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:

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.


By Andy Ives, CFP®, AIF®
IRA Analyst

As sure as the sun will rise, someone will take a distribution from his IRA tomorrow. And as sure as the moon will set, someone will fail to roll over his IRA distribution within 60 days. And as sure as the wind will blow, so too will the icy gusts from the IRS as penalties and taxes accumulate like a snowdrift upon said distribution when the 60-day rollover deadline is missed.

Yes, a person is permitted to take a distribution from his IRA and roll it over to another (or the same) IRA within 60-days. But only one rollover is allowed within a 12-month period. That means no rollovers for the next 365 days. This one-rollover-per-year rule only applies to IRA-to-IRA and Roth IRA-to-Roth IRA rollovers. It does not impact plan-to-IRA or IRA-to-plan rollovers. Also, note that inherited IRAs can never be rolled over. They must move via direct trustee-to-trustee transfer.

I understand the temptation to use IRA dollars during the 60 days as a “short-term loan.” The problem is that 60 days can sneak up on a person. In some cases, people don’t even know there is a 60-day rollover requirement. In the last couple of weeks alone, problems with the 60-day rollover window have arisen on a number of occasions. Two of which are included here:

PLR 202033008 – A couple planned to sell their existing home and buy a new one. Their real estate agent advised the husband to use money from his IRA to pay for the new house, and then redeposit the IRA dollars after the old home sold. Problem was…the real estate agent never told the couple about the 60-day rollover rule. The old home sold after the 60-day period, and the husband tried to replace the withdrawn funds in his IRA. No dice. No fix available. The IRS denied a waiver of the 60-day rule. The husband was forced to pay the taxes on the distribution and an additional 10% early withdrawal penalty if he was under 59 ½ years old. (Not to mention the cost of the rejected private letter ruling, which could run as high as $10,000-plus.)

The Helpful Father – This story is painful, and stems from a real-life phone call I received. An adult son wished to buy a house, and Dad wanted to help. They agreed that Dad would take money from his IRA and allow Son to use the dollars. Son would replace Dad’s IRA distribution when his old house sold. (Sound familiar?)

Both acted in good faith, but “good faith” does not authorize circumvention of the rules. Dad took an IRA withdrawal and loaned Son the dollars. Son bought the new house, and when his old house sold, he dutifully handed Dad back the borrowed money…over $400,000! Problem was…you guessed it…it was after the 60-day rollover period. No fix. Dad must eat the taxes on the distribution. (We were able to return $30,000 as that was Dad’s 2020 RMD amount and could be rolled back by August 31, but we could not return anything else. We even tried to designate $100,000 as a “Coronavirus-related distribution” to bypass the 60-day rollover window, but were unable to shoehorn Dad into the definition of an “affected individual.”)

Be extraordinarily careful with 60-day rollovers! Consider a direct transfer instead. If you go down the rollover path, know the rules as they are hard and fast. Seek competent advice, watch the calendar, and do not allow the moon to set on your rollover.


By Ian Berger, JD
IRA Analyst


I had taken an RMD in January 2020 from an IRA account. Then in July, I returned a portion back to the same IRA. Now I want to return another portion back to the IRA.

Are multiple transactions for reversal allowed?

Thanks for your quick reply in advance.



Hi Piyush,

You are allowed to pay back an IRA distribution with multiple partial rollovers. This includes an unwanted 2020 RMD. Normally, each rollover from a single distribution must be made within 60 days of receipt of the funds. But for 2020, the IRS has waived the 60-day deadline for unwanted RMDs. However, payment(s) must be returned by August 31, 2020. So, you better hurry!


My son is attending college. I plan on using my IRA to pay off his school debt. I’m old enough to avoid penalty, but do I get any tax break for using it for education?



Hi Jeff,

There is no tax break for paying off college debt if your withdrawal is from a traditional IRA. Traditional IRA distributions are always taxable (unless they are ultimately rolled over). For those under 59 ½, the 10% early withdrawal penalty can be avoided for IRA withdrawals used for higher education expenses paid in the same year as the withdrawal was made. But the withdrawals will still be taxable.



By Ian Berger, JD
IRA Analyst

Some of you may have received an RMD (required minimum distribution) from an IRA or employer plan earlier this year that you don’t want to keep. Since the CARES Act waived RMDs for 2020, “RMDs” received in 2020 are technically not RMDs and are eligible for rollover.

The IRS has relaxed the usual 60-day rollover rule if an RMD is repaid by August 31. (The IRS also waived the once-per-year rollover rule for an IRA RMD that is repaid back to the same IRA before August 31.)  With just a few days to go, you may not be able to time to meet the August 31 deadline. But all may not be lost.

If you received your RMD in July or August, the normal 60-day deadline will give you additional time beyond August 31 to repay the RMD.

