than the account owner). Under the SECURE Act, successor beneficiaries get the 10-year payout.



By Sarah Brenner, JD
Director of Retirement Education

Required minimum distributions (RMDs) were waived for 2020 but they are back now for 2021. This includes the RMD for the year of death of the IRA owner. The rules for this RMD can be tricky. One question that comes up a lot is who must take this RMD.

It is an all-too-common scenario. An IRA owner has passed their required beginning date and is required to take an RMD for the year. However, prior to taking this RMD, the individual dies. Who must take this year-of-death RMD? This is an area of great confusion!

The answer is really pretty straight forward. If the year-of-death RMD was not already taken by the IRA owner, it must be taken by the beneficiary. It is not paid to the IRA owner’s estate, unless the estate is named as the beneficiary. Due to the continued confusion on this point, the IRS confirmed this rule in regulations and in Revenue Ruling 2005-36. By law, the minute the IRA owner dies, the balance in the IRA belongs to the beneficiary, NOT the estate. The estate could have different beneficiaries than those listed on the IRA beneficiary designation form. The fact that the beneficiary does not have to withdraw the entire account the minute after the IRA owner dies does not make the account any less his. The beneficiary will also pay the tax on the year-of-death RMD. It will be reported on the beneficiary’s personal tax return (Form 1040), NOT on Form 1041 (the estate’s income tax return).

The SECURE Act changed many parts of the RMD rules, but it did not change the rule that requires the beneficiary to take the year-of-death RMD. If the beneficiary is one of the many beneficiaries now subject to the 10-year rule under the SECURE Act, that payout period would apply after the year-of-death RMD is satisfied.


Example: Carl, age 85, dies in 2021 without taking his 2021 RMD. His son, Jaden, age 60, is his beneficiary. Jaden, as the beneficiary of Carl’s IRA, must take the 2021 RMD that Carl did not take prior to his death by December 31, 2021. The RMD should not be paid to Carl’s estate. Under the SECURE Act, Jaden will then be subject to the 10-year payout rule. The remaining funds in the IRA he inherited from his father must be paid out by December 31, 2031.



George Nichols III is the 10th President and Chief Executive Officer in The American College of Financial Services’ storied history. He continues to take motivation from founder Solomon Huebner’s pioneering vision in 1927, while empowering The College to usher in the next century of educational excellence. Before joining The College, Nichols served as Executive Vice President, Governmental Affairs for New York Life Insurance Company. The College and Ed Slott and Company recently came together to develop Ed Slott and Company’s IRA Success program – which is now enrolling students! You can read more of Nichols’ perspectives and announcements of College initiatives at www.theamericancollege.edu/president.
1. When you talk about The College’s noble mission, you put extra emphasis on “to benefit society.” Can you describe what that means to you?

The College’s value is in providing applied financial knowledge and education to financial and nonprofit professionals, those on the frontlines and in the c-suite responsible for helping people create, build, maintain, and pass on wealth. That has been our noble cause for 93 years – and through education to one in five financial professionals, we’ve had a tremendous impact on the financial stability of families, businesses, and communities. Every program we develop, every scholarship we award, every research paper we write and distribute is about advancing society’s relationship with wealth through best-in-class education. Right there in that mission we talk about a financial professional’s sacred bond with a client built on applied knowledge, a commitment to lifelong learning, and an adherence to ethical standards. That’s what benefitting society means to us.
2. As you know, the financial services profession is changing rapidly with friction in the firm business model, challenges from low-cost mutual funds and point-and-click brokerage accounts, and competition from robo-advisors. How do you envision The College’s role in helping the average financial professional avoid any pitfalls and seize any opportunities?

The College offers a robust set of educational programs, from foundational financial planning and wealth management, to specialized knowledge on retirement income, philanthropy, and special needs. Yet, as the platform of knowledge has expanded to include digital entrants, just-in-time learning has become paramount.

We’re in the process of modularizing our programs into bite-sized, innovative learning experiences. So, if a professional just needs a refresher on required minimum distributions – they can learn a slice of it or a broad understanding in an hour instead of going through an entire program.

Our IRA Success program with Ed Slott and Company is our first foray into non-College credit, CE-eligible programs. You can finish the program in 12 hours, but you can also just take a course on IRA trusts or on the latest IRA tax laws. It’s a good example of an additional layer in our offerings – in the near-future, the student will be in complete control of the knowledge they need and where, when, and how they want to consume it.

3. You mention the IRA Success program, and it adds to a College strength: retirement distribution planning education. The Retirement Income Certified Professional® (RICP®) program is one of the largest at The College, and now you add this IRA Success program into the mix. How do you envision the tie between the programs?

Adding Ed Slott to our faculty as Professor of Practice really expands our expertise in retirement. The RICP® program provides the knowledge on helping clients generate sustainable retirement income, and starting in late 2021, Ed will be the IRA expert in that program. The two programs complement each other – RICP® on retirement income planning and IRA Success on retirement distribution and tax planning. Both are huge knowledge gaps in the profession – and these areas of expertise are in tremendous demand with Baby Boomers retiring at high numbers.

4. What else are you excited about at The College in 2021?

Aside from modularizing our content and delivering exciting CE programs like IRA Success, I’m passionate about The College’s Centers of Excellence. We hired new Executive Directors for our Women’s Center and Ethics Center in 2020, and we’re already seeing their growth.

In late 2020, we launched The American College Center for Economic Empowerment and Equality to help bring about sustainable, generational change in underserved communities. Our first initiative Four Steps Forward will aim to impact Black women, financial professionals, aspiring and high potential leaders, and Black communities across America. We now have an Executive Director, Karim Hill, an exciting partnership with the Society for Financial Education & Professional Development to launch a financial literacy program to educate underserved communities, and a web presence that really exemplifies The Center’s mission. I’m really excited to see how all of our Centers flourish in 2021.

These Centers represent the intersection of academics and the financial services industry. Through education, research, scholarships, and practice enhancement, the Centers reflect The College’s longstanding commitment to the advancement of professionalism and innovation in financial services and, by extension, the increased financial security of all Americans.

5. You’ve been in financial services for nearly three decades. What’s one inflection point you’re keeping a close eye on in the New Year?

If I could, I’ll share two. First – interest rates and their impact on the profession, the companies (especially life insurance companies), and on the economic recovery. We know the market and the economy have been pretty disconnected during the COVID-19 crisis, and most experts believe rates will remain low at least into 2022. This impacts the profession and income-seeking investors, which makes developing a sound, sustainable retirement income plan even more important.

And the second is how the profession leans into technology and embraces robo-advisors, artificial intelligence, and data analytics as complements or amplifiers of their business instead of competition or a regulatory risk. I think how FINRA and the SEC handle technology, and then how individual firms implement it, will go a long way to fleshing out the professional advisor’s value in the years ahead.

I’m a big believer in the “personal touch” – and I think advisors more and more need to lean into holistic planning, and perhaps utilize portfolio-building robo-advisors. Technology is a tool – and if it maximizes efficiencies, then advisors have more time to specialize in planning around retirement distribution tax planning for example.

I’ll be keeping my eye on that balance in 2021 and beyond.



By Ian Berger, JD
IRA Analyst


Hi, Ed,

I am hoping I get to attend one or more of your events IN PERSON this year!

If you have time for a refresher . . . .

Jon’s 2021 RMD is $200k. He takes $100k as a distribution to himself in February and later, he decides to satisfy the remaining $100k as a QCD in November.

Does this work as far as the timing of the QCD?

Thank you,



Hi Paula,

Look forward to seeing you in person hopefully very soon.

The QCD Jon makes in November can offset $100,000 of his $200,000 2021 RMD since it will be taken before the second RMD installment would have been taken. QCDs made after an RMD is taken cannot be used to retroactively satisfy the RMD.


Are contributions that are made to a traditional IRA (without taking the deduction) and then converted to a Roth IRA (backdoor IRA) available to the contributor to take out at any time tax and penalty free – the same as contributions made directly to a Roth IRA?




Hi Jim,

Like Roth IRA contributions, Roth conversions always come out tax-free. However, any part of a conversion that was taxable at the time of the conversion would be subject to the 10% early distribution penalty if you are under age 59 ½ at the time of the distribution and you did that conversion less than five years ago. If the converted funds were not taxable at the time of the conversion, the penalty never applies. This would be the case with a nondeductible traditional IRA contribution that is converted.



By Andy Ives, CFP®, AIF®
IRA Analyst

In my blog entry from March 22, I discussed the formula for calculating the amount of a direct Roth IRA contribution when your income falls within the Roth phaseout limits. Another common phaseout covers how much of a Traditional IRA contribution can be deducted. As with the Roth contribution phaseout, this income level cutoff is not a “cliff,” meaning if you go one dollar over the level, you do not immediately become ineligible to deduct your Traditional IRA contribution. There is a phaseout range which gradually decreases the amount of the allowed deduction.


It is important to note that the phaseout for Traditional IRA deductibility only applies when a person or their spouse is covered by an employer plan. (A good indicator or whether you are “covered” can be found on your W-2 – see if there is a check in the “retirement plan” box.) If neither you nor your spouse is  covered, then you can deduct your IRA contribution, even if your income is over the phaseout range. For 2020, the phaseouts for IRA deductibility were $104,000 to $124,000 for married/filing joint, and $65,000 to $75,000 for single filers. (In 2021, these numbers were increased to $105,000 – $125,000 and $66,000 – $76,000, respectively.)


What if, after all the annual numbers are tallied, your income falls within one of these phaseout ranges? How do you calculate how much can be deducted as a Traditional IRA contribution? The 2020 version of IRS Publication 590-A provides a table to help calculate that number:



IF you…


AND your

filing status is…

AND your

modified AGI

is over…


THEN enter on

line 1 below…

are covered by an

employer plan

single or head of






  married filing jointly or qualifying widow(er)  




  married filing separately  




Are not covered by an employer plan, but your spouse is covered married filing jointly  




  married filing separately  





Line 1.  Enter applicable amount from the table above.

Line 2.  Enter your modified AGI (total for both spouses, if married/filing joint.) If line 2 is equal to or more than the amount on line 1, stop here. Your IRA contributions are not deductible.

Line 3.  Subtract line 2 from line 1. If line 3 is $10,000 or more [$20,000 or more if married filing jointly or qualifying widow(er) and you are covered by an employer plan], stop here. You can take a full IRA deduction for contributions of up to $6,000 ($7,000 if you are age 50 or older) or 100% of your (and if married filing jointly, your spouse’s) compensation, whichever is less.

Line 4.  Multiply line 3 by the percentage below that applies to you. If the result isn’t a multiple of $10, round it to the next highest multiple of $10. If the result is less than $200, enter $200.

·      Married filing jointly or qualifying widow(er) and you are covered by an employer plan, multiply line 3 by 30% (0.30) [by 35% (0.35) if you are age 50 or older].

·      All others, multiply line 3 by 60% (0.60) [by 70% (0.70) if you are age 50 or older].

Line 5. Enter your compensation minus any deductions on Schedule 1 (Form 1040), line 14 (deductible part of self-employment tax) and Schedule 1 (Form 1040), line 15 (self-employed SEP, SIMPLE, and qualified plans). If you are filing a joint return and your compensation is less than your spouse’s, include your spouse’s compensation reduced by his or her traditional IRA and Roth IRA contributions for this year. If you file Form 1040, 1040-SR, or 1040-NR, do not reduce your compensation by any losses from self-employment.

Line 6.  Enter contributions made, or to be made, to your IRA for 2020, but do not enter more than $6,000 ($7,000 if you are age 50 or older).

Line 7.  Your IRA Deduction. Compare lines 4, 5, and 6. Enter the smallest amount (or a smaller amount if you choose) here and on your Schedule 1 (Form 1040), line 19. If line 6 is more than line 7 and you want to make a nondeductible contribution, go to line 8.

Line 8.  Nondeductible contribution. Subtract line 7 from line 5 or 6, whichever is smaller. Enter the result here and on line 1 of your Form 8606.


As with all tax issues and questions, please seek a qualified tax professional for further guidance.



By Sarah Brenner, JD
Director of Retirement Education


Has the deadline to make an IRA contribution for 2020 been extended since the 2020 tax filing date has been extended to May 17, 2021?



Hi Robert,

Yes. The 2020 IRA contribution deadline is also extended to May 17, 2021.


Hi Ed,

My mother recently passed away in February 2021 from Covid. Prior to her passing I transferred her Traditional IRA from one brokerage account to a managed account with no beneficiary listed for the new account. The account will now go to the estate in which I am the sole beneficiary listed in her last will and testament. What are my options? My mother was 80 years old and had started her required minimum distributions.

Thank you for your help,



Hi Scott,

Our condolences on the death of your mother.

It sounds like the estate became the IRA beneficiary by default. Because your mother was taking required minimum distributions (RMDs), the estate will need to take her 2021 RMD if she did not take it already.

Beginning next year, RMDs would then need to be taken annually based on your mother’s remaining nonrecalculated single life expectancy. For 2022 RMDs the IRS has released new life expectancy tables to be used. If your mother reached her 80th birthday in 2021, the factor would be determined using age 80 and the new single life expectancy table. That would be 11.2. Each year one is subtracted from that factor. So, to calculate the RMD for next year, a factor of 10.2 would be used. Of course, the estate can always take the funds more quickly than is required.



By Ian Berger, JD
IRA Analyst

Fewer and fewer workers are participating in defined benefit pension (DB) plans these days. The high cost of maintaining those plans has led many employers to terminate existing plans and dissuaded many others from setting up new plans in the first place.

But there are still many DB plans out there, and it’s important to know that they operate very differently from defined contribution (DC) plans, like 401(k), 403(b) and 457(b) plans. Here are eight important differences:

1. Individual accounts. DC plans have individual accounts which hold employee deferrals, employer contributions and investment gains and losses on those contributions. DB plans (except for “hypothetical accounts” in cash balance plans) don’t have individual accounts.

2. How the benefit is determined. The amount of your DC plan benefit is simply the value of your account when you take your funds out. The amount of your DB benefit is based on the plan’s formula. A typical formula consists of three factors: (1) a multiplier; (2) the average of your highest annual salary over a certain period; and (3) your years of service with the company. For example, a DB plan may provide an annual benefit of 1.0% x average three-year highest consecutive salary x years of service.

3. Time of distribution. Many DC plans allow in-service distributions after age 59 ½ or hardship withdrawals (or both). Although DB plans can permit in-service payments, most do not.

4. Who contributes? Most DC plans allow employee deferrals and provide matching or other employer contributions. Most DB plans do not allow (or require) employee contributions. The participant’s benefit is typically fully funded by the company.

5. Amount of Contribution. The amount of contribution required by a DC plan sponsoring employer is determined by a set formula (for example, the matching contribution formula). By contrast, the amount of contribution required by a DB plan sponsor is calculated by the plan’s actuary based on a number of factors designed to ensure that the plan is properly funded.

6. Vesting. Employee deferrals to a DC plan are immediately 100% vested, but employer contributions can be subject to a vesting schedule. The schedule can be either “cliff vesting” (where contributions are unvested until they become 100% vested after three years of service) or “graded vesting” (where contributions are 20% vested after two years of service, 40% vested after three years of service, and so on).  Most DB plans use a 5-year cliff vesting schedule.

7. Investment Risk.  In most DC plans, the participant typically elects how her account will be invested from among options selected by the employer. In a DB plan, the company is responsible for investing plan assets.

8. Benefits guarantee. DB benefits are guaranteed up to a certain level by the Pension Benefit Guaranty Corporation (PBGC), a quasi-government agency, in case a plan is terminated without enough assets to pay out all benefits. DC benefits have no similar guarantee.



By Andy Ives, CFP®, AIF®
IRA Analyst

When it comes to contributing directly to a Roth IRA, an individual must have modified adjusted gross income below a certain level. This income level cutoff is not a “cliff,” meaning if you go one dollar over the level, you do not immediately become ineligible for a Roth IRA. There is a phaseout range where the amount of the direct Roth IRA contribution is gradually decreased. For 2021, the Roth phaseout limits for contributions are $198,000 – $208,000 for those married/filing joint, and $125,000 – $140,000 for single filers. (In 2020, these numbers were $196,000 – $206,000 and $124,000 – $139,000, respectively.)

What if, after all the annual numbers are tallied, your income falls within one of these phaseout ranges? How do calculate how much you are allowed to contribute to a Roth IRA? The 2020 version of IRS Publication 590-A provides a table to help calculate that number. Grab a pen and paper, number from 1 to 11, and simply fill in the answers to the following:

Line 1. Enter your modified AGI for Roth IRA purposes.

Line 2. Enter:

  • $196,000 if filing a joint return or qualifying widow(er),
  • $0 if married filing a separate return and you lived with your spouse at any time in 2020, or
  • $124,000 for all others (i.e., single or head of household).

Line 3. Subtract line 2 from line 1.

Line 4. Enter:

  • $10,000 if filing a joint return or qualifying widow(er) or married filing a separate return and you lived with your spouse at any time during the year, or
  • $15,000 for all others (i.e., single or head of household).

Line 5. Divide line 3 by line 4 and enter the result as a decimal (rounded to at least three places). If the result is 1.000 or more, enter 1.000.

Line 6. Enter the lesser of:

  • $6,000 ($7,000 if you are age 50 or older), or
  • Your taxable compensation

Line 7. Multiply line 5 by line 6.

Line 8. Subtract line 7 from line 6. Round the result up to the nearest $10. If the result is less than $200, enter $200.

Line 9. Enter any contributions for the year to all other traditional and Roth IRAs.

Line 10. Subtract line 9 from line 6.

Line 11. Enter the lesser of line 8 or line 10. This is your reduced Roth IRA contribution limit.

As with all tax issues and questions, please seek out a qualified tax professional for additional guidance.



By Andy Ives, CFP®, AIF®
IRA Analyst



I found you by searching to find out if we can offer two SIMPLE IRA options for our employees. I don’t know if that is something permitted. The idea is to have a cryptocurrency option set up as a SIMPLE in addition to the SIMPLE we already have in place. I’m reaching out in the hopes someone can help me with a definitive answer. I have spoken with our CPA, however, he was not sure.

Thank you for any help you can provide.




The short answer is, no, you cannot offer two different SIMPLE plans. You can offer multiple investment options within a single SIMPLE, but not two separate plans. Depending on the plan document, participants may be allowed to transfer their SIMPLE dollars to another account or custodian that offers a wider array of investment option, but that would all be under the umbrella of a single SIMPLE plan.

The longer response includes me saying that your question makes me nervous. Cryptocurrency is largely misunderstood and can be wildly volatile. Making such an investment option available to the participants in a SIMPLE plan is a possible recipe for disaster. Proper guidance is crucial for all those looking to invest. As plan sponsor, as the one who made such an investment option available, there could be some liability issues. All I ask is that you please tread carefully here.


If you max out the $58,000 to a 401(k) (personal + profit sharing), can you still contribute to a Traditional IRA an additional $6,000 as a non-deductible contribution?


Yes. The dollars you defer into a 401(k) or other work plan (or the dollars a company contributes for you) will not limit the amount you can contribute to a Traditional or Roth IRA. Work plans can impact whether or not a Traditional IRA contribution can be deducted, but not the amount of the contribution.



By Sarah Brenner, JD
Director of Retirement Education

The CARES Act waived required minimum distributions (RMDs) for 2020, but they are back for 2021. The return of RMDs for this year has raised questions about how these distributions should be calculated. Here is what you need to know if you must take a 2021 RMD.

Many IRA holders have had concerns that there would be a need to take both an RMD for 2020 and an RMD for 2021 this year. That is not the case. The 2020 RMD was waived, not delayed. It does not need to be taken. The only distribution that needs to come out this year is the 2021 RMD.

What is the impact of the 2020 RMD waiver on how the RMD for 2021 is calculated? If you are taking an RMD from your own IRA, the rules are the same as always. Most IRA owners will simply need to find the factor that corresponds to their age on the IRS Universal Lifetime table and then divide their December 31, 2020 IRA balance by that factor. This is all that needs to be done to determine the RMD.

For spouse beneficiaries who have inherited IRAs, the rules will work similarly. The only difference is the that instead of the IRS Universal Lifetime table, the IRS Single Life Expectancy table would be used.

For nonspouse beneficiaries with IRAs inherited prior to the enactment of the SECURE Act in 2020, it is a little more complicated. The base factor for calculating RMDs from the Single Life Expectancy table is determined in the year following the year of death. Each year the beneficiary would subtract one from that base factor and then divide the result into the December 31 prior-year balance to get the RMD.

How is the waived 2020 RMD year accounted for in this calculation? Well, even though the RMD is skipped for 2020, the year must still be included in the calculation. That means subtracting not one but two from the factor used in 2019 to get the 2021 factor. Once the factor is determined, it can be divided into the December 31, 2020 balance to get the RMD amount for 2021.

Example: Maya inherited an IRA from her mother Arlene who died in 2018. In 2019, the first year that an RMD was required from the inherited IRA, Maya was 32. The factor used to determine her RMD was 51.4. For the 2021 RMD, the factor which would be used would be 49.4 (51.4-2



By Ian Berger, JD
IRA Analyst

We’ve been getting a number of questions lately about whether it’s too late to set up a new solo 401(k) plan for 2020.

The answer is “sort of.”

Business owners with no employees (other than a spouse) can contribute to a solo 401(k) plan. Solo plans are typically used by sole proprietors but are also available if your business is incorporated or structured as a partnership or LLC.

In many cases, solo 401(k)s allow for a higher level of savings than SEP or SIMPLE IRAs. That’s because the IRS considers a business owner with a solo plan to wear two hats –an employee and an employer. This allows the owner to make elective deferrals as an employee and deductible employer contributions as an employer.

There are separate dollar limits for each. Elective deferrals are limited to $19,500 for 2020 and 2021 ($26,000 if age 50 or older). The employer contribution limit normally amounts to 20% of adjusted net earnings. There’s also an overall annual limit on combined contributions, but that limit is generous: For 2020, it’s $57,000 ($63,500 for those over age 50 deferring the additional $6,500 catch-up), and for 2021, it’s $58,000 (or $64,500 with catch-up).

Importantly, the elective deferral limit is per person (not per plan). So, if you have a solo 401(k) for your side job and a traditional 401(k) in your regular job, the most you can defer between both plans is $19,500, or $26,000 with catch-up.

Solo 401(k)s are easy to administer and don’t require the services of a TPA. They are exempt from IRS testing rules, and you don’t have to file a Form 5500 annual report until assets exceed $250,000.

The SECURE Act, enacted in 2019, includes a provision giving businesses extra time to set up certain new tax-qualified retirement plans. It used to be that a new workplace plan had to be adopted by the last day of the employer’s tax year. Now, businesses have until the due date for the corporate tax return, including extensions, to put a new plan into place. Depending on the type of business, that can be as late as the following September 15 or October 15.

So, what’s the problem for solo plans? The problem is that the extended deadline only applies to a solo 401(k)’s employer contributions – not to its elective deferrals. The IRS has a rule in place that says that a self-employed individual must make a deferral election by the last day of the year. If a deferral election for 2020 had to be made by 12/31/20, then a 2020 solo 401(k) offering elective deferrals must have been set up by that date.

That means it’s too late to adopt a solo 401(k) for 2020 if you want to make elective deferrals. But it’s not too late if you limit your 2020 savings to employer contributions. However, since elective deferrals aren’t allowed, the maximum 2020 contribution for a new solo plan adopted in 2021 (even for owners over 50) is $57,000.



By Ian Berger, JD
IRA Analyst


I have self-directed traditional and Roth accounts at an SDIRA Custodian.  Can I do a Roth  conversion of an illiquid asset from the traditional to the Roth account?  The investment I want to convert is a debt-only asset (no equity component) generating a fixed 8% dividend. It has a consistent FMV from year to year. I know I will pay tax on the conversion. I am 75 and retired.

Thank you,



Hi Ray,

There is no rule preventing someone of your age from doing a Roth conversion or preventing you from converting illiquid assets. Since Roth conversions are taxable, the only practical issue would be valuing an illiquid asset for figuring out the taxes. However, since you indicate that the FMV of your investment can be determined, that should not be a problem for you. Keep in mind that the amount you convert cannot be used to satisfy the RMD that is due in the same year. (See Q&A below.)


Next year in 2022, I will be age 72 in March. I plan to request my first RMD in December of this same year 2022.

If I do a Roth conversion in early February of next year (2022), before I become age 72, will this count toward my RMD for the year 2022?


Generally, any IRA funds you take in 2022 – even before you turn 72 – will count towards your 2022 RMD. However, that’s not the case for funds that you roll over. A Roth conversion is considered a rollover, so it cannot satisfy your 2022 RMD. You could, however, take additional amounts beyond your RMD and convert those amounts after first taking your RMD.



By Andy Ives, CFP®, AIF®
IRA Analyst
Follow Us on Twitter: @theslottreport

Casinos have house rules. These rules dictate what patrons can and cannot do. They are often written down, posted, and there is no debating the validity of said guidelines. House rules govern all those under the purview of management. I have house rules of my own when it comes to card games, darts, boardgames and any other source of competition. House rules can also apply to non-competitive situations. No swearing. Take your shoes off. Don’t sit on the good furniture in the living room.

When it comes to workplace plans like a 401(k), house rules apply. We like to say, “the law of the plan is the law of the land.” While a 401(k) cannot allow total anarchy and must abide by strict ERISA guidelines for things like eligibility and non-discrimination testing, the plan does have flexibility in other areas.

For example, a plan does not have to offer Roth contributions. A plan does not have to offer in-service withdrawals or loans to its participants. It does not have to offer the “still-working exception” for those employees subject to required minimum distributions (RMDs). In fact, in 2020, a plan did not have to offer Coronavirus-related distributions (CRDs) authorized by the CARES Act or recognize the CARES Act waiver of 2020 RMDs. If the plan wanted to force out a 2020 RMD payments, the plan was well within its rights to do so. House rules.

Of course, a plan participant who received a forced 2020 RMD could have rolled it over to an IRA, thereby avoiding the taxes due. A plan participant who could access 401(k) plan dollars via a hardship distribution could retroactively deem the 2020 hardship distribution as a CRD. A plan cannot control what participants do on their own time once they receive their plan funds. In fact, the plan does not care. That is between the participant and the IRS. When the participant is not under the roof of the plan, (i.e., when he or she has plan dollars in hand), plan house rules are, for the most part, no longer applicable.

One such case that clearly demonstrates the all-powerful authority of plan house rules is Herring v. Campbell, U.S. Court of Appeals, 5th Circuit, August 7, 2012. In this case, a plan participant died with no living beneficiary listed on his qualified retirement plan. (His wife had predeceased him.) The plan looked to its “house rules” and identified its default beneficiary protocol. The plan would pay out the account to next of kin based on the following order: (1) surviving spouse; (2) surviving children; (3) surviving parents; (4) brothers and sisters, (5) estate.

The plan participant did not have any biological or legally adopted children, but he did have two stepsons. What did the plan do? The plan decided that his stepsons were not his children because they were not his biological children and were never adopted by him. Since the participant had no surviving parents, the plan distributed the funds to the next category of default beneficiaries – the participant’s brothers and sisters. The Court of Appeals ruled that 1.) the plan correctly applied its policy that stepchildren are not “children,” and 2.) the funds were properly distributed to the siblings as the default beneficiaries. The stepsons were disinherited.

House rules. Be sure to know the guidelines of the workplace plan you participate in, or else house rules could put a serious crimp in your game.



By Sarah Brenner, JD
Director of Retirement Education
Follow Us on Twitter: 

For those just starting out, saving for retirement can be challenging. For young workers, paying the rent and buying the week’s groceries may take priority and there is only so much money to go around. However, there is an often-overlooked tax break that may make saving for retirement more attractive.

Many people are unaware of the Saver’s Credit. You are eligible for the credit if you are age 18 or older, not claimed as a dependent on another person’s return, and not a student.

The tax credit is available to lower-income workers who make IRA contributions or contribute to an employer plan. The maximum contribution amount eligible for the credit is $2,000. Since the maximum credit rate is 50%, an IRA owner or plan participant can potentially reduce tax liability by up to $1,000. Rollover contributions do not qualify for the credit. The credit is nonrefundable which means it cannot reduce your tax liability to less than zero. Also, it may be reduced by any recent distributions you received from your retirement plan or IRA. The Saver’s Credit can be a double tax break because it is available in addition to any deduction in income that may be available for a retirement savings contribution.

Here is how a parent or grandparent can help a younger worker who may need every cent of income to a pay the bill. They can help a cash-strapped young saver take advantage of the Saver’s Credit by funding an IRA contribution for their child or grandchild. As long as the young worker has earned income, it does not matter if someone else gives her the money to fund the contribution.

Example 1: Emma, age 25, has been working hard to get her new business off the ground. Her earnings from self-employment for 2020 were $15,000. Her dad, Marcus, funds a traditional IRA contribution of $6,000 for Emma. Emma can deduct her IRA contribution and claim a Saver’s Credit of $1,000 on her 2020 tax return.

Example 2: Aiden, age 22, landed his first job at the end of 2020. He earned $10,000 in 2020. His grandfather, Ike, would like to help get Aiden started with his retirement savings. He can give Aiden $6,000 to fund his Roth IRA. Aiden would qualify for the Saver’s Credit of $1,000.



By Sarah Brenner, JD
Director of Retirement Education


I am 75 years old and am planning to retire this year.  I have a 401(k) plan with my employer and, I assume, need to roll it over into an IRA.  In this case do I need to take a 2021 RMD?  If so, how is it calculated?  I have taken RMDs on my other IRA accounts so I know how to use the factor according to my age, but what should the basis be?  Is it the value of my 401(k) on Dec. 31, 2020?

Thank you in advance.



Hi John,

Congratulations on your retirement! You are right that if you decide to roll over your 401(k) to your IRA you will need to take your RMD from the plan first. This is because 2021 is the year you are retiring so you will have an RMD for this year. You are also right that the method for calculating the RMD from the plan would be the same as the one that is used to calculate an RMD from an IRA. To determine your RMD, you would divide the December 31, 2020 plan balance by your life expectancy factor from the IRS Uniform Lifetime Distribution Table. The plan administrator should be able to do this this calculation for you and pay out your RMD prior to the rollover.


Hi there,

I have searched the internet and can’t get a straight answer to my question.  I’m hoping you can help me out. A client received an IRA from his father in 2016, made it an Inherited IRA (taking RMD’s).  Client passed away in 1/2021. What does the Inherited IRA become to his spouse, and how are RMD’s calculated?




Hi Andrew,

This can be a confusing area. When your client’s wife inherited the inherited IRA, she is considered a successor beneficiary. Because the original beneficiary (your client) died in 2021, the SECURE Act applies. The SECURE Act says that successor beneficiaries – even spouses – must use the 10-year payout rule. This would mean that the inherited IRA would need to be paid out by December 31, 2031.



By Ian Berger, JD
IRA Analyst

For an area as highly regulated as IRAs and company plans, it’s not surprising that there’s a ton of abbreviated terms to keep track of. Here’s 18 common ones that you should know:

CARES Act. The Coronavirus Aid, Relief, and Economic Security Act. A law enacted on March 27, 2020 that, among other items, waived RMDs for 2020 and allowed CRDs.

CRD. Coronavirus-related distribution. A penalty-free distribution, up to $100,000, that certain COVID-affected individuals were eligible to receive from IRAs and company plans in 2020.

DB. Designated beneficiary. A beneficiary that is a living person. DBs can be either EDBs or NEDBs.

EDB. Eligible designated beneficiary. A DB that is a surviving spouse, a minor child, a chronically-ill or disabled-individual, or is no more than 10 years younger than the IRA owner. Even after the SECURE Act, EDBs can stretch inherited IRAs over their lifetime.

ERISA. The Employee Retirement Income Security Act of 1974. A federal law that regulates certain company-sponsored retirement plans and health plans.

IRA. Individual retirement arrangement. An IRA can be an individual retirement account or an individual retirement annuity.

IRD. Income in respect of the decedent. An income tax deduction available when a beneficiary receives income on an item owned by the decedent (such as an IRA) that is subject to both federal income and estate taxes.

NDB. Non-designated beneficiary. A beneficiary that is not a living person (e.g., a charity, estate or non-qualifying trust). An NDB must be paid out over five years (if the IRA owner died before her RBD) or over her remaining life expectancy had she lived (if the owner died on or after her RBD).

NEDB. Non-eligible designated beneficiary. A DB that is not an EDB. Under the SECURE Act, NEDBs must be paid out over ten years.

NIA. Net income attributable. The earnings or losses in an IRA attributable to an excess IRA contribution. To avoid a 6% penalty, the excess contribution, along with NIA, must be timely withdrawn.

NUA. Net unrealized appreciation. A tax strategy by which a 401(k) plan participant with highly-appreciated company stock can delay tax on appreciation of the stock between the date it was purchased and the date it was distributed from the plan.

PLR. Private letter ruling. A tax ruling made by the IRS issue upon request of a taxpayer. Technically, PLRs can only be relied upon by the person who requested the ruling.

QDRO. Qualified domestic relations order. A state court order by which an ex-spouse is awarded a portion of an ERISA plan participant’s company plan retirement benefit.

RBD. Required beginning date. The date by which IRA owners and company plan participants are required to start RMDs. For IRAs and for company plans that don’t use the “still-working exception,” the RBD under the SECURE Act is April 1 of the year following the year the individual attains age 72.

RMD. Required minimum distribution. The distribution that IRA owners and plan participants must start taking at their RBD.

SECURE Act. The Setting Every Community Up for Retirement Enhancement Act. A law enacted on December 20, 2019 that, among other items, raised the RMD age to 72, removed the 70 ½ limit for making traditional IRA contributions, and eliminated the stretch IRA for most non-spouse IRA beneficiaries.

SEP. Simplified Employee Pension. A retirement plan in which employers contribute to employees’ SEP IRAs.

SIMPLE. Savings Incentive Match Plan for Employees. A retirement plan for small employers in which elective deferrals and employer contributions are made to employees’ SIMPLE IRAs.



A Preview of Ed Slott’s New Book: The New Retirement Savings Time Bomb

By Ed Slott, CPA

If you’re a dedicated Ed Slott and Company fan, at this point, you’ve likely heard about my upcoming new book, The New Retirement Savings Time Bomb (Penguin Random House, 2021). If you haven’t, then you’ve come to the right place to get a sneak peek of the timely, all-encompassing content it contains to navigate the retirement planning landscape in 2021 and beyond. It’s already a #1 new release in the retirement planning category on Amazon, and it’s still only available for presale !

In this special edition of the Slott Blog Report, I’m giving you an exclusive preview of my book by providing a few excerpts pulled directly from the book’s pages. I encourage you to also check out the video below to hear more about why I wrote the book and how it can help you keep more of your hard-earned money.

So, what exactly is this book about?

This book addresses the critical issue that every other retirement-related and tax-related book on the market ignores: protecting from excessive taxation the assets you’ve spent a lifetime building. No single factor is more significant to your ability to live the lifestyle you’ve been saving for all of your life, or to pass on your hard-earned savings to those you love.

Why is this component so crucial?

Due to a complex combination of distribution and estate taxes that kick in at retirement or death, millions of you are at risk of losing much—perhaps even most—of your retirement savings.

This dire turn of events, already happening now, will put a huge financial burden on you, your children, and society as the ranks of the retiring and already retired swell to historic proportions in the coming years when the retirement savings time bomb explodes (see Chapter 1).

And so, the overriding purpose of this book is to give savers like you the knowledge and the tools to defuse that bomb on your own—or with the help of your professional financial advisor— before detonation occurs.

How is this book different from the one I released back in 2003?

Saving and investing for retirement is tough enough, but it’s only one part of the retirement game. Since you can spend only what you keep, after taxes, you’ll have to take steps now to protect your savings. I want you to have more, keep more, and make it last. That is my focus in this newly revised edition.

Our tax laws are constantly changing, and you need to know how the most current rules can affect your planning. This special 2021 edition has been completely revised to include the most up-to-date information on all retirement, income tax, and estate law changes and provisions enacted and now in effect since we last went to press. It includes the latest changes made in the SECURE Act and the CARES Act—including the elimination of the stretch IRA, which will likely upend many of your existing retirement strategies. This devious provision inserted into the SECURE Act will be a big blow to even the best-laid plans.

The major overhaul of our tax system affects virtually everyone in some way, and many of the provisions have time limits. I will guide you through all of this, so you’ll know how to best take advantage of the changes and avoid some of the traps.

What exactly is the retirement savings time bomb?

It’s crucial to keep our eyes on the long- term big picture. The problem is most people don’t—or, worse, won’t—see the forest for the trees when it comes to things financial. Far too many people devote more time going over their super- market receipts to make sure they haven’t been overcharged than they’ll spend keeping their life savings from becoming a windfall for Uncle Sam. As a matter of fact, I’ve actually had clients cancel their estate-planning appointments with me to hit a sale at their local Costco. Believe me, they’ll have to score some mighty big bargains there, plus rob several banks, to make up the percentage of their life savings they’ll lose to taxes if they don’t get smart.

That’s what seeing the big picture is all about, and I’ve spent the better part of the past 30 years pointing this out. In all that time, I’ve seen as many horror stories as there are run-on sentences in the tax code. Now retiring in record numbers, the baby boomers (including me—except that I’m not retiring, especially when so many people need all this tax stuff explained!) are starting to take distributions from their retirement accounts. That means more and more costly and avoidable mistakes are being made.

Many new retirees are running up against some hard economic times, even more so in the wake of COVID-19, and need to protect their funds from future taxes. Some are leaving their jobs with the biggest check they’ve ever had (and biggest asset they own)—their retirement savings—and thus potentially opening themselves up to big financial problems. Having been so busy chasing investment returns all their working lives, they’ve often neglected the distribution part of the equation, and thus risk losing to the taxman a whopping amount of what they’ve saved.

In the coming years, I have no doubt that there will be an explosion of excessive taxation reaching epic proportions—an explosion that will give millions of ill-prepared and underprotected American savers like yourself the financial shock of their lives. The fallout from this “new retirement savings time bomb” will continue to affect you, your children, the economy, and society for years and years to come. Now is the time to step up and follow my 5-Step Action Plan, which will save big money for you and your family.

To get the full details of my 5-Step Action Plan to disarm the retirement savings time bomb, preorder your copy of my book here . If you order before March 7, you’ll also receive my bonus 20-minute mini course with valuable insights surrounding critical rollover decisions!

I’d also like to invite you to attend my virtual book launch party on March 2. Tune in live 6:00 – 6:30 p.m. ET for a live Q&A with Emmy-nominated CBS News Business Analyst and Host of “ Jill On Money ,” Jill Schlesinger, CFP®. There will also be trivia, giveaways and more. Mark your calendar and visit  irahelp.com/launchparty  at 6:00 p.m. ET on March 2 as we stream on YouTube Live!

From THE NEW RETIREMENT SAVINGS TIME BOMB by Ed Slott, published by Penguin Books, an imprint of Penguin Publishing Group, a division of Penguin Random House, LLC. Copyright © 2021 by Ed Slott.



By Sarah Brenner, JD
Director of Retirement Education

Have you contributed to a Roth IRA for 2020? If you have not, you still have some time. The deadline for making a prior year contribution is the tax-filing deadline, not including any extensions you might have. For 2020, that deadline is April 15, 2021.

If you have made a Roth IRA contribution for 2020, or are still planning to make one, you may be wondering how these contributions will be handled on your federal income tax return. The answer may surprise you. Roth IRA contributions are NOT reported on your tax return. You can spend hours looking at Form 1040 and its instructions as well as all the other schedules and forms that go along with it and you will not find a place to report Roth contributions on the tax return. There is a place to report deductible contributions to Traditional IRAs and a place to report nondeductible Traditional IRA contributions as well. Conversions from Traditional IRAs to Roth IRA also need to be reported on the tax return. But there is no place for reporting Roth IRA contributions.

While you do not need to report Roth IRA contributions on your return, it is important to understand that the IRA custodian will be reporting these contributions to the IRS on Form 5498. You will get a copy of this form for your own information, but you do not need to file it with your federal income tax return.

Even though you do not need to report your Roth IRA contributions on your tax return, you should still keep track of them. This information is important if you take distributions. Your Roth IRA contributions are always available to you both tax and penalty free. These funds are considered to be the first funds distributed from your Roth IRA. Once your contributions are all gone, then converted funds are distributed and then earnings. If you take a distribution of converted funds from your Roth IRA, there may be penalties that apply. A distribution of Roth IRA earnings can be both taxable and subject to penalty if a Roth distribution is not qualified.

By tracking your Roth IRA contributions, you can limit your Roth distributions to the amount of your tax-year contributions and thereby ensure that they are always both tax and penalty-free. Of course, the best move is to avoid taking any distributions at all from your Roth IRA until you reach retirement age. If you wait and take qualified distributions, then not just your contributions but everything else in your Roth IRA, including years of earnings, will be tax-and penalty-free. And that, after all, is the goal of saving with a Roth IRA.



By Ian Berger, JD
IRA Analyst

When we think of rollovers, we normally think of moving funds from a 401(k) (or other company plan) to an IRA. But it sometimes makes sense to consider a “reverse rollover” – from an IRA to a 401(k).

Unfortunately, although 401(k) plans are required to allow rollovers out of the plan, they do not have to permit rollovers into the plan. So, before withdrawing from your IRA, check with your plan administrator to make sure you can do a reverse rollover. Also, you can’t do a reverse rollover of Roth IRA or after-tax (non-deductible) IRA monies. Only pre-tax IRA funds qualify.

Despite these hurdles, there are still several good reasons to consider a reverse rollover:

  • If you work past age 72, RMDs (required minimum distributions) are often not required from 401(k)s  until you leave your job. (This “still-working exception” is only available if the plan allows and if you do not own more than 5% of the company sponsoring the plan.) RMDs from traditional IRAs are required at age 72 – regardless of your job status.
  • If you leave your job in the year you reach age 55 or later, you can receive a plan payout without being hit with the 10% early distribution penalty. With a traditional IRA, you usually have to delay your payout until age 59 ½ to dodge the penalty.
  • Depending on your state’s laws, you may be better protected from creditors if your retirement savings are in a company plan rather than in an IRA.
  • While you can take a loan from your workplace plan (if the plan allows), loans are not available from your IRA
  • If you’re considering converting a traditional nondeductible IRA contribution to a Roth IRA (a “back-door” conversion), a portion of the converted amount may be taxable unless you rid yourself of any pre-tax IRA dollars. You may be able to do this through a reverse rollover.

Before pulling the trigger on a reverse rollover, consider these reasons to keep your money in an IRA:

  • You can access your IRA savings at any time for any reason. By contrast, plan payouts can be made only upon certain events (e.g., leaving your job, becoming disabled or incurring a financial hardship).
  • Several of the exceptions to the 10% penalty (e.g., higher education expenses and first-time home purchases) are available for IRA distributions, but not for 401(k) distributions.
  • You typically have many more investment options for your IRA funds. In a plan, you are limited to the investments allowed by the plan.



By Ian Berger, JD
IRA Analyst



I have a client that took a $14k IRA distribution on 1/10/2021 and another $14k distribution on 2/10/2021. He wants to replace all $28k using the 60 day rollover as funds are no longer needed.

Does the 60 day rollover rule allow him to replace all 28k (from both distributions) within 60 days from the first distribution on 1/10/2021?

Or does the 60 day rollover rule only allow him to just replace one distribution taken (even though both were taken within 60 days of each other)? Thus, he can only put back $14k


Someone who does a 60-day rollover (as opposed to a direct transfer) not only has to worry about completing the rollover within 60 days. He also must comply with the “once-per-year” rollover rule. That rule says you can’t roll over an IRA  distribution received within 12 months of a prior distribution that was rolled over. Since your client’s two IRA distributions occurred within 12 months of each other, he can only roll over one of the two distributions.



I manage my 95 year old mother’s taxes and finances. She has her IRA’s with Vanguard and several years ago we set it up for automatic RMD withdrawals. She had her RMD automatic RMD’s done in early 2020 and then Congress passed the CARES Act in late March 2020.

Upon learning this, I put back into her IRA the amount distributed less the federal tax withheld. Now, I received the 1099-R tax form reflecting the entire distribution as taxable despite most of it being put back into to reflect the 2020 exemption. I contacted Vanguard about this and they indicated they would be sending us a tax form in May of 2021 to reflect the corrected amount of distribution. Obviously, this is after the April 15 tax filing deadline.

Any suggestion for how I should handle this with regards to calculating and filing my mom’s taxes. Do I do her taxes, include the income from the 1099-R and then file a corrected tax return once I get the corrected form from Vanguard? Alternatively, I could use the tax software to project whether she owes any tax as a result of the Vanguard 1099-R and if not, file for an extension?

I would greatly appreciate a response.

Thank you,



Hi Bill,

The tax reporting rules for RMDs paid, and then returned, in 2020 are tricky.

On your mother’s 2020 Federal tax return, the total amount of the distribution will be entered on line 4a of Form 1040. Then, the word “Rollover” will be entered next to line 4b. Line 4b will show the portion of the distribution she did not roll back (the federal tax withheld). That amount will be taxable income to your mom. The tax software should be able to guide you through these steps.


The additional form Vanguard will be sending your mom is Form 5498. That form will officially confirm the rollover back to the IRA. You do not have to file that form with her tax return.



By Andy Ives, CFP®, AIF®
IRA Analyst

Surprisingly, the rules governing what happens when an ex-spouse acquires a Roth IRA after divorce are unclear. There are no specific directions in the Tax Code or in the regulations. However, there is definitive guidance for a spouse who inherits a Roth IRA due to death. It makes sense to look to these rules after death for direction on how to process a Roth IRA transfer after a divorce. Of course, with no definitive route, this is only speculation until the IRS provides a roadmap. As such, be sure to document whatever course of action you take should you find yourself in a Roth IRA transfer-on-divorce situation. Here are just three of the many key items to consider:

Transferring the Assets. IRS Publication 590-A identifies two commonly used methods of transferring IRA assets to a spouse or former spouse after divorce: 1.) Retitling/changing the name on the IRA, and 2.) Making a direct transfer of IRA assets. While this language is specific to Traditional IRAs, we know that the same methods of transfer also apply to Roth IRAs.