And, if you are a “qualified individual,” you don’t have to sweat the August 31 or 60-day deadlines at all because you have plenty of time to repay your RMD.

Not everyone is a “qualified individual.” You must fall within one of the following categories to qualify:

· an individual diagnosed with the SARS-CoV-2 or COVID-19 virus by a test approved by the CDC;

· an individual whose spouse or dependent is diagnosed;

· an individual who experiences adverse financial consequences on account of the individual, the individual’s spouse, or a member of the individual’s household:

>  being quarantined, being furloughed or laid off, or having work hours reduced due to the virus;

 >  being unable to work due to lack of child care 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; and

· an individual who experiences adverse financial consequences on account of closing or reducing hours of a business owned or operated by the individual, the individual’s spouse, or a member of the individual’s household due to the virus.

A “member of an individual’s household” is anyone who shares the individual’s principal residence.

Under the CARES Act, qualified individuals can withdraw up to $100,000 from their IRA or company plan in 2020 and receive several tax breaks. These withdrawals, known as CRDs (coronavirus-related distributions), can be repaid tax-free within three years to an IRA or a company plan that allows rollovers. Repayment does not have to be made to the account from which the CRD originated. If you repay a CRD after paying taxes on it, you can file an amended tax return to recoup your taxes. (CRDs are also exempt from the 10% early distributions penalty, and CRD income can be spread out evenly over 2020, 2021 and 2022 tax returns.)

So, if you received an unwanted RMD and are a qualified individual, you can relax. Since your RMD is a CRD, you have three years to return it to an IRA or workplace plan.


By Sarah Brenner, JD
Director of Retirement Education

The upcoming school year for many students is going to look like nothing we have ever seen before. For many, computers and related technology will become an indispensable part of academic life. This means that having reliable equipment and internet access is more important than ever. For many families this is just another unexpected expense in a pandemic economy. Here is how an ESA could help.

How ESAs Work

Coverdell Educations Savings Accounts (ESAs) are tax favored accounts designed for saving for education expenses. The maximum contribution amount is $2,000 per year for each designated beneficiary. The contributor does not have to be a parent.

While ESA contributions are not tax deductible, distributions (including earnings on the contributions) used for “qualified education expenses” are tax and penalty-free. Many people contribute to ESAs to save for college. However, ESA qualified education expenses are much broader than just college tuition.  The expenses can be college expenses, but they also can include grade school and high school expenses.

Tax-free ESA Distributions for Computer-Related Expenses

With many colleges and K-12 schools going completely or partially virtual for the 2020-2021 academic year, access to technology is more important than ever. Fortunately, the definition of qualified education expenses for ESAs includes technology related expenses such as computer equipment, software and internet. Now may be the time to tap your ESA for a technology upgrade. Because these expenses are considered qualified education expenses, there are no tax or penalty consequences.

Example: Emily and Ashley are sisters. Their grandmother has been contributing to an ESA for each of them for a few years. Emily will be a junior in high school this year and Ashley will be starting her first year of college. Both girls’ schools have announced that they will be virtual in the fall. Distributions can be taken from each girl’s ESA to purchase new laptops, any software or other computer equipment needed, and internet access. These distributions would be tax and penalty-free.


By Sarah Brenner, JD
Director of Retirement Education


In December of 2018 I did my first partial Roth IRA conversion into a new Roth IRA. I’m older than 59 ½.

In December of 2019 I did my second partial Roth IRA conversion into the same Roth IRA opened in December of 2018. The traditional and Roth IRA’s are held at the same company, so the conversions are easy. Does the 5-year waiting period apply to each conversion, or just the first one?


We get a lot of questions about the five-year rule for Roth IRA distributions! What makes this area so confusing is that there are, in fact, two different five-year rules that may come into play.

The first five-year rule applies to converted funds. If you are under age 59 ½ you must wait five years to access without penalty any converted funds that were taxable at the time of the conversion. This five- year rule does restart for each conversion.

The good news for you is that this five-year rule will not apply to you because you are over age 59 ½. You do not need to worry about the 10% penalty on converted funds when you take distributions from your Roth IRA.

However, there is a second five-year rule that will affect you. To have a qualified, or tax-free, distribution of earnings from a Roth IRA you must meet an overall five-year holding period, even if you are over age 59 ½. This five-year period begins with your first conversion (or Roth contribution) and does not restart with subsequent conversions. If your 2018 conversion was your first foray into a Roth IRA, then your overall five-year period for tax-free distributions of earnings from all of your Roth IRAs would have begun on January 1, 2018.


In mid-February, 2020, I rolled money out of my IRA, wrote a check and sent it to my annuity agent who opened up an annuity with an insurance company.  On May 20th, I rolled additional money out of my IRA, wrote out another check to add to my existing annuity, but it never got cashed…and I didn’t resend it as I had just heard of the one-rollover-per-12-month rule.