It is imperative that the transfer of assets be completed correctly as a tax-free transfer. Rollovers will not work! Failure to properly move qualified dollars from one spouse to the other can result in unnecessary complications. Despite the best intentions of the participants, there have been multiple occasions where transfer errors resulted in the needless loss of thousands of dollars in taxes and penalties.

The Roth 5-Year “Forever” Clock. Federal regulations discuss how what I call the Roth “5-year forever” clock works when a Roth IRA is transferred after death. The regulations say that “The beginning of the 5-taxable-year period…is not redetermined when the Roth IRA owner dies. Thus, in determining the 5-taxable-year period, the period the Roth IRA is held in the name of a beneficiary, or in the name of a surviving spouse who treats the decedent’s Roth IRA as his or her own, includes the period it was held by the decedent.”

This answer indicates that the 5-year forever clock started by the Roth IRA owner prior to his or her death will carry over to the beneficiary. The beneficiary, even a spouse beneficiary, does not have to restart the 5-year forever clock. Based on these guidelines for the Roth IRA clock post-death, it appears that an ex-spouse will have the same opportunity to carry over the clock when Roth IRA assets are transferred to him or her after a divorce. (The other Roth 5-year clock – the one for conversions – requires its own full article of explanation.)

Types of Roth IRA Dollars: Contributions, Conversions, Earnings. A Roth IRA can consist of three types of dollars: contributions, conversions, and earnings. When a Roth IRA is transferred upon divorce, it would seem logical that these assets would maintain the same character after transfer. Contributory dollars, conversion dollars and earnings should all remain as such, and should transfer to the receiving spouse based on the pro-rata rule. (You can’t just give your ex-spouse all the taxable Roth IRA earnings and keep the tax-free basis for yourself.)

This short article only scratches the surface of some items to consider when a Roth IRA is transferred after a divorce. Be sure to seek competent advice before making any moves, and document all decisions and transactions should the IRS ask questions.



By Sarah Brenner, JD
Director of Retirement Education

Whenever there is a new administration there is a lot of uncertainty about what the change will mean for retirement accounts. In 2021, this change is happening in the middle of a pandemic that has upended the lives of most Americans and created enormous economic and psychological stress. The result has been more speculation about the future of retirement accounts than usual.

Accountants like to say that the tax code is written in pencil. This is certainly true of the rules for retirement accounts. In recent years, we have seen the SECURE Act come and completely upend the rules for inherited IRAs. We have also seen more favorable rule changes over the years, such as the introduction of qualified charitable distributions (QCDs), new exceptions to the 10% early distribution penalty, and expanded eligibility for IRA and 401(k) contributions as well as for Roth conversions. The rules have changed in the past and can change in the future. Tax rates too have gone up and down in the past and will no doubt do so in the future.

Retirement account owners should always expect the possibility of change and stay up to date on potential new legislation or guidance. What those saving for retirement should not do, however, is panic. That is when retirement savings can be put in jeopardy. The advice of a knowledgeable financial advisor who is current on the latest developments can be very helpful in sorting through what is real and what is baseless speculation.

An example of baseless speculation that has come up in the past and has recently resurfaced is the claim that the government is planning to confiscate all IRAs and 401(k) plans. This is simply not true. There is no evidence that this has ever been proposed nor is it currently proposed. This type of rumor can be dangerous. An IRA owner who believes this completely unfounded claim may take drastic actions such as withdrawing funds or making risky investment choices that could leave her with large tax bills and no retirement savings.

These are challenging times. The best thing retirement savers can do is stay informed on any potential future rule changes. Plan proactively but stay calm. Stay up to date and get good advice. Don’t let false information lead you into making panicked decisions that could adversely affect your secure retirement.



By Andy Ives, CFP®, AIF®
IRA Analyst


I am going to turn 72 in December of 2021. When I take my RMD, what is the dollar amount I use to calculate my RMD? Is it the account value ending December 31, 2020, or December 31, 2021? Thank you for any clarification.




Since you turn 72 in December of this year, 2021 is your very first year for having to take a required minimum distribution (RMD). Your RMD will based on the value of your account as of December 31, 2020. Also, since 2021 is your first RMD, you can delay taking that first RMD until April 1, 2022. However, if you delay, you will be required to take two RMDs in 2022 – the 2021 RMD based on the December 31, 2020 balance, and the 2022 RMD based on the December 31, 2021 balance.


I know that workers over 70 ½ can now contribute to a traditional IRA. Can they contribute to a SIMPLE IRA? Thanks!




Yes, workers over age 70 ½ can contribute to a SIMPLE plan. Be aware that, while you can contribute to a SIMPLE plan over the age of 70 ½, if you are subject to RMDs, those dollars will also have to be withdrawn. That may create somewhat of a “revolving door” of contributions and required minimum distributions.



By Ian Berger, JD
IRA Analyst

One of the many unfortunate effects of the coronavirus pandemic is the number of folks who have lost their jobs. Besides the loss of income, many of these individuals also face unexpected and unpleasant tax consequences if they have an outstanding 401(k) plan loan.

If you leave your job (whether voluntarily or involuntarily) with an unpaid loan balance, your former employer may allow you a period of time to pay off the loan. But if you can’t (or don’t), the plan will reduce your vested account balance in order to recoup the unpaid amount. This is called a “loan offset.”

If you have a loan offset, you actually don’t receive anything. But the offset amount is considered a distribution potentially subject to tax and the 10% early distribution penalty if you’re under age 59 ½.  However, if you come up with the funds, you can avoid immediate tax and penalty by rolling over the offset amount to an IRA or another company plan.

Before 2018, the deadline for rollover of a loan offset was the usual 60 days. In the 2017 Tax Cuts and Jobs Act, Congress extended that deadline to the due date, plus extensions, of your federal tax return filing for the year the loan offset takes place. The IRS recently said that you can get the extended period to do a rollover even if you don’t request an extension for your filing.

In the year of the loan offset, your plan will issue you two Form 1099Rs – one for the loan offset amount and one for your remaining account balance.

Example: Maya, age 45, loses her job on February 15, 2021. She has a $85,000 401(k) account balance and a $20,000 outstanding loan balance. Maya is unable to repay the loan. She elects a direct rollover of her 401(k) account balance to an IRA. On March 31, 2021, the plan offsets her $85,000 account balance by the $20,000 loan balance and transfers $65,000 to her IRA.

Maya has until October 15, 2022 to replace and roll over the $20,000. Otherwise, she will have additional taxable income of $20,000 and a $2,000 penalty.

If you were affected by COVID-19 and meet the definition of a “qualified individual” under the CARES Act, you can treat a 2020 loan offset as a coronavirus-related distribution (CRD). This would give you three years to roll over the loan offset. The loan offset would also be exempt from the 10% early distribution penalty, and you could spread taxable income on it over three years.

Finally, don’t confuse a loan offset with a deemed distribution. A deemed distribution occurs when you violate one of the rules governing plan loans – for example, you stop repaying your loan while still working. Like a loan offset, a deemed distribution will subject you to taxes and possible penalty, but it isn’t eligible for rollover and isn’t considered a CRD.

The potential tax consequences when you leave your job should cause you to think long and hard before taking a loan from your company plan.



By Sarah Brenner, JD
Director of Retirement Educations



I am over 60 and have had a self-directed Roth IRA for the past 15 years. I would like to roll some of it over to another self-directed Roth where I could invest in crypto-currency. Is this possible? If so, how does the 5-year rule apply for the new Roth? Thank you!



Hi Steve,

It is possible to roll over or transfer Roth IRA funds to another Roth IRA. It is best to do a transfer to avoid problems with the 60-day and once-per-year rollover rules. There is nothing in the rules that prohibits a Roth IRA from being invested in cryptocurrency, although an account holder would need to decide if that is a wise investment choice in their situation.

The 5-year rule for qualified distributions of earnings from a Roth starts with your first Roth IRA contribution or conversion. It does not restart when funds are moved to another Roth IRA.


My question is as follows: I converted (no contributions were made) funds from my self-directed IRA to my Roth IRA, my age is over 59 ½, but my Roth IRA is only one year old. May I withdraw the conversion amount without the 10% penalty under the age exception to the five year rule?  So far I have received opinions from two CPAs which totally contradict each other. Thanks for your help.


This is a tricky area. There are two different 5-year rules for Roth IRAs. The first 5-year rule is for qualified distributions of earnings and it will apply regardless of your age. You will have to wait the full 5 years for those earnings to be tax free.

The second 5-year rule is for penalty-free distributions of converted dollars. This rule only applies when you are under age 59 ½. Because you are age 60, you do not need to worry about this rule. Even though you have only had the Roth IRA for a year, any distribution of converted funds would be penalty-free.



By Andy Ives, CFP®, AIF®
IRA Analyst

It is early 2021 and two ingredients mix again: retirement money in motion, and required minimum distributions (RMDs). This may not appear to be a dangerous concoction, but when improperly combined, the results can be a bitter beverage.

Required minimum distributions cannot be rolled over, period. Yes, last year was different in that RMDs were waived and account owners subject to RMDs could return those unwanted payments. However, technically what was being returned was a normal distribution. The RMD label on the distribution was magically erased by the CARES Act. Returning an unwanted RMD to an IRA or plan was essentially just a rollover.

Now that RMDs are back in effect, if they are paid out, they must stay paid out. There is no going back. With that said, it is imperative to understand the “first dollars out” rule. When a retirement account owner is subject to RMDs, the first dollars withdrawn from the account are deemed to be the RMD.

Example: Bob has an IRA with a $10,000 RMD for 2021. Bob’s account is set to automatically send him his entire RMD in December. Bob takes a distribution of $2,000 in March to cover the costs of building a home tiki bar. These are the first dollars out of Bob’s IRA. As such, Bob has just taken $2,000 of his 2021 RMD. Since the $2,000 is RMD dollars, Bob cannot roll those dollars over to a new IRA or return them to his existing IRA.

Where retirement account owners often spill their drink is when they try to move all or a portion of an IRA or work plan prior to taking their RMD. How the money moves matters. If an IRA owner does a direct transfer (whereby the IRA is sent directly from one custodian to another), the RMD can travel along with the transfer. However, if the same person originally chose to move the IRA to the new custodian via a 60-rollover, the RMD amount cannot be included in the amount that is rolled over. It must be retained by the account owner.

The requirement to take the RMD prior to the rollover also rears its head when plan participants – like those in a 401(k) – attempt to move their old work plan to an IRA. A plan RMD cannot be rolled to the IRA. The idea of rolling over a plan balance and then taking the plan RMD from the IRA after the rollover is flawed. The plan RMD is not allowed to enter the IRA, and the first dollars out rule applies. Hopefully, the plan custodian will recognize the situation upon receiving the rollover request and will issue two checks – one for the RMD and one for the remaining balance to be rolled over.

If an RMD is erroneously rolled over, it is not the end of the world. The RMD amount is deemed an excess contribution and must be removed under the excess contribution rules. Prior to October 15 of the year after the year of the excess contribution, the excess plus “net income attributable” must be withdrawn. The earnings will be taxable. If you miss the October 15 deadline, the excess must still be removed, but there will be an additional 6% penalty applied to that excess.

Understanding the rules makes for a sweet elixir. Enjoy your RMD/rollover cocktail!



By Sarah Brenner, JD
Director of Retirement Education

A Simplified Employee Pension (SEP) is a popular choice for many small employers. Although these plans are in fact designed to be less complex than other types of retirement plans, there are many ways to go wrong and make errors.  Here are three tips to avoid tax problems with your SEP.

1. Execute the SEP Documents.

Who cares about paperwork? If you are an entrepreneur establishing SEP IRA plan for your rapidly growing business, that may be the last thing on your mind. But guess who does? Yes, the IRS. There are two separate documents needed to run a SEP IRA plan. If both are not executed properly, then both you and your employees could be looking at some serious tax problems.

The first document is the plan document that the employer must fill out. The employer must complete a SEP agreement, which describes the SEP plan features and eligibility rules. The employer then has to give a copy of this completed document to the employees. Often, employers use the IRS model SEP agreement – IRS Form 5305-SEP. Some employers use prototype SEP agreements which are written and sent to the IRS for approval, usually by a financial organization. You do not need to send the agreement to the IRS, but you will want to keep it with your records and use it as a reference since it sets out the plan terms.

The second part of a SEP agreement is the IRA that receives the employer SEP contributions. Every employee who is eligible to participate in the SEP, including the business owner, must establish an IRA to receive the SEP contributions.

2. Update the SEP Plan.

Many employers will get it right at first. They will complete a SEP agreement and their employees will establish IRAs. However, the job does not end there. A common error with SEPs involves the agreements not being amended at all or not in a timely fashion. To find this mistake, if you are using the IRS Form 5305-SEP as your plan document, check the latest revision date in the top left-hand corner. The most recent version is dated December 2004. Anything earlier than December 2004 could indicate a problem. If you chose to use a prototype document to establish your SEP IRA plan, contact the financial institution offering the plan for a letter stating that the IRS approved the plan for current law.

3. Fix Mistakes.

What if your SEP IRA plan agreement has not been updated? This is a problem that can be fixed. The IRS has many resources and programs available to help. It is much easier and less expensive to correct the error before the IRS finds it in an audit. If you have questions about your SEP IRA plan and possible document mistakes, the best place to start is a consultation with tax or financial advisor who is knowledgeable about the SEP IRA plan rules.



By Ian Berger, JD
IRA Analyst

The Internal Revenue Code is over 4,000 pages of often unintelligible tax jargon. So, it shouldn’t surprise anyone that the law contains more than its share of baffling and inconsistent provisions.

Here are four examples pertaining to IRAs and company retirement plans:

1. Non-spouse beneficiary Roth conversions. In 2006, Congress revised the tax code to allow non-spouse company plan beneficiaries to convert plan balances to inherited Roth IRAs. (These beneficiaries can also directly roll over funds to inherited traditional IRAs.). Although well-meaning, this change unintentionally created an inconsistency between non-spouse plan beneficiaries and non-spouse IRA beneficiaries. While the former group can convert plan balances to inherited Roth IRAs, the latter can’t convert IRA balances. There’s no logic to this different treatment.

2. Correcting excess IRA contributions. An excess IRA contribution can occur when you exceed the annual IRA contribution limit or make Roth IRA contributions when your income is too high. Excess contributions are subject to a 6% penalty each year the excess remains in the IRA. But you can avoid that penalty by removing the excess amount, along with associated earnings or losses (called “net income attributable” or “NIA”) by October 15 of the next year. What’s strange is that if you fix the excess contribution after the October 15 deadline and pay the 6% penalty, only the excess amount – and not the NIA – needs to be withdrawn.  Makes no sense, but that’s what the tax code says.

3. NUA triggering events. If you’re a 401(k) participant with highly appreciated company stock in the plan, the net unrealized appreciation (NUA) strategy is worth considering. It allows you to defer tax on the stock’s appreciation until you sell it, and your tax is based on favorable long-term capital gains rates. One condition for using the NUA tax break is that you have a triggering event. These include reaching age 59 ½ and death. If you’re a regular employee, another triggering event is separation from service. But if you’re self-employed, separation from service is not a trigger, but disability is. It’s not obvious why there are two sets of triggering events. (Since the “disability” definition is so strict, maybe Congress assumed someone with a disability would always have a separation from service. But that isn’t always true.)

4. 10% penalty exceptions. If you’re under 59 ½, you may be hit with a 10% penalty when you receive an IRA or workplace plan distribution. Over the years Congress has carved out a number of exceptions to that penalty. Fair enough, but some of the exceptions (like disability or medical expenses) apply to both IRAs and plans, while some (like higher education and first-time homebuyer expenses) apply only to IRAs. There’s no rhyme or reason to this, and folks often wind up stuck with the penalty because an exception they thought was available didn’t actually apply.



By Ian Berger, JD
IRA Analyst


I hope you can help me with this, as I cannot find the answer anywhere or from anyone.

In 2019, my client Frank, passed away. His cousin, Lisa, inherited his IRA. In 2020, Lisa passed away. Her husband, Rob, inherited the IRA. They are all the same age.

Do distributions fall under the 2020 rule or the 2019 rule?

One of the exceptions to the 2020 rule is if the beneficiary is not more than 10 years younger than the original IRA owner, and Rob is not. So, are distributions based on life expectancy

Thank you for any guidance you can provide.



Hi Denise,

Unfortunately, not. Rob would be considered a “successor beneficiary” – a beneficiary of a beneficiary. A successor beneficiary who inherits in 2020 is subject to the 10-year payout rule (not the life expectancy rule) – even if the first beneficiary (Lisa) was using the life expectancy rule.


My husband has a 401(k) that has some funds that are Roth 401(k) and some that are traditional 401(k). When he retires, will he transfer these to two different IRAs (regular and Roth) or will they go into one account where we will have to allocate withdrawals according to the percentage of the two types of funds?



Hi Renee,

Your husband can (and should) directly roll over the Roth 401(k) funds into a Roth IRA and the pre-tax 401(k) funds into a separate traditional IRA. Assuming he is 59 ½, or older, distributions from the Roth IRA would be completely tax-free once he has held that Roth IRA (or any Roth IRA) for at least five years.



By Andy Ives, CFP®, AIF®
IRA Analyst

Here we go again…barreling headlong into another tax season. This year will be like no other. With all the crazy that was 2020, many tax filers will discover some new and interesting items on their tax returns. For example – did you take a Coronavirus-related distribution (CRD) last year? That will require some additional reporting (Form 8915-E). Did you take your required minimum distribution in 2020, but then repay it after the CARES Act RMD waiver? That will generate a form you may not be familiar with (Form 5498).

Sadly, millions of Americans also received unemployment benefits in 2020, many for the very first time. That, too, will create some new tax questions. One popular inquiry: “Do unemployment benefits count as compensation for IRA eligibility?” They do not. If unemployment was a person’s only income last year, they are not eligible to make a 2020 IRA or Roth IRA contribution.

Below is a general list of what typically does and does not count as “compensation” for IRA contribution eligibility. Hopefully, this will answer a few questions during what is anticipated to be an unusual and complicated tax filing season.

What DOES Count as Compensation

· Salaries and wages (of course), tips, and bonuses

· Earned income from self-employment also counts

· Royalties

· Commissions

· Taxable alimony (Be careful here. The alimony and tax rules recently changed.)

· Taxable non-tuition fellowship and stipend payments, and difficulty-of-care payments for foster care workers (These are new under the SECURE Act.)

What Does NOT Count as Compensation

· Unemployment compensation (as already mentioned)

· Interest income does not count, nor do dividends on stocks, bonds or other investments

· Capital gains from the sale of property does not count, nor does rental income

· Deferred compensation

· Pension, profit sharing, or IRA distributions do not count

· Life insurance proceeds

· Disability insurance income

· Child support

· And a popular one…Social Security does not count as compensation.

Of course, every situation is different, and you may have a type of income not included in the list above. If you have questions on any 2020 tax-related issues (including your IRA eligibility status), the best bet is to consult your financial advisor and/or CPA for guidance.



By Sarah Brenner, JD
Director of Retirement Education

The rules for rolling over IRA distributions can be complicated at any time of the year. They are especially challenging at the end of the calendar year.

Surprisingly, sometimes IRA owners have doubts as to whether a distribution taken in one calendar year can even be rolled over in the next. There is no problem with this! Nothing prevents you from taking an IRA distribution in December, 2020 and rolling it over in January, 2021, as long as you follow all the usual rollover rules that always apply.

Reporting the Rollover

Another concern you may have is how to handle a distribution from your IRA in 2020 that you roll over in 2021 on your tax return. Do you report this transaction on your 2020 tax return or wait for 2021?

Here is how it works:

  • The custodian paying out the IRA will report the distribution on a 2020 Form 1099-R.
  • The rollover will be reported by the receiving IRA custodian on a 2021 Form 5498.
  • You will report the distribution and the rollover on your 2020 federal income tax return.

Once-Per-Year Rollover Rule

Don’t fall for a common misunderstanding of the one-rollover-per-year rule. The rule says that you may only roll over one distribution from all of your IRAs in a one-year period. The one rollover per year does not apply on a calendar year basis. It begins with the date you receive the distribution you later roll over. A new calendar year does not get you a clean slate. If you take an IRA distribution on December 15, 2020 and roll it over in January, 2021, you may not roll over another IRA distribution that you receive before December 16, 2021.

2021 RMD Concerns

RMDs were waived for 2020, but they are back for 2021. A rollover that is outstanding at the end of the year can affect your 2021 RMD. If you take a distribution in 2020 and complete a rollover of those funds in 2021, you must include the amount rolled over in your December 31, 2020 fair market value when calculating your 2021 RMD. This rule prevents IRA owners from avoiding RMDs by having an IRA balance of zero on December 31. You cannot escape your RMD by emptying out your IRA in December and then rolling over the funds in January.



By Sarah Brenner, JD
Director of Retirement Education


We had a client who died with no beneficiaries on his $500k 401(k). He wasn’t married and only 45 years old. His parents are disclaiming rights to the inheritance, so it’s going to his siblings. Is there any way these two siblings can stretch the retirement account into an inherited IRA? If so, what does that look like?




Hi Patrick,

The siblings may still be able to use the stretch even after the SECURE Act eliminated it for most beneficiaries. Their first step should be directly rolling over the funds to inherited IRAs. It is very important that the funds move directly from the 401(k) to the inherited IRAs. This is because nonspouse beneficiaries cannot roll over distributions that are paid to them.

While the SECURE Act does eliminate the stretch for most beneficiaries, it does carve out an exception for those beneficiaries who are not more than ten years younger than the deceased account holder. If these siblings meet this definition – even if they are older than their deceased brother – then required minimum distributions can be stretched over their own life expectancy.

Good luck and I hope this helps!


Hi Ed,

I have heard that if you make a deductible contribution to a traditional IRA it can reduce the value of your qualified charitable distribution. Is the same thing true if you make a SEP contribution?


The SECURE Act removed the age limit for traditional IRA contributions, but unfortunately it also gave us a complicated rule limiting qualified charitable distributions (QCDs) when an IRA owner makes deductible traditional IRA contributions after age 70 ½. This tricky rule is limited to deductible traditional IRA contribution and does not apply to SEP contributions. Your SEP contribution will not affect your QCD. (Be careful, a QCD cannot be done from an active SEP.)



By Ian Berger, JD
IRA Analyst

Coronavirus-related distributions (CRDs) are no more. Millions of Americans took advantage of the opportunity to make penalty-free withdrawals from their IRAs and 401(k) plans in 2020. But unless Congress resurrects them, CRDs are no longer available.

Yet the economic damage caused by the pandemic is still very much with us. So, without CRDs, where do you turn for money to pay your bills?

Non-retirement funds. Non-retirement plan savings should always be the first place to look. That way, you can preserve the savings earmarked for retirement as long as possible. Any IRA or company plan savings you withdraw from will mean less funds available at retirement.

IRAs. However, if you are forced to tap into your retirement savings, IRAs should be assessed first. Withdrawing from your IRA is easy and can be done at any time and for any reason. Of course, pre-tax IRAs withdrawals are taxable and, if you are under 59½, may be subject to the 10% early distribution penalty.

Company plan loans. If you have no IRA funds, look next to your 401(k) or other employer plan account. If your plan offers loans, consider that option. Plan loans can be made for any reason, and you can borrow up to 50% of your account balance (up to $50,000). You won’t have to undergo a credit check, and the application process is usually simple and quick. Even better, a plan loan isn’t a taxable distribution.

On the other hand, the funds you borrow against will temporarily miss out on tax-deferred growth. And, if you leave your employer with a loan outstanding, you may be hit with taxes on the unpaid loan amount.

Company plan withdrawals. If your plan doesn’t offer loans or you don’t want to take on more debt, an in-service withdrawal may be the answer. Many plans allow you to withdraw from your account at 59½ for any reason and on account of certain hardships at any age.

Hardship withdrawals are allowed if you can satisfy one of the IRS “safe harbor” criteria. These include: medical expenses; homebuying expenses; educational expenses; burial or funeral expenses; payments necessary to prevent eviction or mortgage foreclosure; and expenses to fix home damage. Also included are expenses incurred on account of a disaster if you live or work in a FEMA-designated disaster area. All 50 states have been designated disaster areas because of COVID-19. So, you should be able to get a hardship withdrawal to pay for virus-related expenses if your plan allows them. However, you can never withdraw more than is necessary to pay your expenses.

Any withdrawal of pre-tax accounts will be taxable and, if you are under 59 ½, may be subject to a 10% penalty.

As with loans, if considering a withdrawal, carefully weigh the need for these funds against the loss of tax-deferred growth in your savings plan account.



By Andy Ives, CFP®, AIF®
IRA Analyst

As we enter tax season and consider last year’s transactions, it bears repeating: Roth IRA contributions can be recharacterized, Roth conversions cannot.

A Roth IRA contribution can be recharacterized (changed) to a Traditional IRA contribution. The opposite is also true. A Traditional IRA contribution can be recharacterized to a Roth contribution. This can be done for any reason. As long as the recharacterization is done by October 15th of the year after the contribution, it is a perfectly acceptable transaction in the eyes of the IRS. The original contribution and associated earnings will appear to have gone to the proper account from the very beginning. Do not overlook the value of this tool.

Why would someone want or need to recharacterize an IRA contribution? Maybe they contributed to a Roth IRA, but then realized they were over the Roth IRA contribution limits ($196,000 – $206,000 for joint filers in 2020; $124,000 – $139,000 for single). Maybe they contributed to a Traditional IRA, but later discovered they could not deduct the contribution due to their income level and participation in a work plan like a 401(k). In such a case a Roth IRA could make more sense.

Regardless of the reason for the change, know that the excess contribution or deposit into the “wrong” type of IRA can be corrected with recharacterization. An excess contribution withdrawal is not the only fix. However, if the decision is made to actually remove the unwanted contribution as an excess, the contributed amount plus the net income attributable (NIA) must be withdrawn (if processed before the deadline). There is a worksheet in IRS Publication 590-A that can help calculate the NIA. To avoid both the 6% excess penalty and the need to file Form 5329, be sure the excess plus NIA is withdrawn by October 15 of the year after the excess contribution, and that the distribution is properly coded.

Recharacterization of a contribution sure sounds a lot easier, doesn’t it? Plus, a person gets to keep their money in an IRA, regardless of the type of IRA.

Example: Max, age 30, is eager to start saving for retirement. He has never had an IRA before, and proudly contributes $6,000 to a Roth IRA. Max loves the idea of tax-free growth. Sadly, he learns a few months later that his high income disqualifies him from contributing to a Roth IRA directly. Max seeks the advice of a financial advisor who informs Max that all is not lost. The advisor recommends that Max recharacterize the Roth IRA contribution to a non-deductible Traditional IRA contribution.

Max agrees, but he had his heart set on a Roth IRA. Fortunately, Max’s advisor is on the ball. She tells Max that after the recharacterization to a non-deductible Traditional IRA, they will file Form 8606 to claim the basis. They will then do a Backdoor Roth conversion to get all those dollars into the Roth IRA. Since Max has no other IRA, SEP or SIMPLE plans, the pro-rata rule says this will be a largely tax-free conversion. (Max will have to pay the conversion taxes on the small amount of earnings on his original $6,000.) Regardless, Max is ecstatic.

Recharacterization of an IRA contribution. Still an important tool in the toolbox!



By Andy Ives, CFP®, AIF®
IRA Analyst


I recently retired and I plan to relocate to Tennessee. I would like to purchase a new home. Can I pull funds from my IRA to do so, and what would be the implications? Thank you.




If you are over 59 ½, you have full access to your IRA dollars with no strings attached – other than having to pay taxes on the distribution. If you want to withdraw some dollars to buy a new home, then go for it. However, if you are under age 59 ½, then there would be a 10% penalty on any early IRA distribution (plus taxes due) unless an exception existed. There is an exception for a first-time home buyer. A “first-time home buyer” doesn’t necessarily mean this is the first home you have ever purchased. It means you (and your spouse, if married) did not own a principal residence within the previous 2 years. Be aware that the lifetime first-time home buyer distribution is limited to only $10,000.


Dear Sir,

In 2020, I converted $20,000 from a Traditional IRA to a Roth IRA. Can I recharacterize that amount from the Roth IRA back to a Traditional IRA? I appreciate your help.


Unfortunately, Roth conversions can no longer be recharacterized (undone). The $20,000 will be reported as taxable income for 2020 – there is no reversing the transaction.



By Sarah Brenner, JD
Director of Retirement Education

The SECURE Act made many changes to the rules for beneficiaries who inherit retirement accounts. One of the most significant ones is the end of the stretch IRA for most beneficiaries. However, there are some beneficiaries called “eligible designated beneficiaries” (EDBs) who can still use the stretch.  How well do you understand this new class of beneficiaries? Take our quick quiz. The answer may surprise you.

Is the following statement true or false?

Greta, age 72, inherits an IRA from her sister Emma, age 67. Greta is an eligible designated beneficiary and can stretch RMDs from the inherited IRA over her life expectancy.

The answer is true. Under the SECURE Act, EDBs can still stretch RMDs over their own life expectancy. There are five classes of EDBs. They include surviving spouses, minor children of the account owner, disabled individuals, the chronically ill, and beneficiaries not more than ten years younger than the IRA owner.

The last group can be confusing. The requirement is that the beneficiary cannot be more than ten years younger than the IRA owner. This would include those beneficiaries who are, in fact, older than the IRA owner because they are not more than ten years younger. The only requirement is that the beneficiary cannot be more than ten years younger to be an EDB. There is no limitation on beneficiaries who are older than the IRA owner.

This slightly confusing rule allowing those not more than ten years younger to be EDBs is good news for many beneficiaries. It is not hard to think of a lot of groups who could fit into this category. Siblings, friends, and partners who are not married would likely be close in age and therefore considered EDBs. This would allow them to use the stretch under the SECURE Act.



By Ian Berger, JD
IRA Analyst

There’s been some confusion about the retirement plan aspects of the COVID-19 stimulus package signed into law on December 27, 2020.

One national news network has reported that the new law extends the CARES Act tax breaks for coronavirus-related distributions (CRDs) into 2021. This is incorrect! At least for the moment, CRDs are no longer available.

The new law does include retirement plan tax breaks for non-COVID-19 disaster declarations, like fires or hurricanes. Those breaks are the same breaks Congress provided in prior disaster relief legislation and in the CARES Act for CRDs.

Individuals affected by a declared disaster (other than COVID-19) can take up to $100,000 of “qualified disaster distributions” annually from IRAs and company plans. The distributions would be exempt from the 10% early distribution penalty, taxable income could be spread ratably over three years, and the distribution could be repaid within three years.

The legislation also includes the same relief for plan loans made on account of a covered disaster that we saw in prior legislation. The limit for plan loans is doubled to $100,000 (but no more than 100% of the vested account balance). In addition, loan repayments due in the 180-day period after the disaster can be suspended.

Again, none of this relief applies to COVID-related distributions or loans taken in 2021.

The new law also does not extend the waiver of required minimum distributions (RMDs) into 2021. So, for 2021, RMDs will once again be due. There is no need to “make up” the 2020 RMD that was waived. Simply proceed into 2021 as if the 2020 waiver never happened. Calculate your 2021 RMD using your 12/31/2020 balance like any normal year.

The stimulus package does provide one retirement-related perk. It extends the 7.5% threshold for deductible medical expenses into 2021 and future years. (The SECURE Act had temporarily extended the 7.5% threshold for 2019 and 2020 only.) There is a 10% early distribution penalty for under age 59 ½ IRA or plan withdrawals. But the penalty doesn’t apply if the withdrawal is for medical expenses that the IRA owner or plan participant could deduct on her tax return if she were itemizing deductions. Since medical expenses can be deducted if they exceed 7.5% of adjusted gross income, withdrawals for expenses higher than the 7.5% threshold can be withdrawn penalty-free.



By Andy Ives, CFP®, AIF®
IRA Analyst

We are just a few days into the new year, and many people are anxious to get their full IRA contributions in for 2021. However, a common question is, “It’s only the first week of the year and I haven’t received a paycheck yet. Can I still make my contribution now, or do I need to wait until I actually have earned income?”

There is no need to wait. You can go ahead and make an IRA contribution now if you’d like, with the expectation that you will have enough earned income by the end of the year. Anyone who wants to contribute up to the maximum $6,000 (plus another $1,000 for those age 50 and over) is good-to-go if they have at least that much earned income by year end.

The IRS will essentially “look back” over the year to see what happened in its entirety to determine certain transactions. This is beneficial when it comes to IRA contributions, as outlined above. Considering the year in its entirety will also impact recharacterizing a contribution.

Example 1: Anthony makes a $6,000 Roth IRA contribution in January. Later that year in November, he receives a large and unexpected bonus from work, which pushes Anthony over the Roth income limits for eligibility. Fortunately, he is not locked into or penalized for what would have been an excess contribution to the Roth IRA way back in January. Since the IRS considers Anthony’s entire year of income (they “look back”), Anthony has time to make the fix. Anthony decides to recharacterize his earlier Roth IRA contribution to a non-deductible traditional IRA.

There are other situations where “looking back” can negatively impact a transaction. The pro-rata rule can completely disrupt the best laid plans.

Example 2: Kaci has $20,000 in her IRA which is made up entirely of basis (after-tax dollars). She has no other IRAs, SEP or SIMPLE plans. Kaci does a Roth conversion of the full $20,000 IRA with the proper expectation that this will be a tax-free conversion. No tax due.

Kaci also has a $180,000 401(k) which consists entirely of pre-tax dollars. Where Kaci goes wrong is, later that same year in December, she rolls the full $180,000 pre-tax 401(k) into her IRA. She thinks that since she already did the Roth conversion well before the rollover, she is in the clear. Unfortunately for Kaci, the pro-rata rule will look back over the entire year. The rule dictates that Kaci had a $200,000 IRA with $20,000 basis – a 90/10 split. Every Roth conversion that year will be 90% taxable.

As such, Kaci’s $20,000 Roth conversion now generates taxable income of $18,000. Had she simply waited until the following year to roll over the 401(k), her Roth conversion would have stayed out of the unblinking look-back eyes of the IRS and remained 100% tax-free.

Know that the “look back” rules can be a positive force, such as when you want to make an IRA contribution early in the year. However, be careful when it comes to pro-rata and Roth conversions. In those situations, the same IRS look back rules could sneak up on you.



By Sarah Brenner, JD
Director of Retirement Education

A new year brings a fresh start, and after 2020, we need that more than ever. You probably have a few resolutions for 2021. When making your list of goals for the new year, don’t overlook your IRA. Here are a few suggestions for your IRA for 2021.

1. Act sooner, rather than later. Thinking about making an IRA contribution? You have until the tax-filing deadline, including extensions, to get it done. This means you can still make your 2020 IRA contribution anytime until April 15, 2021. But why wait until the last minute? Get it done sooner. By doing so, you will not only avoid last-minute problems but also allow your IRA to grow faster. While you’re at it, why not consider making your contribution for 2021 at the same time? Making your contributions early can produce a surprising difference in the amount you will have saved in your IRA when you retire.

RMDs were waived for 2020, but they are back for 2021. If you are required to take an RMD for 2021, why not apply the same “get it done” philosophy? While some rare individuals may have valid reasons for delaying their RMD until the last minute, it usually makes sense not to wait that long. A missed RMD can result in a 50% penalty. You don’t want to mess around here. Get that RMD out sooner rather than later.

2. Consult an expert about a conversion. Anyone with a traditional IRA can convert that IRA to a Roth IRA. Does that mean everybody should? No, but it is worth at least going through an analysis each year to decide whether a conversion is right for you. Your tax situation may be different from year to year. A conversion that did not make sense last year might in 2021. This may be the year that the trade-off of paying taxes now for future tax-free Roth IRA earnings is worthwhile.

You have worked hard to save money in your IRA. A conversion is a big step, and recent tax law changes have made every conversion permanent. Consider consulting a financial or tax professional to help you decide whether a conversion is the right step.

3. Move your money the right way. Not happy with your current IRA investments? Changing investments may make sense but if 2021 is your year to move on, be sure to make your move the right way. Go with a trustee-to-trustee transfer and have your IRA funds move directly if you are choosing new investments with a new IRA custodian. Avoid having the funds paid to you. Direct transfers between IRAs avoid lots of hassles like the 60-day rollover rule and the once-per year rollover rule.

4. Revisit your IRA beneficiary designation. There is one form that you can use to control the fate of your IRA after your death. That is the IRA beneficiary designation form. If you want to ensure your hard-earned retirement savings end up in the right hands down the road, make sure this form is up-to-date and safely in the hands of the IRA custodian. Recent law changes such as the SECURE Act, as well as life events, may mean your beneficiary form is out of date. Spend some time in 2021 checking this form to be certain it accurately reflects your current wishes.

5. Take advantage of QCDs and other IRA tax breaks. IRA rules can be complicated. Be sure you are not missing out on important benefits by becoming informed of what options are out there. Are you over age 70 ½ and charitably inclined? You may want to consider a Qualified Charitable Distribution (QCD). Have you thought about a Qualifying Longevity Annuity Contract (QLAC)? Are you looking to use funds in your IRA to purchase your first home? In 2021, make a plan to learn more about what you can do with your IRA.

6. Expect the Unexpected. The tax rules, including the IRA rules, are always changing. Every year brings new twists, but 2021 is likely to bring more change than usual. IRS guidance on recent rule changes and a new administration and Congress could have a big impact on your IRA. Stay tuned for the changes ahead.



By Sarah Brenner, JD
Director of Retirement Education


Can a retired person not working contribute to a Roth IRA?


There are no age limits for Roth IRA contributions. This allows older people to contribute. However, the rules do require earned income. For example, income from a part time job would work. If you are married and your spouse has earned income, you can also make a spousal contribution to a Roth IRA based on your spouse’s earned income.


Regarding the 10-year requirement to empty inherited IRAs under the SECURE Act, is it 10 years from date of death or the end of the tenth year following the year of death


The 10-year rule under the SECURE Act requires an inherited IRA to be emptied by December 31 of the tenth year following the year of death. It does not require the account to distributed by the tenth anniversary of the death. For example, if an IRA owner died on February 17, 2020, then the inherited IRA would need to be completely distributed by December 31, 2030.



By Ian Berger, JD
IRA Analyst

From The Slott Report, December 30, 2019:

2020 promises to be an exciting year in the IRA and savings plan worlds, as the full ramifications of the new SECURE Act begin to take shape. Beyond that, the IRS will likely finalize the new life expectancy tables expected to become effective in 2021. And who knows what other IRS guidance and momentous court decisions will be coming our way?

2020 was far from an “exciting year” in the retirement plan world (or in any other world for that matter). And it turns out the IRS didn’t get around to issuing regulations answering the many unknown SECURE Act questions. Finally, the new life expectancy tables won’t become effective in 2021 after all. (They were delayed until 2022.)

So much for predictions.

This time, rather than trying to forecast what might happen in the upcoming year, we will simply thank you, our loyal audience, for reading The Slott Report and wish all of you a healthy and happy 2021.



By Andy Ives, CFP®, AIF®
IRA Analyst

Ah, the end of the year. Snow is drifting, music plays quietly in the background. Ma in her kerchief, Papa in his cap, just settling down for a long winter’s nap…

Nope. No time for that. ‘Tis the season of BUSY, BUSY, BUSY!

Did you write a check to a charity from your checkbook IRA in hopes that it would be a qualified charitable distribution (QCD) for 2020? If so, you better make sure the charity in fact CASHES the check before the end of the year. The IRA custodian will not reflect a debit from the IRA account until the check is cashed. Even if you hand-delivered the check to the charity in 2020, if it isn’t cashed in time, it will not count as a 2020 QCD.

Busy, busy, busy!

Did you notice what was NOT included in any of the year-end legislation that has been kicking around Washington? How about an extension of coronavirus-related distributions (CRDs)? As of now the availability of CRDs has not been extended to 2021. So, if you want to withdraw up to $100,000 from an IRA or workplace retirement plan as a CRD…you need to get it done by Wednesday, December 30. You do not have until the end of the year.

Busy, busy, busy!

Are you still working and leveraging the still-working exception on your 401(k) to avoid taking RMDs? If so – excellent planning! I’m sure you also realize there is NO still-working exception on IRAs, right? If you want to minimize a 2021 RMD on your IRA by rolling the pre-tax IRA dollars into your 401(k) with the still-working exception, you better send that package! The plan must allow rollovers in, and the dollars need to be out of the IRA by the end of the year. Otherwise, if you still have an IRA balance as of December 31, then “Hello, IRA RMD!”

Busy, busy, busy!

Did you enjoy having no RMD in 2020 due to the CARES Act waiver? Are you trying to avoid a 2021 RMD by withdrawing all your IRA money now with the idea of rolling it back within 60 days? Since this will create a $0 year-end balance, do you think this will beat the RMD system? Oh, you scheming little elf! That won’t work. The IRS says that outstanding rollovers and transfers must be added back to calculate the proper RMD. Might as well return those dollars to your IRA before the end of the year to avoid the mathematical hassles.

Busy, busy, busy!



By Andy Ives, CFP®, AIF®
IRA Analyst


Recently, I received two checks, one for all assets in a Traditional IRA and one for all assets in a Roth. Mindful of the 60-day rollover rules, I endorsed one of them to my brokerage company to complete an IRA-to-IRA transfer. When attempting to do the same with the Roth funds, I was told that this would create another rollover and run afoul of the IRS “one-every-12-months” requirement.  I was under the impression that, being separate funds, that each represented different money and, therefore not be in violation. Am I right? Clock ticking. Please advise ASAP.

Thank you.


What you were told is correct. Had you completed both transactions, you would have violated the one-rollover-per-year rule. It does not matter that the funds came from different IRAs. The IRS looks at all of a person’s traditional IRAs and Roth IRAs as one IRA when it comes to rollovers. Unfortunately, there is no fix for this situation. Since the traditional IRA dollars have already been rolled over, and since the Roth IRA dollars have already been distributed to you, we are stuck with the Roth IRA check. It can’t be rolled over to a new Roth IRA, it can’t be rolled back to the old Roth IRA, and it can’t be rolled to a work plan, like a Roth 401(k). It pains me to say it, but this will have to remain as a full distribution of your Roth IRA.


I understand that I need not take any RMD this year in 2020. However, I took monthly distributions from January to May. Can I credit them to 2021?





A valiant effort, but no, the distributions you took in early 2020 cannot be credited toward 2021. You will need to start fresh next year with a new RMD amount based on the value of your account on December 31, 2020.



By Sarah Brenner, JD
Director of Retirement Education

We at the Slott Report would like to wish all our readers a happy and safe holiday season. 2020 has been a year like no other. Thank you for taking your valuable time to read the Slott Report during this challenging period.

The end of the year is always a time to look back. 2020 has been a busy year at the Slott Report. In January, the SECURE Act became effective and changed the retirement account landscape. We said a sad good-bye to the stretch IRA for many beneficiaries and we welcomed new planning opportunities such as delayed RMDs, the end of age restrictions on traditional IRA contributions, and the flexibility of the new 10-year payout rule for inherited accounts.

Just when we were getting the hang of the new SECURE Act rules, everything changed in March of 2020 with the arrival of the coronavirus pandemic. In response to the devastation wrought by the virus, Congress enacted the CARES Act. At the Slott Report we weighed in on the new law’s impact on retirement accounts by exploring a wide range of topics – from rolling over unneeded 2020 RMDs to taking penalty-free coronavirus related distributions from retirement accounts.

We look forward to 2021 and we are hopeful that brighter days are ahead. For retirement accounts the new year promises to be busy and exciting. We look forward to hopefully more SECURE Act guidance. There is a package of retirement account proposals expected to be on the agenda when Congress reconvenes which could impact IRAs and other retirement accounts – and that’s just the start. A new administration brings the potential for many changes, and we will be watching closely.

We hope you continue to check in with the Slott Report as 2021 unfolds for the latest retirement account news and information. Throughout the year we have heard from many of you. We welcome your questions and input. Keep it coming in 2021!



By Ian Berger, JD
IRA Analyst

One year ago from yesterday (December 20, 2019), President Trump signed into law the SECURE Act. At that time, virtually no one had heard of the coronavirus and certainly very few (if any) could have foreseen the global pandemic that’s still very much with us. The onset of the pandemic led Congress last March to also pass the CARES Act, which included certain emergency relief provisions for IRAs and company plans.

Because of the CARES Act, the significance of the SECURE Act has been overshadowed. But while the CARES Act retirement plan relief will expire by the end of this year, the SECURE Act will have significant long-range ramifications.

So, for those of you who may have forgotten, here’s a refresher course on the most important SECURE Act changes:

1. Eliminating the age 70 ½ limit for IRA contributions. Effective for 2020 contributions, those of you 70 ½ or older have the same opportunity as younger folks to make traditional IRA contributions. One indirect (and probably unintended) consequence of this change is that older persons who earn too much to make Roth IRA contributions directly can now use the “backdoor” method to make a traditional IRA contribution and convert it to a Roth IRA.

2. Raising the RMD age to 72. If you were born after June 30, 1949, you can delay required minimum distributions (RMDs) until the year you reach age 72. (You can even further delay your first RMD until the following April 1, but then you’d have two RMDs due in that following year.) For individuals born before July 1, 1949, age 70 ½ is still the first RMD year.

3. Allowing withdrawals for qualified births or adoptions. Starting this year, IRA owners or plan participants can make penalty-free withdrawals of up to $5,000 for each newborn or adopted child. (Married couples can each take up to $5,000 for the same child.) The funds must be taken out within one year of the birth or the adoption, but don’t have to be used for childcare expenses. Although exempt from the 10% early distribution penalty, birth or adoption withdrawals are still taxable. However, they can be repaid at any future time.