Can I roll this 2nd distribution back into my IRA since I heard the one rollover requirement every 12 months will not apply in 2020?  (Note: neither rollover was for an RMD as I am not of age yet.)

Many thanks.


In Notice 2020-51, the IRS waives the once-per-year rule for 2020 RMDs that are repaid to the same IRA from which they were distributed. These repayments must be done by August 31.

Unfortunately for your situation, this relief only applies to RMDs and not to other IRA distributions. Because you rolled over the February IRA distribution, the once-per-year rule prevents you from rolling over a second IRA distribution within the same 365-day period.


By Andy Ives, CFP®, AIF®
IRA Analyst

Dollar cost averaging is a tried-and-true investment strategy that has existed for decades. Using this technique, an investor divides up their entire amount to be invested and makes smaller periodic purchases over a desired time. The goal of dollar cost averaging is to minimize the potential volatility of a single large investment. Essentially, dollar cost averaging seeks to reduce the possibility of making a big purchase just before the value drops.

Example: Roger has $10,000 and wants to invest in a mutual fund. Roger is unsure what the market’s direction will be over the next few months. To avoid the possibility of investing the full $10,000 all at once and then having the market immediately drop, Roger elects to dollar cost average. He invests $1,000 per month into the mutual fund over the next 10 months. This way, as the markets rise and fall, he can “smooth out” his entry points into an average.

This same technique can be used with Roth conversions. While you don’t technically “buy” a Roth conversion like a mutual fund, you do have an entry point into the Roth. This entry point determines how much additional income you must include for the year (the conversion amount). Extra income equals the potential for more taxes. As such, converting to a Roth when your account value is at its lowest point is optimum. Buy low and sell high, right?

But no one can accurately predict the markets. Where is the bottom? When is “low” low enough? To make matters worse, a Roth conversion cannot be reversed. There is no longer any opportunity to recharacterize. The income is locked in.

Example: Eager Eddie has a $2 million IRA. He is excited to move all those dollars into a Roth. Eager Eddie does a full Roth conversion in mid-February 2020 when the Dow Jones is over 29,000, locking in $2,000,000 of income. Just one month later, the DJIA has plummeted to below 19,000. Eager Eddie’s Roth IRA is now only worth $1.5 million. Had he waited to convert, he could have saved the taxes due on $500,000 of income.

Dollar cost averaging a Roth conversion can help avoid such timing issues. Once again, no one can predict the bottom. So, to smooth out the entry points of a Roth conversion, why not do a series of smaller partial conversions? After all, there is no limit on how many a person can do.

Example: Patient Patty wants to convert her IRA to a Roth in 2020. She asked her financial advisor to convert 1/12 of her account each month. Her advisor did just that in January and February. In March, when the market dropped, Patty and her advisor saw an opportunity. They accelerated the conversion process and did three months’ worth of conversions in March alone. The market was still low in April, so they did two more months of conversions. With the market recovering, Patty went back to her monthly “dollar cost averaging” Roth conversion strategy. By employing this technique, Patty converted more dollars at low prices and ultimately saved taxes.

Dollar cost averaging isn’t perfect, especially if the market is a rocket ship, but it can be a long-term, practical approach to reducing the “timing risk” of a single large Roth conversion.



By Ian Berger, JD
IRA Analyst

Many of you may have already received, or may be receiving, an RMD (required minimum distribution) from your employer plan this year. If the CARES Act waived 2020 RMDs from plans and IRAs this year, how could a company plan be making RMD payments? The answer is a little complicated.

Under the tax code, plans are allowed to force participants to receive a distribution without their consent at a certain age. For most plans, that is age 65. The CARES Act did not change that rule. So, plans are legally permitted to pay out RMDs at age 70 ½ or later – even in 2020. Plans may be continuing to pay RMDs to avoid modifying their procedures for processing distributions just for this year.

But even if your employer’s plan pays you an amount equal to your 2020 RMD, you are allowed to treat it for tax purposes as if it’s not an RMD. That’s where the CARES Act waiver comes into play. Normally RMDs can’t be rolled over. But the amount you receive in 2020 is not technically considered an RMD for tax purposes. So, if you don’t want the “RMD,” you can roll it over to an IRA (or another company plan that accepts it) to avoid immediate taxes. Or, you can pay taxes on the RMD and roll it over (convert it) to a Roth IRA for tax-free growth.

Under Notice 2020-51, a rollover made by August 31, 2020 does not have to be completed within 60 days. But you will have to act quickly to meet that deadline! If the August 31 deadline is missed, you can still roll over the RMD, but you’ll have to comply with the 60-day rule. (If doing an IRA-to-IRA, or Roth IRA-to-Roth IRA, rollover after August 31, you’d also have to comply with the one-rollover-per-year rule. But plan-to-IRA rollovers aren’t subject to that rule.)