4. Promoting annuities in 401(k) plans. The SECURE Act makes it easier for companies with 401(k) plans to offer annuities as an investment option (like mutual funds) or as a distribution option (like a lump sum payment).  Employees with 401(k) annuities were also given new portability options.

5. Eliminating the stretch IRA.  Perhaps the most significant change was the elimination of the stretch option for most non-spouse beneficiaries of IRAs and company plans. Before the SECURE Act, beneficiaries who inherited before 2020 could spread out distributions over their life expectancy. These grandfathered beneficiaries can continue the stretch. But for most beneficiaries inheriting after 2019, the stretch has been replaced with a 10-year payout rule. That rule doesn’t require annual RMDs (like the stretch does) but does require that the entire account be paid out within 10 years of death. Only “eligible designated beneficiaries” (a surviving spouse, minor child of the account owner, disabled or chronically-ill person or someone no more than 10 years younger than the IRA owner) can still stretch out distributions.

So, let’s raise a toast to the one-year-old SECURE Act!



By Ian Berger, JD
IRA Analyst



Can you still recharacterize a Roth contribution (due to income limits) to a Traditional IRA and then subsequently convert the IRA back to a Roth in the same year? Will this conflict with the new law that prohibits undoing a Roth conversion?

Thanks you for your help,



Hi Marie,

You can still do this. The 2017 Tax Cuts and Jobs Act says that you can’t recharacterize (undo) a conversion of a Traditional IRA to a Roth IRA. But it still allows you to undo a Roth contribution. There would be no reason why you could not recharacterize your contribution from the Roth IRA to the Traditional IRA and then convert it in the same year. There is no requirement that you wait after recharacterizing the contribution.


Hello Ed,

My husband and I are 51 and 52.  Husband is the primary earner and carries insurance (I work part-time with no benefits). Husband was laid off 11/30/20.  We will need to use IRA money to live on very shortly (we depleted our emergency savings during a prior layoff in 2019 and it isn’t yet restored).

Due to the CARES Act, would it be better to withdraw a chunk of IRA money in 2020 so we don’t have a penalty tax on the withdrawal?

We need the money to pay health insurance premiums and some of our mortgage.

And if he does gain employment, because of the CARES Act, will we be able to return any money we don’t use within the next 3 years?

Thank you



Dear Sharon,

I’m sorry about your situation. The CARES Act would allow you to take up to $100,000 from your IRA, and your husband could also take up to another $100,000 from his IRA. Any withdrawal would be exempt from the 10% early distribution penalty, and you could spread taxable income evenly over your 2020, 2021 and 2022 tax returns. However, the withdrawal must take place by December 30, 2020.

You may want to take the distribution now if you need the funds because these provisions under the CARES Act will not be available in 2021. If your husband finds employment and the funds are not needed, you can always repay them to an eligible retirement account within 3 years.



By Andy Ives, CFP®, AIF®
IRA Analyst

Bob is 40 years old. He is a single tax filer, participates in a 401(k) at work, and makes a healthy annual salary of $160,000.

Bob has consistently contributed $5,000 each year to his Traditional IRA for 5 years ($25,000 total). However, Bob could not deduct any of the contributions because he has always been over the phase-out range for tax filers covered by a company retirement plan.

Bob cannot contribute to a Roth IRA directly because he is also over the income phase-out range for Roth eligibility.

Bob is a lousy investor. He buys high and sells low and chases penny stocks. The value of his IRA portfolio has gone up and down for 5 years and, remarkably, is still valued at $25,000 – the same total amount he has contributed over the years.

This is Bob’s only IRA. He never had a Roth IRA, a SEP or a SIMPLE IRA.

Bob decides to do a Roth conversion of his entire Traditional IRA – all $25,000.

Bob is thrilled to learn that his conversion is totally tax-free. Since his Traditional IRA is made up of 100% basis (after-tax, non-deductible dollars), the pro-rata rule does not cause any of Bob’s conversion to be taxable.

Three years after the conversion, after more wheel-spinning investment choices, Bob’s converted Roth IRA is still only worth $25,000.

Bob is frustrated. His friend has a get-rich-quick scheme, and the friend needs $25,000 cash. Bob throws caution to the wind and withdraws the full $25,000 from his Roth IRA.


  • Bob: under age 59 ½ (now age 43)
  • 5-Year Roth conversion clock: Not satisfied
  • Withdrawal amount: $25,000

Question: Does 43-year-old Bob owe any taxes or the 10% early distribution penalty on the $25,000 withdrawal?

He does not! Even though Bob is under age 59 ½, and even though Bob has not met the required 5-year Roth conversion requirement, he gets his money free and clear. How so? The $25,000 is all after-tax (non-deductible) dollars. Even though he is violating the 5-year holding period, there is never a penalty on converted after-tax dollars if withdrawn early. Had Bob been a more successful investor, and if he had any earnings in his Roth IRA, those earnings would have been subject to both taxes and the 10% early withdrawal penalty.

(PS – Poor Bob lost the entire $25,000 in the get-rich-quick scheme.)



By Sarah Brenner, JD
Director of Retirement Education

The end of 2020 is almost here. With the end of the year come certain retirement account deadlines. Here are 5 items you should have on your 2020 year-end retirement plan to-do list:

1. Do a 2020 conversion

If you are considering converting an IRA to a Roth IRA in 2020, time is quickly running out. The deadline for 2020 conversion is the end of the calendar year. There is a common misconception that a conversion can be done up until your tax-filing deadline. That is NOT the case. There is no such thing as a prior year conversion. The distribution must be taken in 2020 and reported on a 2020 Form 1099-R. It is best not to wait until the last minute. Be sure to leave enough time to get the transaction done.

2. Take a CRD

The CARES Act brought us Coronavirus-Related Distributions (CRDs). These are penalty-free distributions from retirement accounts. Income from CRDs can be spread equally over three years. Not everyone can take a CRD. CRDs can only be taken by those who meet certain requirements such as being diagnosed with the virus or suffering financial hardship due to it. CRDs expire December 30, 2020. If you qualify and think you may need funds, now is the time to act and take a CRD because the opportunity will soon be gone. If you end up not needing the funds, you have three years to repay them to your retirement account.

3. Do a 2020 QCD

Are you charitably-inclined? This is the time to be thinking about a Qualified Charitable Distribution (QCD) for 2020. A QCD is a tax-free transfer directly from your IRA to a charity. You must be age 70 ½ to be eligible. A QCD for 2020 must be done by December 31, 2020.

4. Check 72(t) payments

By using the 72(t) rules, you can tap an IRA before 59½ without a 10% penalty. The payments must be calculated using specific formulas and must continue for at least five years or until age 59½, whichever period is longer. If you do not stick to the chosen payment plan, or modify the payments, they will no longer qualify for the exemption from the 10% penalty. Even worse, the 10% penalty is reinstated retroactively, to all distributions taken prior to age 59½. With such serious consequences, you need to monitor your 72(t) payments carefully. If you have a calendar year 72(t) schedule, the 2020 payment must be made by the end of the year. As the December 31 deadline approaches, advisors should check to make sure that annual payments have been made and the correct amounts have been paid.

5. Meet the requirements for NUA

If you took a distribution of company stock from your company plan in 2020 and are looking to use the Net Unrealized Appreciation (NUA) tax break, you will want to be sure that everything has been done properly by year end. Double check that a lump sum distribution has occurred. Remember that, to qualify for NUA tax breaks the entire distribution must be completed in one tax year.  Check that ALL funds have been withdrawn from the plan. Be sure also that the company stock has been transferred to a taxable (non-IRA) account



By Sarah Brenner, JD
Director of Retirement Education


I am 79 and still employed. My employer has an SEP for me and I have a Rollover IRA from a previous employer. Can I transfer my Rollover IRA to the SEP account?

Thank you,



Hi George,

There are no restrictions in the tax law against combining a SEP IRA and traditional IRA that contains funds rolled over from an employer plan. This is because once a SEP contribution is made to a SEP IRA, the funds are treated like any other traditional IRA funds and can be combined with other traditional IRA funds. The only issue you may encounter is that some custodians will not allow funds other than SEP contributions to be contributed to a SEP IRA. This is a restriction put in place by custodians and not the tax code.


To the IRA Experts:

I attended one of your webinars back in August. Regarding the CARES Act and the 2020 RMD waivers, one question was: Can 2020 RMDs be converted to Roth IRAs? The answer was – Yes – because they are no longer RMDs

As a follow-up to that, I have a beneficiary IRA from my Dad who passed away in 2005 and I’ve been taking RMDs each year since then.  I want to convert this year’s “RMD” to a Roth.  Can you please tell me the process of how to do that? Any help would be appreciated.

Thank you!!!



Hi Becky,

You are correct that the CARES Act waiver of RMDs means that for many IRA holders those funds can be converted to a Roth IRA in 2020. However, the rules work a little differently for nonspouse beneficiaries. That is because funds in an inherited IRA are not eligible for conversion by nonspouse beneficiaries. While the CARES Act does give you a break and waives the RMD from the IRA you inherited from your dad, it does not change the rule that funds in this inherited IRA cannot be converted.



By Ian Berger, JD
IRA Analyst

Thinking of using your IRA as a “short-term loan” to raise some extra cash for the holidays?  What could go wrong? Well, actually, two major things could go wrong. And either could lead to serious tax headaches.

Let’s say Chloe started her holiday shopping early this year and, as usual, spent more than she had budgeted. Now the credit card bill is coming due and she’s scrapped for cash. Chloe is expecting a year-end bonus from her employer that is usually paid in late January.

Chloe looks around at her savings options and quickly considers her IRA. She knows she can withdraw from the IRA and pay it back with 60 days without getting hit with taxes or penalties. She also knows the IRS doesn’t care what she does with the withdrawn IRA funds, as long as she pays back the same amount on time.

So, Chloe withdraws $25,000 on December 10, 2020 and uses it to pay off her credit card, avoiding late fees. She knows that she has until February 9, 2021 to return the $25,000 to her IRA. Her bonus has always been more than that, so she’ll have more than enough cash to pay it back.

Here are the two potential issues that could derail Chloe’s plan:

First, the rollover back to the IRA might violate the “once-per-year-rollover” rule. That would occur if Chloe had received another distribution in the prior 12 months (i.e., since December 10, 2019) that she rolled over in an IRA-to-IRA or Roth IRA-to-Roth IRA rollover. (The once-per-year rule doesn’t apply to company plan-to-IRA or IRA-to-company plan rollovers or to Roth conversions.)  Unlike other IRS rollover rules, there is no way to correct a violation of the once-per-year rule.

Second, Chloe might not be able to return the IRA by February 9. What if her employer cuts back its bonus after a tough year? Even worse, what if she’s laid off after the first of the year? Or, what if she simply forgets to do the rollover on time?  The IRS will sometimes grant an extension of the 60-day deadline, but it won’t be forgiving if the IRA funds were used for personal reasons. There’s also an IRS program (called “self-certification”) that allows late rollovers without going to the IRS for relief. But self-certification is only available for certain specified reasons (e.g., you or a family member was seriously ill, or the IRA custodian messed up). Not being able to come up with the money to repay a withdrawal in time doesn’t qualify.

Violating the once-per-year rule or missing the 60-day deadline both have serious tax consequences. First, the rollover amount will be considered a taxable distribution, in this case adding $25,000 of taxable income to Chloe’s 2020 tax bill, which will hit very soon. Second, if Chloe is under age 59 ½, a 10% early distribution penalty ($2,500) would apply. Finally, a failed rollover could be considered an excess contribution in the receiving IRA that would subject her to a 6% annual penalty unless timely withdrawn


Consider yourself warned!


By Andy Ives, CFP®, AIF®
IRA Analyst

Recently we became aware of a multi-layered tax strategy that we think is a bridge too far when it comes to Coronavirus-related distributions (CRDs). In fact, it may even be outright tax fraud.

As most readers are aware, the CARES Act created CRDs which waive the 10% early distribution penalty on up to $100,000 of 2020 distributions from IRAs and company plans. The tax would still be due, but could be spread evenly over three years. All or a portion of the CRD can be repaid at any time over this three-year period. Subsequently, the original tax bill on the CRD could be reversed by filing an amended tax return.

Not everyone is eligible for a CRD. You must be an “affected individual” as defined by the CARES Act. This includes those people diagnosed with the virus, those whose spouse or dependents are diagnosed, those who experience adverse financial consequences, etc.

The first layer of this tax strategy is not the layer in question as it has become relatively common: a Roth conversion of a CRD. Converting a CRD to a Roth enables the account owner to spread the conversion tax over three years. While we still believe that converting a CRD to a Roth (by an affected individual who has no monetary need for the CRD) violates the “spirit” of the law, the IRS has yet to close this “loophole.” (Should the IRS change course, the only penalty would likely be the conversion tax would all be due in year one.)

It is the second layer of this new strategy that is so concerning. Layer 1: Once a person takes their CRD – say $100,000 – they then convert to a Roth. This allows a 3-year spread of the income tax due. Dubious Layer 2: In a later year, the person then uses the “repayment” feature of the CRD to replenish their Traditional IRA with $100,000. Proponents of this strategy see it as an opportunity to have your cake and eat it too: a $100,000 Roth conversion with a 3-year tax spread, and a repayment of the $100,000 to the Traditional IRA. However, the methodology is flawed, and the strategy will not work within the law.

Why not? The original $100,000 distribution from the IRA will generate a 1099-R. The subsequent conversion to a Roth will generate a 5498. This should close the book on the CRD. However, if an additional $100,000 is then “paid back” to the original IRA as a CRD repayment, it will generate another 5498. The Roth conversion will then subsequently be deemed an excess contribution.

Where tax fraud potentially comes into play is here: $100,000 CRD taken in 2020 and converted to a Roth IRA in the same year. This generates a 2020 1099-R and offsetting 5498. Account owner files Form 8915-E indicating he took a CRD, but does not indicate the repayment. He then waits three years. In 2023 he “repays” the CRD to the original traditional IRA. This generates a 2023 Form 5498. He files Form 8915-E saying he repaid the CRD. The IRS would have to go back three years, identify the conversion in 2020 via the 2020 1099-R and 5498, identify that these were the same CRD dollars that were already “paid back” via the 2020 conversion, and then invalidate the 2023 “extra” repayment.

While this might be a needle in the haystack for the IRS to locate, it sure looks and smells like possible tax fraud to us.



By Andy Ives, CFP®, AIF®
IRA Analyst


My father passed away in 2019 and left me an IRA. Will the SECURE Act apply, or will it be grandfathered under the pre-2020 rules?

Thank you.




Since your father passed away in 2019, we will default to the old pre-SECURE Act rules. You are permitted to set up an inherited IRA and stretch payments over your own life expectancy if you choose to do so. Normally, your first RMD would have been due this year – 2020. However, the CARES Act waived 2020 RMDs, even for inherited IRAs. As such, RMDs will not start for you until 2021. (Just be sure to get the inherited IRA set up before the end of this year.)


Hello Ed,

I have a Roth IRA with a custodian and a Roth 401(k) that is in a bank account with myself as trustee. I am self-employed, 65 years of age, and have had both accounts open over 5 years.  Can I move the self-directed Roth IRA funds (with a custodian) over to my Roth 401(k) account tax free? I can’t find anything online that addresses this transfer.

Much appreciated,




As long as there are no liquidation restrictions on the investments within your self-directed IRA,  and as long as the 401(k) plan is designed to allow rollovers into the plan, then yes, you can proceed. There will be no taxes due on the rollover, and you will be able to consolidate your Roth dollars.



By Sarah Brenner, JD
Director of Retirement Education

The clock is ticking if you are considering converting your Traditional IRA to a Roth IRA in 2020. More IRA owners are making this move this year as historically low tax rates and COVID-related income losses have combined to make this an ideal time to trade off the tax hit of a conversion for the promise of future tax-free Roth IRA earnings. Before you make your move and do a 2020 conversion, here are 10 things you must know:

1. Anyone with an eligible retirement account can convert. A long time ago (before 2010) there used to be income limits on conversions. Those days are long gone, but some still haven’t gotten the message. Anyone with an eligible retirement account can convert to a Roth IRA. If you have a traditional IRA, you have the opportunity to convert it.

2. Deciding to convert is an art, not a science. There is no easy answer to the question of whether you should convert. While software can be helpful, it does not tell the whole story. You must weigh factors such as current tax brackets, your time frame and your comfort level with an immediate tax bill.

3. It’s not all or nothing. If you are unsure that conversion is for you, you can ease into it. It is not all or nothing. Consider a partial conversion in 2020 and maybe more in future years.

4. There will be a tax bill. Yes, conversion almost always comes with a tax bill. Get ready. Also, be sure you understand that the pro rata formula applicable to traditional IRA distributions also applies to conversions – meaning you cannot just convert any basis you may have in your traditional IRAs and leave the taxable funds behind.

5. There will be some side effects. Because a conversion is included in income it can affect things like financial aid for college, the taxation of social security, and Medicare surcharges. Its best to understand all of this before going forward rather than have surprises later.

6. The trade-off is worth the temporary pain. Any increase in income due to a conversion would only happen in 2020, the year of the conversion. The trade off is no more taxable IRA distributions down the road to raise income in retirement years.

7. Watch the deadline. If you want to do a 2020 conversion, the funds must leave the traditional IRA by December 31, 2020.  Don’t wait until the last minute. You may be out of luck as some custodians impose earlier deadlines to ensure transactions get done.

8. There are no do-overs. You will want to be sure that conversion is the right move for you. That is because there are no do-overs. The ability to undo a conversion (recharacterization) is gone now. It was eliminated as part of the tax reform law effective for 2018 conversions.

9. You can still contribute. Don’t miss out. If you are eligible you can convert and still make a 2020 Roth IRA tax year contribution. You can do both in the same year.

10. Your pay-off is tax-free distributions. Keep your eyes on the prize. While conversion may be a hard decision and may cause some tax pain in 2020, the end result is worth it. You will have years of both tax-free Roth IRA growth and distributions ahead.




By Ian Berger, JD
IRA Analyst

Thanksgiving is behind us, and the end of the year will be here soon. (Many of us are truly thankful for that!)  This is a good time to remind you of certain tax breaks that will expire before we turn over the calendar to 2021. Many of these actions require cooperation from third-party IRA custodians and plan administrators, so you need to act fast. As that great philosopher Yogi Berra once said, “It gets late early out there.”

Take Advantage of CRDs. The clock is ticking for those of you who are “qualified individuals” under the CARES Act to withdraw up to $100,000 of CRDs (coronavirus-related distributions) from IRAs and/or company plans. CRDs are not subject to the 10% early distribution penalty, CRD taxable income can be spread over 2020, 2021 and 2022, and CRDs can be repaid within three years.

However, CRDs are usually taxable and, unless paid back, reduce your retirement nest egg. So, they should be taken only as a last resort. Any CRD must be received by December 30 (not December 31) 2020.

Do a Qualified Charitable Distribution. Don’t forget about QCDs (qualified charitable distributions). Despite recent tax changes, QCDs remain a great tax break. If you own an IRA and are at least age 70½, you can transfer up to $100,000 tax-free directly from your IRA to an eligible charity. QCDs are often used to offset RMDs, but QCDs are still available this year even though RMDs are waived for 2020. Just make sure the QCD is received (or a checkbook IRA check is cashed) by the charity by year-end.

Consider Roth Conversions. If you’ve been considering a conversion of your traditional IRA or pre-tax 401(k) funds to a Roth IRA, 2020 may be the perfect year to pull the trigger. Although Roth conversions generate immediate taxation, federal tax rates are historically low – and may not stay that way for long. Also, your other 2020 taxable income may be lower than usual because of virus-related work reductions. Although RMDs are waived this year, you can still request payment of your RMD amount (or even a larger amount) and convert it to a Roth IRA. (RMDs in a normal year cannot be converted.) All Roth IRA conversions must be done by December 31 to qualify for 2020.

Use the NUA Strategy. December 31 is a crucial deadline if you’re using the NUA (net unrealized appreciation) strategy this year. NUA allows you to pay ordinary income tax on the cost basis of company stock– not the total value of the stock– when you withdraw it. The difference between the two (the NUA) isn’t taxable until the stock is sold – and it is taxed at favorable long-term capital gains rates. However, with a few limited exceptions, your entire account must be emptied within one calendar year. So, if you’re using the NUA rule this year, be sure to clean out your 401(k) account by December 31.



By Andy Ives, CFP®, AIF®
IRA Analyst

We have collectively crawled into the hollow of a 2020 tree and found ourselves in the Upside Down. (That is a “Stranger Things” reference, for the uninitiated.) The SECURE Act turned beneficiary options upside down. The CARES Act turned required minimum distribution rules upside down. The election and social unrest turned politics and race relations upside down. And the pandemic is the Demogorgon monster that continues to hunt us all in this upside-down world.

Things may seem bleak, but hope persists. Recognize that there remains a “right side up” – we must simply find the return door and unlock it. This Thanksgiving, whether you are spending time with loved ones virtually or safely in-person, be watchful for the gateway back. We all want to clamber through to the Right Side Up: where teachers and students do their normal school things, where grandparents can again do grandchildren things, where CPAs and financial advisors do tax and financial things, where meetings are face-to-face and handshakes follow.

Of course, the gateway to the Right Side Up is not an actual locked door. Look for acts of kindness, sympathy and respect. Keep your eyes peeled for helping hands, warm smiles and general humanity. Be alert – appreciation and friendship and thoughtful communication point to the way back, as do introspection, patience and compassion.

We all hold the collective key to better things – to the Right Side Up. Over this holiday season, let’s see if we can turn it together.

Happy Thanksgiving from the Ed Slott Team!



By Sarah Brenner, JD
Director of Retirement Education

The IRS has recently added a new reason for self-certification of late rollovers to its list. Revenue Procedure 2020-46 modifies the list of reasons to include an IRA or company plan distribution made to a state unclaimed property fund and later claimed by an IRA owner or plan participant. Rev. Proc. 2020-46 is effective as of October 16.


The deadline for completing a rollover is 60 days from the date the distribution is received. What happens when this important deadline is missed?  It used to be that the only remedy was to apply for an expensive and time-consuming Private Letter Ruling (PLR) from the IRS. That changed back in 2016 when the IRS released guidance allowing late rollovers to be accepted by providing the receiving financial institution with a “self-certification.”  The IRS even provides a model letter you can use, and unlike the PLR process, it is quick and free. Self-certification applies to 60-day rollovers from both company plans and IRAs. Self-certification does have its limits.  It is not a waiver of the 60-day rule. It allows the late rollover, but the IRS can disallow the late rollover in an audit if they determine the rollover did not qualify under any of the reasons for missing the 60-day deadline spelled out in the ruling.

New Reason

There used to be eleven reasons why self-certification would be allowed. Now the new guidance from the IRS adds a twelfth for situations where a distribution is claimed from an unclaimed property fund after having been abandoned (because the IRA owner or plan participant was missing). While this scenario does not happen every day, it may become more common as states become increasingly aggressive with abandoned property rules in order to fill budget gaps. In many states, the timeline for when property is considered abandoned is growing shorter and protections that used to be in place for retirement accounts are loosening.  Now, with this new guidance, funds that are later claimed from state unclaimed property funds will be potentially able to be rolled over much more easily using the self-certification procedures.



By Ian Berger, JD
IRA Analyst


Good Morning,

We have a client that passed away in November of 2019 at the age of 85. Her beneficiaries would be required to take their RMD in 2020. Are they eligible under the CARES Act to forgo that RMD for this year?

Thank you,



Hi Linda,

Yes, the CARES Act waiver of RMDs otherwise required for 2020 applies to beneficiaries.


If I convert today, do I have 1 year from today’s date to recharacterize? Or do I have until the end of calendar year 2021?




Hi Greg,

Unfortunately, Roth conversions can no longer be recharacterized. That change was made by the Tax Cuts and Jobs Act of 2017. By contrast, Roth IRA contributions can still be recharacterized.



By Ian Berger, JD
IRA Analyst

We continue to get questions about the limits that apply for folks who participate in multiple company savings plans at the same time or who switch jobs in the middle of the year. What’s confusing is that there are two limits – the “deferral limit” and the “annual additions limit,” and you need to comply with both.

Deferral limit. The deferral limit is based on the total pre-tax and Roth deferrals (but not after-tax contributions) you make to ALL your plans for the year. The limit is indexed periodically and for 2020 (and 2021)  is $19,500, or $26,000 if you’re age 50 or older by the end of the year.

Example: Christina, age 42, has a regular job with Acme Industries that sponsors a 401(k) plan and also owns a sole proprietorship that has a solo 401(k). In 2020, she has contributed $19,500 to Acme’s plan. Christina is unable to make any elective deferrals to the solo because she has already maxed out on the deferral limit through the Acme plan.

There is one exception to this rule: If you’re eligible for both a 457(b) plan and either a 401(k) or a 403(b) plan, you can defer up to the maximum limit to each plan.

Exceeding the deferral limit is a double headache – the excess amounts may be taxed both in the year they are contributed and in the year they are eventually paid out. To avoid this, monitor your deferrals closely and contact your plan administrator ASAP to have any excess amounts, plus earnings, distributed to you. This must occur by the following April 15 to avoid double taxation.

Annual additions limit.  This limit (also known as the “415 limit”) regulates the amount of all contributions (employee and employer contributions) that can be made to any plan in any year. Contributions made to all plans maintained by one company are aggregated. Contributions made by two or more companies considered related under the tax rules are also aggregated. But if you are in two plans sponsored by unrelated companies, a separate limit applies to each plan. For 2020, this limit is $57,000, or $63,500 if you make 50-or-over catch-up deferrals. For 2021, it is $58,000 or $64,500.

For small employer plans (like solo 401(k) plans and SEPs), the rules are more complicated because of IRS deduction limits.

Example: From the above example, if Christina’s sole proprietorship is unrelated to Acme, she has a separate annual additions limit for the solo 401(k). So, Christina could theoretically make up to $58,000 of employer contributions to the solo. However, her contribution limit will likely be lower because employer contributions are effectively capped at 20% of earned income.

If your annual additions exceed this limit, it is up to the plan sponsor to fix the problem by notifying you and distributing excess amounts to you under the method required by the IRS.



By Andy Ives, CFP®, AIF®
IRA Analyst

With Veterans Day being just last week, an overview of two military retirement benefits felt like an all-important and appropriate topic of discussion. One benefit pertains to a penalty exception for accessing retirement dollars prior to the age of 59 ½. The other relates to the treatment of military benefits when a soldier has made the ultimate sacrifice.

Active Reservists’ Exception

The Pension Protection Act of 2006 created the Active Reservists’ Exception. This penalty exception allows active reservists to avoid the 10% penalty if they withdraw funds from either their IRA or workplace retirement plan before reaching the age of 59 ½.

What is an “active reservist”? Each branch of the military has a Reserve component. While a  person who is “active duty” is in the military full time, people in the Reserve or National Guard are not considered full-time active duty military personnel. However, they can be deployed at any time should the need arise. Deployment duration is the basis for this penalty exception.

The exception dictates that distributions from IRAs or other retirement plans to military reservists taken before reaching age 59½ are penalty free (but still taxable) if the reservist is called to active duty for more than 179 days and the distribution is taken between the date of the call up and the end of the active duty period. In addition, these distributions can be repaid (rolled back) to an IRA or employer plan within two years of the end of the reservist’s active service.

Repayments will not impact annual contribution limits and will not be an excess contribution. However, the repayments will go back in as basis and cannot be deducted. As such, the reservist making a repayment should consider putting them into a Roth IRA.

Contributing Military Death Benefits to a Roth IRA

A provision in the HEART Act allows a beneficiary of military death gratuities and Service Members Group Life Insurance (SGLI) to contribute those funds to a Roth IRA or a Coverdell Education Savings Account (ESA). This provision applies to beneficiaries of all military personnel, not just active reservists. The Roth contribution can be made without regard to the annual contribution or income limits that typically apply to those accounts. However, the contribution must be done within one year from the date of receipt of the death benefit.

A partial contribution of the benefits is permissible. For example, some of the funds can go to a Roth, some to an ESA, and some can be retained for immediate needs. Of course, the total amount contributed to the Roth and/or ESA cannot exceed the total amount of the benefits received.

Example: Jennifer receives an SGLI beneficiary distribution of $125,000. She immediately contributes $50,000 to an ESA account for her son. Jennifer also contributes another $50,000 to a Roth IRA for herself. She keeps the remaining $25,000 to help pay for daily expenses.

From the Ed Slott team to all military personnel, active, retired and deceased: Thank you for your service, and thank you for your sacrifice.



By Sarah Brenner, JD
Director of Retirement Education


Is there any problem with someone who is self-employed and has an active SEP making a deductible SEP contribution and an IRA QCD after age 70 1/2?  In this case, the QCD would come from the IRA while the SEP continues to be funded.  Does any offset apply?



Hi Bill,

This is an interesting question! The rules do not allow a QCD from an “active” SEP IRA. IRS guidance says that an active SEP IRA is one that receives a SEP contribution for the year. However, even though you cannot do a QCD for the year from your active SEP IRA, if you also have an IRA, you could do a QCD from that IRA. There is nothing in the rules that would prohibit this, and no offsets apply


Good Afternoon,

I have a unique question regarding RMDs. I transferred my IRA from one custodian to another on 26th December 2019. The funds were in transit until 5th January 2020. Hence on 31st December 2019, both custodians report $0.

My RMDs are based on value 31st December 2019. Does this mean that I do not have a RMD for 2020? I can also defer my RMDs according to the CARES Act? What is the date that I can defer same?




Hi Diane,

The good news is that the CARES Act cancels all RMDs for 2020 so you will never have to worry about taking an RMD for this year.

However, your question raises an issue that we see happen frequently in years when an RMD is required. If there is an outstanding rollover or transfer as you described, any funds that are outstanding would be required to be added to the December 31 year-end balance when calculating the RMD for the next year. For example, any funds that are outstanding as of December 31, 2020 would need to be included in the year-end 2020 balance that is used to calculate the 2021 RMD.



By Sarah Brenner, JD
Director of Retirement Education

Both Roth 401(k)s and Roth IRAs offer the ability to make after-tax contributions now in exchange for tax-free earnings down the road if the rules are followed. However, there are some important differences between the two retirement accounts that you will want to understand.

1. Contributions limits are higher for Roth 401(k)s

One major difference is in the amount that you may contribute. Your Roth IRA contribution is limited to a maximum of $6,000 for 2020 if you are under age 50. If you are age 50 or older this year, you may contribute up to $7,000. A Roth 401(k) offers much higher limits. You can defer $19,500 for 2020 ($26,000 if you are 50 or over).

2. Income limits apply to Roth IRAs

Roth 401(k)s do not have any income limits on contributions. If you are a high earner you will still be able to make deferrals. That is not the case for Roth IRAs. In 2020, your ability to contribute to a Roth IRA will begin to phase out when your income exceeds $124,000 ($196,000 if you are married, filing jointly). If your income is too high and you would like to fund a Roth IRA, you may want to explore the back-door Roth IRA strategy as a way around these limits.

3. RMDs are required from Roth 401(k)s

Roth IRAs offer the advantage of no required minimum distributions (RMDs) during your lifetime. This is not the case for Roth 401(k)s. You will need to take RMDs from your Roth 401(k) when your reach age 72. An exception may apply if you are still working for the company.

4. Rollovers don’t go both ways

Roth 401(k) funds can be rolled over to a Roth IRA. However, the opposite is not true. You may not roll over your Roth IRA to your Roth 401(k).

5. Qualified distributions have different rules

When it comes to funding either a Roth 401(k) or a Roth IRA, the goal is to take tax-free distributions someday. For this to happen, you must have a qualified distribution. The rules for qualified distributions from Roth IRAs are more favorable than those for Roth 401(k)s. You can take a qualified distribution for a first home purchase, which is not allowed with a Roth 401(k). Also, your five-year period starts with your first contribution to any Roth IRA. For Roth 401(k)s, the five-year period for qualified distributions applies separately to each plan.

6. Roth IRAs have more favorable distribution ordering rules

What if you take a distribution that is not qualified? Well, the rules for nonqualified distributions are also more favorable from Roth IRAs than Roth 401(k)s. With a Roth IRA, the ordering rules say that earnings will leave the Roth IRA last. This means that the only funds that would be taxed will come out after all your other Roth IRA funds have been distributed. With Roth 401(k)s you are not so lucky. A distribution that is not a qualified distribution is subject to the pro-rata rule. A portion of each distribution will be taxed.



By Ian Berger, JD
IRA Analyst

Good news! You can look forward to somewhat smaller required minimum distributions (RMDs) from your IRA and company retirement savings plan beginning in 2022. That’s because, on November 6, the IRS released new life expectancy tables that are used to calculate RMDs. The new tables are not effective until 2022. RMDs are waived for 2020, and RMDs for 2021 will be calculated under the current tables.

The IRS revised the current tables, which have been in effect since 2002, to reflect the fact that Americans are now living longer. Last November, the IRS issued proposed regulations that were supposed to go into effect for 2021. However, because the final regulations were issued so late in 2020, the IRS delayed the new tables another year to give custodians and record keepers enough time to implement them.

There are three life expectancy tables used for RMDs: the Uniform Lifetime Table, the Joint and Last Survivor Table, and the Single Life Table.


  • The Uniform Lifetime Table is used to calculate lifetime RMDs. If you turn age 70 ½ after 2019, your RMDs generally must begin after age 72.


  • The Joint and Last Survivor Table is used instead of the Uniform Lifetime Table when your spouse is the sole beneficiary and is more than 10 years younger than you.


  • The Single Life Table is used to calculate RMDs for your beneficiaries, but only if they are an “eligible designated beneficiary.” These include: a surviving spouse; a minor child; a chronically ill individual; disabled individual; or someone no more than 10 years younger than you. All other individual beneficiaries who inherit after 2019 are subject to a 10-year payout rule and do not use this table. This table is also used if you die after your “required beginning date” (April 1 after your age 72 year) without naming a living beneficiary. The IRS regulations include a special “reset” provision for calculating RMDs for nonspouse beneficiaries who inherit before January 1, 2022.

Here’s an example of the effect of the new tables. IRA owner Sofia reaches age 72 in 2002 and decides to take her first RMD in 2022. (She could have deferred her first RMD until April 1, 2023, but that would require her to receive two RMDs in 2023 – the 2022 RMD and the 2023 RMD.) Sofia’s IRA was worth $300,000 as of December 31, 2021. Under the old Uniform Lifetime Table, Sofia’s life expectancy factor would have been 25.6, and her 2022 RMD would have been $11,719 ($300,000/25.6). Under the new table, her life expectancy factor is 27.4, and her RMD is $10,949 ($300,000/27.4). That’s a 7% drop.

A smaller RMD means less taxes and more retirement savings you can retain for tax-deferred growth. Of course, you can always take more than your RMD if you wish. Failing to take your full RMD can result in a penalty equal to 50% of the amount not taken, although the IRS will often waive that penalty.




By Andy Ives, CFP®, AIF®
IRA Analyst


Great work you all do. Been a reader of Ed for a long time. How would this scenario work? New client of mine’s husband passed away in 2019 and he had not taken his RMD. The plan was to transfer the account to my firm and take the RMD when it got to my firm as there was plenty of time. However, the insurance company kept rejecting the transfer paperwork (as they did not tell the client everything they needed to submit). Therefore, the transfer did not occur until early 2020, so they missed the RMD. With the CARES Act, does this mean that the 2019 RMD would be waived??




Thanks for being a loyal reader! If 2019 would have been his very first required minimum distribution (RMD) – meaning he turned 70 ½ in 2019 – then the RMD does not need to be taken, because he died prior to reaching his required beginning date (RBD). (For someone who turned age 70 ½ in 2019, the RBD was April 1, 2020.) However, if your client turned 70 ½ before 2019, then we have a missed RMD situation. Missed RMDs are not uncommon. While the missed RMD penalty is 50%, it is often forgiven by the IRS. His 2019 year-of-death RMD must still be taken, and Form 5329 will need to be filed, along with a note explaining the situation and how it has been rectified. The CARES Act RMD waiver is not applicable here.


Hi Ed & Team. As a subscriber, I am most pleased to have your guidance in uncertain times like these.  Maybe this question made it into a previous “mail bag,” but I have not yet seen it.

Obviously, the CARES Act changes various aspects of retirement plans & IRAs.  One question which arose today was where a client who would normally be subject to a 2020 RMD (but now does not have to take it due to the CARES Act waiver) – wants to convert her IRA to a Roth.  Since there is no RMD, I am presuming the whole IRA can be converted – correct? Normally, she would have to take her RMD, then convert the balance, but this year may be different?

Any help you could give would be most appreciated.





You are 100% correct. Normally, a required minimum distribution (RMD) cannot be rolled over or converted to a Roth. So, for a person subject to RMDs, they would need to take their RMD prior to doing a Roth conversion of all or a portion of their remaining IRA. But 2020 is different. Since the CARES Act waived 2020 RMDs, then an IRA owner can, in fact, do a Roth conversion without taking any required withdrawals prior to the conversion.



By Andy Ives, CFP®, AIF®
IRA Analyst

When a person under the age of 59 ½ takes a withdrawal from their IRA or company plan – like a 401(k) – there is a 10% penalty. However, this penalty can be avoided if the withdrawal qualifies for an exception. Some exceptions apply to both IRAs and plans, some to plans only, and some to IRAs only. With the craziness that is our current world, the three IRA-only exceptions (including SEP and SIMPLE plans) may provide a lifeline for those in need. A general description of each is as follows:

First-Time Home Buyer

To qualify for the first-time home buyer exception, a person must not have owned a home for the previous two years. If you did previously own a home – but sold it more than two years ago and have not owned another home since – then you would qualify. Also, be aware that the amount of cash available through the first-time home buyer exception is not unlimited. It is capped at a maximum lifetime amount of $10,000. The $10,000 can be put toward a first-time home purchase by the IRA owner, the owner’s spouse, child or grandchild.

The money can be used to purchase, construct or reconstruct a home. This includes financing or settlement costs – but not home improvements. (Building a new outdoor kitchen will not qualify.) Refinancing also does not count…because you owned a home within two years. Any dollars withdrawn must be used within 120 days of distribution, and a married couple can use $10,000 each.

Higher Education Expenses

IRS guidance defines an “eligible educational institution” as “any accredited public, nonprofit, or proprietary (privately owned profit-making) college, university, vocational school or other postsecondary educational institution. Also, the institution must be eligible to participate in a student aid program administered by the U.S. Department of Education.” If your school meets these guidelines, then the higher education expenses exception may be available. (It is not available to cover costs associated with primary or secondary school – i.e., high school.)

The education expenses can be for the IRA account owner, his or her spouse, child, or grandchild of either the owner or spouse. Nieces, nephews, cousins and siblings do not qualify. As for the timing of the withdrawal, IRA distributions must be taken in the same calendar year that the bill is paid.

Health Insurance if you are Unemployed

This exception can be used for the health insurance costs of the IRA owner, spouse or dependents. To qualify for this exception, the IRA distribution must be taken in the year (or the following year), when the IRA owner received unemployment compensation for 12 consecutive weeks. However, once a person finds a new job and is re-employed for 60 days, the distribution exception is no longer available.

Do not make the mistake of thinking that all exceptions apply to all accounts. Should you need to access your retirement dollars before age 59 ½ for emergency funding, be sure to understand which penalty exceptions might be available – and which ones are not.



By Sarah Brenner, JD
Director of Retirement Education

The year 2020 has been a challenging one. With coronavirus cases rising in most of the country and economic relief stalled in Congress, many individuals may be looking to find funds to pay urgent bills. One possibility is a coronavirus-related distribution (CRD). While the first phase of the pandemic may be gone, the economic turmoil is still with us and so are CRDs. CRDs are still available through December 30, 2020.  These are distributions, up to $100,000, from a company plan or IRA made anytime during 2020 (through December 30) to affected individuals.

Who is Eligible for a CRD?

While almost everybody has been affected by the virus, not everyone can take a CRD.  Those individuals eligible for to take a CRD include:

  • Those diagnosed with the virus.
  • Those whose spouse or dependents are diagnosed.
  • Those who experience adverse financial consequences as a result of either the individual, the

individual’s spouse or a member of the individual’s household*:

  • Being quarantined due to the virus,
  • Being furloughed or laid off, or having work hours reduced due to the virus,

Being unable to work because of lack of childcare due to the virus,

  • Closing or reducing hours of a business owned or operated by the individual, the spouse or member of the household due to the virus,
  • Having a reduction in pay (or self-employment income) due to the virus, or
  • Having a job offer rescinded or start date for a job delayed due to the virus.

*Member of the individual’s household is someone who shares the individual’s principal residence.  This can be a friend, partner, child, elderly relative or roommate.

Available Relief

For those eligible to take a CRD, the following relief is available:

• The 10% early distribution penalty is waived.

• The tax would be due, but could be spread evenly over three years, and the funds could be repaid over a three-year period.

Good Advice is Essential

While retirement accounts should ideally not be touched early, reality can be different, and these are challenging times. A CRD might be the only way for some to stay afloat financially. If you are considering a CRD, good advice is essential. Be sure to review your situation with a knowledgeable tax or financial advisor.




By Ian Berger, JD
IRA Analyst


Our estate planning attorney prepared trust documents a few years ago and he advised us to name the trust as a beneficiary.  This was done after discussion with him regarding a situation in case our son(s) divorce their wives.  The trust is prepared so that our sons are designated beneficiaries.

I’ve been reading your Slott Report article that advises against naming a trust as IRA beneficiary.  Please let me know how to make sure half of the inherited IRA funds don’t go to our son’s divorced spouse.

Thanks in advance.


To start, your existing trust document should be reviewed by your attorney to make sure it still works in light of the SECURE Act changes.

In addition, you should consider whether naming a trust as the beneficiary is really necessary. Without a trust, you could name your son as the only beneficiary of your IRA on an IRA beneficiary designation form This is much less complex and expensive than naming a trust. However, trusts are useful in some circumstances, and protecting assets in divorce can be one of them. You may want to discuss this further with the attorney to gather some more information to determine whether you really need to name a trust in your situation.


Thank you for the very timely piece on net unrealized appreciation (NUA)!

One quick question though, just so I am clear:

If someone has a triggering event in 2020, do they need to complete it all by the end of this year, or can they act on it in 2021 or later?  It’s just that IF they start the process in 2020, they need to complete it by 12/31/2020, correct?



Hi John,

You are correct. To qualify for the NUA tax break, the plan participant must generally empty his account all in the calendar year of the triggering event or all in any calendar year after that.



By Ian Berger, JD
IRA Analyst

The October 19, 2020 Slott Report article, “Don’t Overlook After-Tax Contributions!,” explained how after-tax contributions in company plans work and discussed the dollar limits on them. This article will explain how distributions of after-tax contributions are taxed and can be rolled over separately.

If you have both pre-tax deferrals and after-tax contributions in your 401(k), you can’t just take out your after-tax funds to avoid paying taxes on the withdrawal. Instead, a pro-rata rule treats part of your distribution as taxable.

If your plan separately accounts for after-tax contributions and earnings on those contributions, the pro-rata rule applies only to that separate account. In that case, the portion of each withdrawal that is taxable is the ratio of the earnings to the value of the entire separate account (after-tax contributions plus earnings). Most plans use separate accounting but check with the plan administrator or your HR rep if you’re not sure.

Example 1: Jamir participates in a 401(k) plan that separately accounts for after-tax contributions and earnings. He has $100,000 in after-tax contributions and $25,000 in earnings on those contributions. Jamir withdrawals $40,000 from that account. The pro-rata rule applies just to that separate account. So, 20% ($25,000/$125,000) of the withdrawal, or $8,000, is taxable. The remaining $32,000 comes out tax-free.

By contrast, if after-tax contributions (and earnings) aren’t separately accounted for, then the pro-rata rule applies to your entire plan account. That means Uncle Sam gets a bigger share of any withdrawal – the ratio of the value of the entire account other than after-tax contributions to the value of the entire account.

Example 2: Assume Jamir’s 401(k) plan doesn’t have separate accounts. Besides his $100,000 in after-tax contributions, Jamir also has $150,000 in pre-tax deferrals, employer contributions and overall earnings, for a total account balance of $250,000. Jamir again makes a $40,000 withdrawal. This time, the pro-rata rule applies to his entire 401(k) account. So, he must pay taxes on 60% ($150,000/$250,000) of the withdrawal, or $24,000. Only $16,000 escapes tax.

IRS guidance from 2014 now makes it possible for you to simultaneously roll over the after-tax portion of your plan distribution to a Roth IRA and roll over the pre-tax portion to a traditional IRA. This can be a big tax-saver. However, the IRS guidance doesn’t change the pro-rata rule to determine which part of a distribution is taxable and which part isn’t. It also doesn’t apply to IRAs – including SEP and SIMPLE IRAs.

Example 3: In Example 1, Jamir can roll over the $32,000 after-tax portion to a Roth IRA and the $8,000 pre-tax portion to a traditional IRA. The $32,000 would be converted tax-free to a Roth IRA, and any Roth IRA earnings could be withdrawn tax-free down the road if they are part of a qualified distribution.

Since these rules are complicated, be sure to speak with a financial advisor when faced with a distribution of after-tax monies.



By Andy Ives, CFP®, AIF®
IRA Analyst

Trick-or-treating in the time of a pandemic is a challenge. Social distancing while handing out candy requires some creativity. The Slott Report has elected to place a big bowl of random treats in front of our house for the kids to pick from. We bought a lot of candy, so feel free to take more than one…

Twix. Do not name your estate as your IRA beneficiary. If a person inherits through the estate, that is the death knell for their status as a designated beneficiary.

Snickers. Avoid starting a Net Unrealized Appreciation (NUA) transaction after Thanksgiving. If you miss the year-end deadline for the lump sum distribution, the NUA tax break will be lost.

Milky Way. With a trust as beneficiary, the deadline for providing trust documentation to the custodian is Halloween (October 31) of the year following the year of the IRA owner’s death.

Smarties. The end of the stretch IRA is not the end of the world – there is flexibility with the new 10-year payout option under the SECURE Act. Be smart with your tax planning!

Butterfinger. A non-spouse beneficiary cannot convert an inherited IRA to an inherited Roth IRA…but employer plan designated beneficiaries can. Tricky!

Baby Ruth. There is no such thing as a “hardship withdrawal” from an IRA, and “hardship” is not an exception to the 10% penalty for plan distributions. Hardship only allows access to plan assets.

KitKat. 72(t) distribution payments cannot be converted to a Roth…but the entire IRA account balance where the 72(t) payment is coming from can be converted. Weird.

Reese’s Peanut Butter Cups. A Roth contribution can still be recharacterized, but a Roth conversion cannot.

Milk Duds. There is no special tax benefit you can get from a trust as IRA beneficiary that you cannot get by directly naming a person as your IRA beneficiary.

Almond Joy. Don’t go nuts with backdoor Roth conversions before understanding the pro rata rule. All of a person’s IRAs, SEPs and SIMPLE plans must be factored in.

Heath Bar. For those under 59 ½, do not pay the tax on a Roth conversion with money from the IRA being converted. Regarding the taxes withheld…the IRS will take 10% of that candy!

Three Musketeers. There is no such thing as a prior-year Roth conversion, and there is no such thing as a prior-year Qualified Charitable Distribution (QCD). Both must be completed by December 31 to qualify…but New Year’s Eve is another holiday to write about.



By Sarah Brenner, JD
Director of Retirement Education



If an individual has a solo 401(k), is this considered a “retirement plan at work” that would limit the deductibility of IRA contributions?




Hi Susan,

Being an active participant in a retirement plan for the year can limit your ability to deduct your traditional IRA contribution, depending on your income. Participating in a solo 401(k) would count as active participation for this purpose.



First and foremost, I want to thank you for your time and consideration regarding my request for help. Second, regarding my deceased wife’s  IRA (which I inherited), can this be rolled over to a ROTH IRA, understanding I pay the tax? Thank you!

Warm regards,



Hi Mike,

Spouse beneficiaries have options which are not available to nonspouse beneficiaries. You can do a spousal rollover of the IRA you inherited from your wife and then convert that IRA to a Roth IRA. Nonspouse beneficiaries cannot do spousal rollovers and cannot convert an inherited traditional IRA to an inherited Roth IRA.



By Sarah Brenner, JD
Director of Retirement Education



If an individual has a solo 401(k), is this considered a “retirement plan at work” that would limit the deductibility of IRA contributions?




Hi Susan,

Being an active participant in a retirement plan for the year can limit your ability to deduct your traditional IRA contribution, depending on your income. Participating in a solo 401(k) would count as active participation for this purpose.



First and foremost, I want to thank you for your time and consideration regarding my request for help. Second, regarding my deceased wife’s  IRA (which I inherited), can this be rolled over to a ROTH IRA, understanding I pay the tax? Thank you!

Warm regards,



Hi Mike,

Spouse beneficiaries have options which are not available to nonspouse beneficiaries. You can do a spousal rollover of the IRA you inherited from your wife and then convert that IRA to a Roth IRA. Nonspouse beneficiaries cannot do spousal rollovers and cannot convert an inherited traditional IRA to an inherited Roth IRA.


By Ian Berger, JD
IRA Analyst

With the popularity of Roth 401(k) contributions, after-tax employee contributions have gotten short shrift. But, if your plan offers them, after-tax contributions are worth considering because they can significantly boost your retirement savings.

What are they? After-tax contributions are elective deferrals made from already-taxed salary. You make after-tax contributions to your plan the same way you make pre-tax or Roth contributions (if offered). Unlike earnings on Roth 401(k) contributions, earnings on after-tax contributions are always taxable.

Must plans allow them? 401(k) and 403(b) plans are allowed to offer after-tax contributions. But they are not required to do so, and many do not. 457(b) plans for governmental employees are not allowed to offer them.

Why wouldn’t a 401(k) plan offer them? 401(k) plans are subject to nondiscrimation rules which may limit the amount of after-tax contributions that a high-paid employee can make, based on the amount that low-paid employees make. Since high-paid employees are the ones most likely interested in making after-tax contributions, the nondiscrimination test is often difficult to pass.

What are the dollar limits? There are limits on the amount of elective deferrals (pre-tax and Roth contributions) that a participant can make in a calendar year (for 2020, $19,500; or $26,000 if age 50 or older). After-tax contributions do not count against this limit. However, those contributions, along with all elective deferrals and employer contributions (such as matches), do count against a much higher annual limit – for 2020, $57,000 (or $63,500 for over-age-50 employees who defer the additional $6,500). So, an employee who has maxed out on elective deferrals likely will still have enough room to make substantial after-tax contributions.

Example: Roseanna, age 52, participates in a 401(k) plan that allows after-tax contributions. For 2020, she elects to make pre-tax elective deferrals up to the $26,000 limit. Her employer’s matching contribution is $5,000. If she can afford it, Roseanna could make up to $32,000 [$63,000 – ($26,000 + $5,000)] in after-tax contributions.

The mega backdoor Roth. The ability to make large after-tax contributions has led some advisors to promote the “mega backdoor Roth” as a way of converting those contributions to Roth IRAs. However, because of nondiscrimation testing, the mega backdoor Roth strategy usually will not work. See more details at: https://www.irahelp.com/slottreport/mega-backdoor-roth-usually-too-good-be-true.

When are distributions allowed? Plans that offer after-tax contributions are permitted (but not required) to allow in-service withdrawals before age 59 ½. By contrast, pre-tax deferrals generally may not be withdrawn in-service before age 59 ½ — except in the case of hardship withdrawals (if offered).



By Andy Ives, CFP®, AIF®
IRA Analyst


An 85-year-old died in 2020 and left his IRA to his 53-year-old son. Father did not take 2020 $107,000 RMD. Does the son have to take it? Does the son have to take anything in first 9 years, including this RMD?

Thank you.


The CARES Act waived RMDs for IRAs in 2020. Even if an IRA owner dies in 2020, his year-of-death RMD still falls under the waiver. So, the $107,000 did not need to be withdrawn by the father, and it does not need to be withdrawn by his son beneficiary. The son is now subject to the new 10-year payout rule as dictated by the SECURE Act. He can take as much or as little as he wants each year, so long as the inherited IRA account is emptied by the end of the tenth year after the year of his father’s death. In this case, that will be 12/31/2030.


I am a subscriber to your newsletter and get a lot of good information from it.  One question I have not found an answer to and hopefully you can help me: Under the CARES Act, can I take a temporary CRD from my Roth IRA and redeposit it within three years?  I am 74.

Thank you,




The CARES Act created CRDs, or “Coronavirus-related distributions.” CRDs allow up to $100,000 to be withdrawn from an IRA, Roth IRA or workplace plan. All or a portion of the CRD can be repaid within three years. Taxes due on the original distribution can be paid in year 1 or spread ratably over three years. (If the CRD is repaid, these taxes can be recouped later by filing an amended tax return.) Also, a CRD is not subject to the 10% early withdrawal penalty for those under 59 ½. Regardless of age, if you qualify as an “affected individual” as defined by the CARES, then yes, you can take a CRD from your Roth IRA.



By Andy Ives, CFP®, AIF®
IRA Analyst

As Halloween approaches and the leaves change color, families gather ‘round weekend campfires, roast marshmallows, and share spooky stories. Watchful owls hoot in the dark. In the distance, a wolf howls at the moon. A rustle in the bushes. A twig snaps. What was that?!? A dad in a flannel shirt shines a flashlight under his chin, his features glowing red. He scans the anxious little faces, awash in flickering firelight, and tells a tale about the Ghost Rule.

Once upon a time, a kindly little man had an IRA account. He did not care much for tax or estate planning. He did not care to fill out forms, as he did not care much for details. He cared only to sit on his front porch and rock in his chair and watch the world go by. So, when his IRA custodian sent him a beneficiary form to complete, he paid it no mind. The kindly little man just sat in his chair and rocked and did what he enjoyed – watching the world drift along.

By-and-by, the kindly little man grew old, and he passed away.

It was up to the kindly little man’s only living heir, his son, to settle his father’s affairs. One item in need of attention was the IRA. The son wanted to establish an inherited IRA in his own name. He wanted the flexibility to spread distributions from the inherited account over 10 years as provided by the SECURE Act. However, he could not. The son was told by the IRA custodian that his father had never completed a beneficiary form. As such, the default beneficiary based on the custodian’s rules was the kindly little man’s estate. The custodian informed the son that an estate is a “non-designated beneficiary.” The custodian went on to say that, with a non-designated beneficiary, there are two payout options:

· If Death comes before the owner’s RBD (required beginning date) – generally April 1 after the year of the 72nd birthday – payments must be made under the dreaded 5-year rule. The account must be emptied by the end of the 5th year after death. This is the only time the terrifying 5-year payout rule reveals itself – when a person dies before his RBD with a non-designated beneficiary (like an estate).

· However, if Death takes his time and arrives on or after the RBD, payments must be made over the deceased IRA owner’s remaining single life expectancy, had he survived…the GHOST RULE!

The children around the campfire jolt upright and scream! Mom just rolls her eyes. She knows her husband is a lousy campfire storyteller, but she also knows his tale is true.

The “ghost rule” dictates that if death occurs after the RBD with a non-designated beneficiary (i.e., estate, charity, non-qualifying trust), then stretch payments are made to the non-designated beneficiary over the remaining single life expectancy of the deceased account owner, had he lived. RMDs apply annually under the ghost rule. Also, in a strange anomaly, the ghost rule payment schedule could be longer than the 10-year option. However, trying to orchestrate death under the ghost rule to take advantage of this extended payout as a planning strategy is discouraged.

If you want your retirement dollars to go to specific individuals, it is recommended you avoid the dreaded 5-year payout and ghost rule altogether. To sidestep probate and potential tax hassles, simply name your desired IRA beneficiaries directly on the beneficiary form.

Be sure to understand the payout rules applicable to your heirs. Death can be a real-life scary story. There is no reason to make the inheritance process any more unnerving.



By Sarah Brenner, JD
Director of Retirement Educations

For trusts that inherited an IRA in 2019, an important deadline is approaching. October 31, 2020 is the due date to provide required trust documentation to the IRA custodian to ensure that the longest payout period possible is available for the inherited IRA.

Generally, only individuals who are named on an IRA beneficiary form can be designated beneficiaries. A trust is not an individual but if the trust qualifies as a “look through” or “see-through” trust, then each individual beneficiary of the trust can qualify as a designated beneficiary for IRA distribution purposes. For trusts that inherited in 2019, prior to the enactment of the SECURE Act in 2020, this would allow each trust beneficiary to stretch payments over the life expectancy of the oldest beneficiary.

To qualify as what the IRS refers to as a “see-through” trust for IRA distribution purposes, the trust must meet the following four requirements outlined in IRS Regulation Section 1.401(a)(9)-4, A-5:

1. The trust is valid under state law or would be but for the fact that there is no corpus.

2. The trust is irrevocable, or the trust contains language to the effect it becomes irrevocable upon the death of the employee or IRA owner.

3. The beneficiaries of the trust who are beneficiaries with respect to the trust’s interest in the IRA owner’s benefit are identifiable.

4. The required trust documentation has been provided by the trustee of the trust to the IRA custodian no later than October 31st of the year following the year of the IRA owner’s death.

Of the four requirements, some are more complicated than others. For example, the third requirement of identifying the beneficiaries is a process strewn with potential pitfalls and can be challenging even for the most experienced estate attorneys.

However, the fourth requirement listed above seems deceptively straightforward. What exactly has to be done by October 31, 2020? A copy of the trust or a list of the beneficiaries and their entitlements must be provided to the IRA custodian. It’s just paperwork. You may think this this requirement would be a slam dunk. How difficult can it be to provide the necessary documents? Well, apparently, it’s tougher than one might expect because this is the requirement that is actually missed most frequently.

Part of the problem may be with who has the responsibility to meet this requirement. Who has to do this? That would be the trustee of the trust. Not the attorney, the financial advisor, the CPA or any other professional who might have worked on the estate plan. The trustee of the trust is often a family member with no special background or training in this area. The trustee many times has no clue about this requirement.

Don’t miss the October 31 deadline by failing to provide the necessary paperwork. Trusts that fail to fulfill these requirements will not be considered designated beneficiaries, and the opportunity to use the maximum stretch will be lost forever. There is no way to fix this easily avoidable mistake.



By Ian Berger, JD
IRA Analyst



I inherited an IRA from my sister two years ago. She was collecting RMDs at 78.

My question involves collecting my sister’s RMD. Does the 10-year withdrawal go into effect now or do I use the table under my age, which is 73?



Hi Charles,

Since your sister died before 2020, the rules in effect before the SECURE Act apply to you. That means you should have begun receiving an annual RMD by December 31 of the year following her death. The 10-year payout rule does not affect you. Annual RMDs are based on your life expectancy under the Single life Expectancy Table. For the first RMD, you use a factor of 14.1 – the life expectancy for a 74-year old. For subsequent years, you subtract one from the previous year’s factor. If you missed an RMD, you should file Form 5329 with the IRS.


Mr. Slott,

I purchased an IRA fixed indexed annuity through a well-respected insurance salesperson. I called the annuity company inquiring about the income rider affecting QCDs (qualified charitable distributions) once it is engaged. In the past I have taken my QCDs early in the year and the balance of my RMD (required minimum distribution) in November.

The annuity representative, not the producer, told me I could take the RMD, donate the money as an QCD then claim as a QCD on my taxes. He mentioned IRS Form 1099, which I am aware states the total distribution. This isn’t the way it has been handled in the past. I told him I did not understand that and thought it was an Ed Slott question.  I thought it was supposed to go directly from the IRA to the receiving charity.

Please clarify.  If I were audited, what would happen?




Hi Sharon,

Because of the CARES Act, RMDs are not required for 2020.  But if you receive an RMD and do so before taking a QCD, the RMD will be taxable to you — unless you roll it back to the IRA within 60 days. (You have longer to roll it back if you have been affected by COVID-19.) So, if you don’t want the RMD this year and have the option not to take it, you should let the annuity company know. Even if you don’t receive an RMD in 2020, you can still do a QCD.

You are correct that a QCD must go directly from an IRA to the charity. You could receive an RMD and donate it to charity, but that won’t be a QCD. Unless you itemize deductions on your tax return (most people don’t), you usually won’t get any tax benefit from the contribution. There is a special rule in 2020 that might allow you a deduction even if you don’t itemize. That may be what the annuity company was referring to.



By Ian Berger, JD
IRA Analyst

With the recent economic downturn, you may be more concerned than ever about keeping retirement plan funds safe from creditors.

If you participate in a plan covered by the federal Employee Retirement Income Security Act (ERISA), you can sleep well at night. Your plan accounts are completely shielded from creditors – whether or not you’ve declared bankruptcy. (Not surprisingly, there is an exception allowing the IRS to recoup unpaid taxes.)

If your plan is not an ERISA plan, your funds are also completely protected if you’re in bankruptcy. That protection comes from the federal Bankruptcy Code. But the situation may be different if you owe money from a non-bankruptcy lawsuit filed against you. In that case, your ability to shield non-ERISA plan accounts depends on the law of the state where you live. Although some states offer complete protection similar to federal law, other states provide weaker protection.

But how do you know if you’re in a plan covered by ERISA? Here’s a quick primer.

The following are ERISA plans:

· Most private sector retirement plans, including most 401(k) plans and defined benefit pension plans.

· 403(b) plans sponsored by private tax-exempt employers (such as hospitals) that don’t qualify for the ERISA exemption (see below).

The following are not ERISA plans:

· Plans with no employees other than the owner and the owner’s spouse, such as a solo 401(k).

· 403(b) plans sponsored by private tax-exempt employers that qualify for the ERISA exemption. That exemption applies if the employer does not make contributions to the plan and its only involvement with the plan is administering employee elective deferrals.

· Plans sponsored by governmental or church employers. These include the Thrift Savings Plan, which is a 401(k)-type plan for federal government employees and the military.

These also include 403(b) plans for public school or church employees and 457(b) plans for state and local government workers.

SEP and SIMPLE IRAs are treated like non-ERISA plans for purposes of creditor protection.

Traditional and Roth IRAs are protected from creditors if the IRA owner has declared bankruptcy – but only up to an inflation-adjusted dollar limit (currently, $1,362,800). Since funds rolled over to IRAs from employer plans don’t count towards that limit, most IRA owners should be well below that threshold. IRA owners not in bankruptcy must rely on state law to shield their IRAs from creditors.



By Andy Ives, CFP®, AIF®
IRA Analyst

Many years ago, my wife and I went to lunch at a pizza joint in a strip mall. The friendly gray-haired host in sensible shoes (whom I pegged for mid-to-late 60’s), tucked two menus under her arm, grabbed a couple sets of silverware wrapped in white paper napkins, and led us to our booth. Since the noontime rush was yet to hit, our host decided to chat. She asked how our day was going, made a pleasant comment about my wife’s shirt, and told us she was a bit tired because, “after this I need to run over to my second job at Kohl’s. Just trying to keep a roof over my head. Been pretty busy since my third husband died.”

Record scratch. Music stops.

She said she hoped we enjoyed our lunch, smiled, and returned to the front where another group was waiting to be seated. I contemplated what I just heard. Either she burned through three husbands who are now all deceased, or one (or both) of the first two are still alive and just husband number 3 is dead. Regardless, I think somebody messed up.

My financial brain started to spin. This woman should be playing canasta with her friends, not showing a stranger and his wife to their seats by a window. She could be hitting golf balls or taking care of her grandkids while the parents run errands. One husband has assuredly passed on, potentially two others have also died. Did anybody think to buy some life insurance?

When a person reaches the magic age of 59 ½, they have full access to their IRA dollars, penalty-free. While taxes will be due, they can withdraw as much as they wish. One common tax strategy for IRA owners (of any age) is to convert a portion of their IRA each year to a Roth IRA. Roth conversions enable IRA owners to pass tax-free dollars to beneficiaries. (Of course, this assumes they can afford the conversion taxes and that they actually have a traditional IRA.)

Yet another and more advanced strategy typically reserved for those over 59 ½ is to draw down a traditional IRA and use those distributions to pay the premiums on a life insurance policy. Taxes will be due on the withdrawals, and the person must be insurable. But if these two hurdles can be overcome, an individual can potentially pass an even greater sum of tax-free dollars to their beneficiaries. Furthermore, both the Roth conversion and life insurance strategies reduce (and potentially eliminate) future IRA required minimum distributions.

I don’t pretend to understand the personal financial details of the host at the pizza place. I didn’t ask for her annual income or inquire about investment risk tolerance. And it certainly would not have been appropriate to question her about current cash flow needs or future goals. However, at one point in her past I am sure there was an appropriate time to ask these questions. Did anyone broach the subject? Was any thought given to her care should tragedy strike?

Current circumstances indicated no. Even if husband 3 was the only death and 1 and 2 divorced, I have to think there was some sort of estate planning or life insurance option that could have helped. Mortality is not a fun topic of discussion, and some flat-out refuse the conversation. Oftentimes this leads to post-death beneficiary money squabbles, unnecessary dollars lost to the IRS…and a friendly little lady in sensible shoes working two jobs to keep a roof over her head.



By Sarah Brenner, JD
Director of Retirement Education


Would you kindly clarify the rule that governs the withdrawal period and the tax implication (if any) of RMDs from an inherited IRA? The SECURE Act and the IRS document 590B are not clear.

Here is the situation: I have a traditional IRA with my granddaughter as the sole beneficiary. My understanding is that before the SECURE Act, inherited IRA’s had to issue annual RMD’s if the original owner was taking them. The SECURE Act seems to say that annual RMD’s are no longer required to be taken by a non-spouse beneficiary, just as long as the account is fully distributed in the 10-year period.

Am I correct is assuming that all inherited IRA RMD funds, however distributed in the 10 years, will be taxable to my granddaughter?

Thank you.


Interesting question! The SECURE Act was a game changer for inherited IRAs. You are correct that before the SECURE Act IRA beneficiaries such as your granddaughter could stretch RMDs over their life expectancy. That meant that annual RMDs needed to be taken. With the SECURE Act, most beneficiaries will no longer have the ability to stretch RMDs over life expectancy. Instead, most will be subject to a 10-year payout period. Unless there is basis in the traditional IRA, any distributions taken by your granddaughter during this period will be taxable to her. There is some good news, however, about the 10-year payout period. There are no annual RMDs. This allows some flexibility for beneficiaries. They can take more or less each year depending on their tax situation. It is even possible to skip years. However, the entire account must be emptied by December 31 of the tenth year following the year of death.


A client transacted a “reverse rollover” from their traditional IRA in 2020 into their corporate 401(k) plan.  After doing so, but in the same year, they made a non-deductible IRA contribution, then transacted a Roth conversion with these monies.  Does this Roth conversion fall under the pro rata rules due to it being done in the same year, but after the reverse rollover was completed?

Thanks for your help!

Best Regards,



Hi Tim,

Whenever a conversion from a traditional IRA to a Roth is done, the pro rata rule applies. That means that we have to consider all of an individual’s IRA funds when determining the taxation of a conversion. This rule trips up many IRA owners looking to take advantage of the backdoor Roth strategy where they make nondeductible traditional IRA contributions and then convert them. If they have other IRA funds, they may be looking at an unexpected tax bill.

However, in your situation, the client has found a way to avoid this pitfall. By moving taxable IRA funds to the 401(k) plan by December 31, 2020, they will avoid having those funds being included in the pro rata formula to determine the taxation of the 2020 backdoor Roth conversion. It does not matter what order in which the reverse rollover and the conversion happen. A long as the reverse rollover is done by December 31, 2020, those funds will not be included in the pro rata calculation.



By Sarah Brenner, JD
Director of Retirement Education

Times are tough. Unemployment is high and bills are piling up for many. These realities have forced a lot of people to look for sources of extra cash. For many Americans, their IRA is their biggest, or maybe only, savings available. It may be tempting to consider tapping into it in these challenging times. Distributions taken before age 59 ½ are subject to a 10% early distribution penalty. However, there is an exception for a series of substantially equal periodic payments (often called “72(t) payments”). While this may seem like a good opportunity to access IRA savings penalty-free, here are 3 reasons why you may want to think twice before you start a 72(t) payment plan from your IRA.

1. There is not a lot of flexibility: Many times, those who are interested in 72(t) believe they can simply choose the amount they would like to take from their IRA each year. It’s not that easy. There are specific formulas that must be used to calculate 72(t) payments. If your IRA balance is small, the amount you can take may be disappointing and not enough to meet your needs. You cannot take more from your IRA if you need it. And, you cannot stop the payments if your financial situation improves before the payment plan terms ends. Any change to the payment stream (with limited exceptions such as death or disability) would be considered a modification and would blow up the 72(t) plan, resulting in penalties.

2. It is a long-term commitment: A 72(t) plan should not be entered into lightly because it is a long-term commitment. When you start 72(t) payments, you must continue them until you reach age 59 ½ and five years have passed. Both requirements must be met. So, if you are 40 years old, you are looking at about 20 years of 72(t) payments in most cases. That’s a long time and a lot can happen. You really need to be sure you want to be locked into the payment plan for long durations.

3. It is easy to make mistakes and penalties are harsh: Because the calculations for 72(t) payments are so precise and because they must go on for such a long time, it’s easy for mistakes to happen. When the payment stream is modified (with limited exceptions), the 10% penalty will apply to all the distributions taken before age 59 1/2. That could be years and years of distributions. Using our previous example with the 40 year-old individual who starts 72(t) payments, if those payments are modified in the year the IRA owner turns 50 that would mean the 10% penalty would apply to the prior 10 years of payments. To make matters worse, interest is also assessed. That is a harsh result and the IRS in a number of private letter rulings has been reluctant to grant relief even for honest mistakes.



By Andy Ives, CFP®, AIF®
IRA Analyst


Hi there!

I have a quick question, so I thought I’d reach out to you to get your take on this. This year, IRA RMD’s have been waived, even for inherited IRA’s. That said, if a non-spouse inherits an IRA this year – and the new RMD rules dictate a 10-year withdrawal – but this year’s RMD is waived – does this year (2020) still count as year 1? In other words, starting next year are the inherited IRA RMD’s essentially on a 9-year clock? Or would this year not “count” (with the waiver of RMD’s) so the non-spouse beneficiary could start his/her RMD’s next year, but still be on a 10-year clock – versus a 9-year clock??

Thank you, Ed Slott and Company!





The 10-year clock does not become a 9-year clock. The 10-year clock first came into existence under the SECURE Act this year – 2020. However, if a person inherited this year (2020), their 10-year clock does not start until the year after the year of death – so 2021. As such, the account will need to be emptied by December 31, 2030. (Remember, there are no annual RMDs with the 10-year payout. A person can withdraw as much or as little as they wish each year, as long as the account is drained by the end of year 10.)



We have a situation where a client who had an inherited IRA (from his father) has just passed away and his beneficiary was his spouse. So, we’re not sure what happens. Some say that she would now own the inherited IRA and would be able to continue to receive RMD payouts under her deceased’s husband’s life expectancy. Others say she has an inherited IRA that needs to be liquidated in a 10-year time period.  What do I do now?




The spouse in this case is a successor beneficiary (beneficiary of a beneficiary) of an inherited IRA. The rules are that successor beneficiaries who inherit in 2020 or later are automatically subject to the 10-year payout. It does not matter if the successor beneficiary is the spouse, a minor, disabled, or any of the other groups of people that can stretch under the SECURE Act. Successor beneficiaries receive the 10-year payout, period. (Incidentally, if she were to die before the end of her 10-year period, her beneficiary could only continue with the remaining time on the original 10-year term.)



By Andy Ives, CFP®, AIF®
IRA Analyst

An argument could be made that the easiest financial document to complete is the IRA beneficiary form. Yet somehow this basic information consistently gets overlooked, mishandled, lost or fouled up. It’s not rocket science. Don’t complicate things. Keep it simple if you can.

Case in point: an attorney drafted a fancy addendum to a beneficiary form with all the necessary legalese and important letterhead and flourishing signatures. The addendum named John Doe’s wife as primary IRA beneficiary and their three adult children as contingent. Pretty straightforward. But then things went sideways. The following line was added above the names of the contingent beneficiaries: “If John Doe predeceases wife Jane Doe, then the contingent beneficiaries shall receive the following payout percentages,” and the document listed those numbers.

Wait a minute. If John Doe predeceases his wife, shouldn’t Jane get 100% of the IRA as the named primary beneficiary? The line was written backwards. It should have read, “If wife JANE Doe predeceases JOHN, THEN the contingent beneficiaries shall…” receive their percentage payouts.

Had this addendum been in existence at the time of John Doe’s death, its validity could have been challenged. Not only was it written on something other than the custodian’s actual beneficiary form, but the information contained in this single-page document was completely contradictory. In part one, Mom Jane was named primary beneficiary of Dad’s IRA. In part 2, the adult children were to receive the assets if Dad died before Mom. Huh?

Yes, a beneficiary form may look relatively innocuous and it should be easy to complete. But take your time, and do it correctly. Recognize the significance of this little form. It has the power to seamlessly transfer millions of dollars to charity and/or the next generation…or it could cripple an otherwise well-constructed estate plan.

A few items to consider:


  •  Where is the beneficiary form?
  • Is the form current?
  • Are contingent beneficiaries named?
  • If multiple beneficiaries, does the percentage of inheritance add up to exactly 100%?
  • Has the SECURE Act been considered, i.e., the new 10-year payout rule?
  • If you created an addendum, will the custodian accept it (since it was not written on their original form)?

Certainly there are other considerations, but these are some of the biggies. Be sure to contemplate all options, and work with a trusted advisor to ensure the beneficiary form meets your objectives. Review beneficiary forms annually, and if you can’t find a form, just fill out a new one as it will supersede the previous. The idea is to leave your heirs with an inheritance, not a financial headache.



By Ian Berger, JD
IRA Analyst

Think of a top hat, and you’ll likely conjure up images of Franklin Delano Roosevelt or the temporarily-deceased Mr. Peanut or Rich Uncle Moneybags from Monopoly. But a “top hat plan” is also the informal name of a type of section 457(b) plan for management employees (hence the name “top hat”) of private tax-exempt companies such as hospitals. A top hat plan is different from the more common type of 457(b) plan for state and local government workers.

Who’s covered?  Because of the risks of participating in a top hat plan, those plans can’t cover rank-and-file employees. Instead, they must be limited to a small percentage of the employee population who are key management or are highly paid. In a hospital setting, this may include doctors or high-level executives.

Contribution limits. Participants in a 457(b) top hat plan can defer up to the annual deferral limit (for 2020, $19,500). Normal catch-up contributions for participants age 50 or older are not allowed. But top hat plans can allow special catch-up contributions (potentially up to another $19,500) for each of the last three years before a participant’s retirement age.

Top hat plan participants who are also in a 403(b) or 401(k) plan have a huge advantage. In that case, the contribution limits are not aggregated. So, a participant in both plans can defer up to a total $39,000 in 2020 – and even more if older.

Must be unfunded. Top hat plan funds can’t be held in trust or otherwise funded. Instead, they must remain the property of the employer and must be available to the employer’s creditors at all times. This makes them riskier than other retirement savings plans. “Rabbi trusts” (first used by a rabbi and his congregation) are often used with top hat plans. With a rabbi trust, top hat plan funds remain subject to the employer’s creditors, but the employee is protected if the employer changes the terms of the plan or if another entity becomes the employer as a result of a corporate transaction.

What’s not allowed? Certain common features of other retirement savings plans aren’t permitted in top hat plans.  For example, they can’t allow loans (although hardship withdrawals are allowed). In addition, Roth contributions may not be made. Finally, top hat plan accounts can’t be rolled over to IRAs or other plans, but may be transferred to another employer’s top hat plan. Top hat plan accounts are subject to RMDs.

Ineligible plans. 457(b) top hats are sometimes referred to as “eligible” plans. Tax-exempt employers can also establish “ineligible” plans under section 457(f) of the tax code. Employees in those plans can contribute even more than the IRS maximum. But tax on the contributions (and associated earnings) is deferred only as long as there is a substantial risk that the contributions and earnings will be forfeited. So, to avoid tax there must be a real possibility that the employee will lose his contributions and earnings.



By Ian Berger, JD
IRA Analyst


Ed and team,

I am sure my question has been asked by others.  Now under the SECURE Act with no more stretch features to an inherited IRA, if a person dies and leaves his IRA to a child and that child waits 9 years and 11 months after the year of death and named his children (taxpayer’s grandchildren) as his successor beneficiaries, do they have only one month to clean out the IRA or does the 10 year period begin all over.

Thanks for your help and keep putting out the good advice



Dear Jay:

Assuming the child is not a minor, then the child is subject to the 10-year payout rule under the SECURE Act. That 10-year period does not start over again for the grandchildren as successor beneficiaries. So, if the child dies 9 months and 11 months after the owner’s death, any remaining IRA funds do have to be paid out to them within one month. On the other hand, If the IRA had been left to a minor child or spouse (or other beneficiary eligible for the stretch), then the grandchildren would have a 10-year payout period.


Can you take a coronavirus-related distribution (CRD) under the CARES Act from an inherited IRA and pay it back over 3 years? Thanks.


The IRS has made it clear that a beneficiary of an inherited IRA cannot usually repay a CRD. There is an exception for spousal beneficiaries who are affected by COVID-19. This is consistent with the rule that nonspouse IRA beneficiaries cannot do rollovers.



By Sarah Brenner, JD
Director of Retirement Education

A significant percentage of IRA assets will ultimately go to nonspouse beneficiaries. When these beneficiaries inherit the funds, special rules kick in. Inherited IRAs are not like other IRA accounts. Here is what you need to know if you inherited an IRA from someone who is not your spouse:

1. You should consider all your options before doing anything with your inherited IRA. If you inherit an IRA, you need to move cautiously. You have time to make decisions, so don’t rush. You will want to notify the IRA custodian of the death of the IRA owner if that has not already happened. You will also want to be sure that the beneficiary account is set up properly. Each custodian will do things a little differently, but you will want to make sure that the account is titled with you as the beneficiary of the deceased IRA owner. This is not a taxable event.

Do not take any distributions unless you are sure that is what you want. Distributions cannot be put back if you change your mind and there are likely to be tax consequences. An unwanted or unneeded distribution is a mistake that cannot be fixed.

2. You cannot contribute to your inherited IRA. You cannot make contributions to an inherited IRA. If you already have your own IRA, you cannot add those funds to the Inherited IRA or vice versa.

3. You can transfer your inherited IRA. If you are unhappy with the investment choices or the custodian, you can transfer your inherited IRA to another custodian, and you can select different investment options. You must move the account by direct transfer and the new account must be an inherited IRA as well. As a nonspouse beneficiary you cannot take a distribution and then roll it over within 60 days.

4. You may be able to do a QCD. If you are charitably inclined, you may be able to take advantage of a qualified charitable distribution (QCD) and move your IRA funds directly to the charity of your choice in a tax-free transfer. To do a QCD you must be 70 ½ or older.

5. You cannot convert your inherited IRA. Many times, nonspouse beneficiaries are interested in having a Roth IRA. Unfortunately, the rules do not allow nonspouse IRA beneficiaries to convert inherited IRAs to Roth IRAs.

6. You will be subject to RMDs. You can’t keep the funds in your inherited IRA forever. Your account will be subject to required minimum distributions (RMD)s. If you inherited the IRA funds in 2020, as a nonspouse beneficiary you will most like be subject to a 10-year payout-period (which is essentially one big RMD at the end of the 10 years). Certain eligible designated beneficiaries who inherit in 2020 and those beneficiaries who inherited prior to 2020 may be still be able to stretch RMDs over life expectancy.

7. Your distributions may be taxable, but there will be no penalty. Inherited IRAs are never subject to the 10% early distribution penalty. However, if you inherit a traditional IRA it is likely that the distributions you take will be taxable. If you inherit a Roth IRA, you are more fortunate from a tax perspective. Distributions from an inherited Roth IRA will most likely be tax-free.

8. You should name a successor beneficiary. When you inherit an IRA, it makes sense to name a beneficiary. If you don’t, the default provisions in the IRA document are likely to apply. In many cases this would mean the funds would go to your estate which can mean more taxes and the time and expense of probate.



By Andy Ives, CFP®, AIF®
IRA Analyst

Gradually, the IRS is clarifying sections of the SECURE Act that require further guidance. In Notice 2020-68, released September 2, the IRS addressed a number of items in a Q&A format. For example, “Is a financial institution that serves as trustee, issuer, or custodian for an IRA required to accept post-age 70½ contributions in 2020 or subsequent taxable years?” Surprisingly, the answer is No. Financial institutions do not have to accept post-age 70 ½ IRA contributions even though such contributions are permitted by the SECURE Act. (Why an institution would refuse these deposits is beyond me.)

Another question in the Notice was, “May an individual offset the amount of required minimum distributions (RMDs) for a taxable year from the individual’s IRA by the amount of post-age 70½ contributions for the same taxable year?” Meaning, if a person makes a post-age 70 ½ IRA contribution, can they reduce their RMD in that year by the same amount? This answer is also No. As Notice 2020-68 clearly states, “Contributions and distributions are each separate transactions and are independently reported by the financial institution to the IRS.”

Despite these clarifications, there are still many SECURE Act items that remain murky, especially with trusts as beneficiaries of inherited IRAs. One such situation recently came across my desk. While this is a bit of a trick question, it did lead to an “unknown” within SECURE:

A person in his 80’s established a trust and named the trust as his IRA beneficiary. His five minor grandchildren were the beneficiaries of the trust. Pre-SECURE Act, these five minor trust beneficiaries could potentially receive annual RMD payments over the single life expectancy of the oldest child. But that is no longer always the case.

The question I received was, “Under the SECURE Act, could these five minor beneficiaries benefit from the stretch at all – maybe at least until they were age of majority?” The answer is No. “But I thought minor beneficiaries could stretch up to the age of majority, and at that point the 10-year rule would kick in. Is that not true?” It would be true if these five trust beneficiaries were minor children of the account owner. As it was, they were grandchildren of the account owner and therefore did not qualify for any stretch. The 10-year rule would most likely apply.

Hypothetically, assume that each of these trust beneficiary children were, in fact, minor children of the account owner. That could qualify them as “eligible designated beneficiaries” and potentially permit them to stretch RMD payments. But this is where the SECURE Act is still vague. Does the 10-year payout rule apply after they all have reached the age of majority? Does the 10-year rule spring forward simultaneously for the entire group of children when the oldest beneficiary reaches majority?

As things currently stand, nobody knows the definitive answer. When multiple minor children of the IRA owner are named as trust beneficiaries, we still need further IRS guidance on how to proceed with their payouts. Be aware that several items in the SECURE Act remain unclear. As we continue to dig through the law and uncover new questions, sometimes “We don’t know yet” is the proper response.



By Sarah Brenner, JD
Director of Retirement Education


Does the SECURE Act have any implication to Roth IRA account inheritance longevity? Please let me know.  Thank you.




Hi Vikram,

The SECURE Act does affect inherited Roth IRAs in the same way it affects inherited traditional IRAs. Most beneficiaries who inherit a Roth IRA in 2020 or later will be subject to a 10-year payout period.


Hi Ed,

I just want you to know that I have all of your books which I refer to whenever I have a question about IRAs or retirement planning. However, there is one subject I could not find an answer to in any of your books.

My wife has a traditional IRA, but she does not have a Roth IRA. She has been retired for a number of years now, and would like to open a Roth IRA with a conversion from her traditional IRA. Can she do this?

Thank you,



Hi Tony,

This is a question that seems to come up frequently. While there is a requirement that an individual (or their spouse) have earned income to make a tax year contribution to a traditional or Roth IRA, there is no such requirement to do a conversion. An individual with no earned income can convert an existing traditional IRA to a Roth IRA with no issues.



By Ian Berger, JD
IRA Analyst

In Notice 2020-68, issued September 2, 2020, the IRS gave limited guidance on certain retirement provisions of the Setting Every Community Up for Retirement Enhancement Act (the “SECURE Act”). The SECURE Act was signed into law on December 20, 2019.

Notice 2020-68 does not address one of the most significant SECURE Act changes: the elimination of the stretch IRA for most non-spouse beneficiaries and its replacement with a 10-year payout period. The Notice also does not provide guidance on the increase in the first RMD (required minimum distribution) year from age 70 ½ to age 72. The IRS promised more substantial SECURE Act guidance in the future.

Notice 2020-68 does address the following SECURE Act provisions:

  • Beginning in 2020, individuals who turn age 70 ½ or older are no longer barred from making traditional IRA contributions. Somewhat surprisingly, the IRS said that financial institutions are not required to accept post-age 70 ½ contributions. (It’s not clear why a custodian would want to turn away a new source of funds.) Those institutions that do accept post-70 ½ contributions must amend their IRA contracts and update the disclosure statement they must give IRA owners. However, the deadline for making those amendments and updates is not until at least December 31, 2022. Notice 2020-68 also provides an example of how making a post-70 ½ deductible IRA contribution can result in a QCD (qualified charitable distribution) becoming partially or wholly taxable. That’s why we recommend that, for those of you who make QCDs and also want to fund your IRA, the IRA contribution should be a Roth contribution – not a deductible contribution.
  • Effective January 1, 2020, there is a new exception to the 10% early distribution penalty for IRA or company plan distributions made within one year of a birth or adoption. These penalty-free withdrawals are limited to $5,000 per individual for each birth or adoption. Notice 2020-68 clarifies that an eligible adoptee must be either under age 18 or disabled under the strict tax code definition of “disability” (unable to work by reason of an impairment that can be expected to result in death or continue for an indefinite period). The IRS also said that company plans are not required to offer birth or adoption withdrawals as a new distributable event. However, an under age 59 ½  participant in a plan that doesn’t offer them can still avoid the 10% penalty by taking a permissible plan distribution (e.g., a hardship withdrawal or a distribution upon termination of employment) that meets the requirements of a birth or adoption distribution.
  • Foster care workers who receive “difficulty of care” payments from their employer can use those amounts to make nondeductible IRA contributions and after-tax employee contributions to company plans – even though the payments are non-taxable.

Notice 2020-68 also addresses two retirement plan changes made by the Bipartisan American Miners Act of 2019, a law passed at the same time as the SECURE Act. The first permits defined benefit pension plans to lower the minimum age for in-service withdrawals from age 62 to age 59 ½. The second allows state and local governmental 457(b) plans to offer in-service withdrawals at age 59 ½. Notice 2020-68 clarifies that both of these changes are optional – not required.



By Andy Ives, CFP®, AIF®
IRA Analyst


Good Afternoon Ed Slott and Company, LLC,

I was inquiring about a recent situation with a client that came up and if you could be of any assistance. We recently had a client pass away who was the account holder of an inherited IRA from his mother. This client died in July 2020. The deceased listed his wife as 100% primary beneficiary of his inherited IRA and she will inherit this second-generation IRA once the new account is opened.

In what ways (if any) would the SECURE Act play a role here in the new second-generation inherited IRA account for the recent widow? Since she is a non-spouse of the original account holder (deceased husband’s mom), would the account need to be emptied in 10 years (starting in 2021)? Or would she assume her husband RMD withdrawal provisions and stretch the payments over her lifetime? Or would another rule take precedent?

This is the first case we have seen, so any help or knowledge would be greatly appreciated.



The answer here is cut and dried. Under the SECURE Act, any successor beneficiary (beneficiary of a beneficiary) who inherits in 2020 or later follows the 10-year payout rule. It does not matter if the successor beneficiary is a spouse of the beneficiary or disabled or any of the other groups of people who can still stretch payments. It also does not matter if the original beneficiary inherited the account before the SECURE Act became effective in 2020. Successor beneficiaries in 2020 or later must empty the account by the end of the 10th year after the year of death. Note that if the successor beneficiary dies during the 10-year window, the next beneficiary in line does not receive a new 10-year payout. They can only continue the existing 10-year term.


Hi there,

Had a unique situation arise and haven’t been able to find a clear answer. Client made a 2020 non-deductible $6,000 IRA contribution and immediately converted to Roth in 3/2020. Roth was invested in travel sector and plummeted from $6,000 to $2,300. Client panicked, sold the stock and took a premature withdrawal, thinking he could just redeposit the $2,300 along with $3,700 more into a Traditional IRA for 2020, and redo the entire transaction as if the first one never happened.

Since that is not an option, he is now beyond the 60-day redeposit window. Does the CARES Act apply to Roth IRAs, thereby allowing him to at least redeposit the $2,300 back into the Roth?





Since the $2,300 “panicked distribution” was taken more than 60 days ago, it cannot be rolled back into the Roth IRA. The CARES Act extended the rollover deadline to August 31 for unwanted 2020 RMDs, but that will not help here. Also, the client cannot “start over,” because he already made his maximum IRA contribution for 2020 when he contributed the $6,000 to the Traditional IRA. Anything else would be an excess contribution. The good news is that there is no penalty on the $2,300 distribution, even if the client is under 59 ½, because the Roth conversion was done with non-deductible dollars. Also, there is no tax due because there are no earnings. Unfortunately, the client will be saddled with all the applicable 2020 tax forms for a non-deductible IRA contribution (Form 8606), for a Roth conversion (Forms 1099-R and 5498), and sadly will have $3,700 less than when he started.



By Sarah Brenner, JD
Director of Retirement Education

Despite the COVID-19 pandemic, or maybe even because of it, real estate markets in many areas of the country are busy right now. If you are considering jumping in, and if this is your first home purchase, coming up with a down payment can be daunting. Here is how an IRA can help a first-time homebuyer.

Exceptions to the 10% Penalty

IRAs are supposed to be for saving for retirement. If you tap your IRA before reaching age 59 ½, you run the risk of being hit with the 10% early distribution penalty. However, there are some exceptions to this penalty. Remember, even though an exception to the 10% penalty may apply to a distribution from a traditional IRA, the funds will usually still be fully taxable.

First Home Purchase Exception

If you take a distribution from your IRA and use the funds to acquire a first home, the 10% early distribution penalty does not apply. The exception to the 10% penalty applies only to IRAs (including SEP and SIMPLE IRAs). It does not apply to distributions from an employer retirement plan like a 401(k).

“Acquiring a home” can mean purchasing an existing home or constructing a new one. Closing costs, including reasonable settlement or financing costs, would qualify. The home that is acquired must be a principal residence. If you rent an apartment where you are currently living, and you are looking to purchase a vacation home, that would not qualify.

The definition of “first-time home buyer” for purposes of this exception may not be what you expect. A first-time home buyer is someone who has not owned a home for the past two years. If you owned a home, but you sold it five years ago, you would qualify. The first-time home buyer may be the IRA owner, but certain family members can qualify as well. A spouse, or a child, grandchild, parent or grandparent of the IRA owner or their spouse all qualify.

The funds must be used within 120 days from the date the distribution is received. There is a $10,000 lifetime limit per IRA owner. If an IRA owner takes a penalty-free distribution of $7,000 and gives it to an adult child for a first home purchase, that IRA owner has $3,000 left that they may use over their lifetime for a first home purchase.

There are some special rollover rules for distributions taken for a first home purchase. A client has 120 days, not the standard 60 days, to roll over these distributions if the purchase of the home is cancelled or delayed. Also, if the purchase is cancelled or delayed, the one-rollover-per-year rule does not apply.

So, if you are in the market as a first-time home buyer and need access to cash, know that up to $10,000 of your IRA assets could be available, penalty free.