Some employer plans that are paying out 2020 RMDs have adopted rules that allow you to choose not to receive an RMD. In some cases, the plan will force an RMD payment unless you elect to opt out. In other cases, the plan won’t pay out the RMD unless you say that you want it. If you are due an RMD and have not already received it, you should contact your plan administrator or HR staff to see what the plan is doing.

You can normally bypass the 60-day deadline by doing a direct rollover from your plan to an IRA. However, plans aren’t required to offer a direct rollover option for 2020 RMDs. Again, check to see how your plan is handling this.

Finally, if you receive an RMD from your plan this year and don’t do a direct rollover, you can decide how much federal income tax withholding you want. Even though the RMD is eligible for rollover, the plan is not allowed to automatically withhold 20% for taxes.


By Andy Ives, CFP®, AIF®
IRA Analyst


Client has a Thrift Savings Plan and took RMDs in January, February and March of 2020. Client then rolled the balance of the TSP into an IRA. Question is whether or not he can “repay” those RMDs to the IRA under Notice 2020-51. Thanks.


Yes, the three RMD payments can be “repaid” to the IRA, but a deadline is fast approaching. Plan-to-IRA rollovers do not count against the one-rollover-per-year rule, so that is not a concern. However, since these RMD payments were taken back in January, February and March, they are outside of the standard 60-day rollover window. IRS Notice 2020-51 allows RMD rollovers beyond the 60-day rollover period if they are rolled over by August 31, 2020. If the rollovers are not completed by this date, the client will be stuck with the three monthly distributions.


I returned my RMD back to my IRA account this year, but due to an unexpected event I find myself in need of money. Can I take it out again? Also, can I put part of the money into a Roth IRA? I have watched “Retire Safe & Secure! with Ed Slott” many times, I just love it every time. I also bought this program from KQED San Francisco – you are great. Thank you.




Thank you for the compliments! Yes, can take another withdrawal for whatever amount you wish from your IRA. Just because you took your RMD earlier and rolled it back, you are not precluded from taking another distribution, nor are you limited to only your RMD amount. However, due to the one-rollover-per-year rule and IRS Notice 2020-51, after August 31, 2020 you can no longer do another rollover until one year has passed since you paid back your RMD. As for Roth conversions, you can do one or more for whatever amount makes sense based on your tax situation and financial goals. Roth conversions do not count against the one-rollover-per-year rule.


By Sarah Brenner, JD
Director of Retirement Education

We are in the dog days of summer and this year is a crazy and unsettling time. The last thing on your mind may be your IRA. However, you should be aware that an important deadline is quickly approaching. If you took your 2020 required minimum distribution (RMD) from your IRA and now want to repay it, your time may be running out. The deadline for these three repayment remedies is August 31.

1. Repay more than one RMD distribution. Normally, you are limited to rolling over only one IRA distribution in a one-year period. If you take multiple distributions during this period, you are typically out of luck. However, these are not normal times! In Notice 2020-51, the IRS waives the one-per-year rule for 2020 RMDs. This is good news if you took your RMD in multiple distributions, which many people do. Monthly RMD distributions are common. Now is your chance! These distributions can be repaid to the same IRA they were distributed from by August 31. After that, we all go back to the once-per-year rule.

2. Repay an RMD from an inherited IRA. If there was ever an IRA rule that seemed set in stone, it would seem to be the rule that says that nonspouse beneficiaries cannot roll over a distribution from an inherited IRA. In 2020 even this rule is out the window. Notice 2020-51 allows IRA beneficiaries to repay unneeded 2020 RMDs back to the distributing inherited IRA. This unprecedented relief will disappear after August 31, so don’t delay.

3. Repay an RMD made before the CARES Act waived RMDs. Many IRA owners want to do the right thing. They want to be sure that they take their RMDs and avoid penalties. There are a lot of IRA owners who take their RMDs early in the year to get them out of the way. This year the CARES Act threw a wrench into their careful plans. The CARES Act was passed in March after many diligent IRA owners had already taken their RMDs. For those who have not already done so, the opportunity to roll over these funds is extended beyond the normal 60-day deadline until August 31.

If you fall into one of these three categories and still want to complete a rollover of your RMD, be sure to get it done by August 31!


By Andy Ives, CFP®, AIF®
IRA Analyst

Yes, trusts can play an instrumental role in estate planning. Yes, special needs trusts are invaluable to those with disabled or chronically ill family members. Trusts are essential for minors and for those who may struggle with managing money. Trusts also allow for post-death control of assets. But they are not for everyone, nor are they a panacea when it comes to estate planning…especially with IRAs.

I continue to pound my head on the desk every time I encounter a trust unnecessarily named as an IRA beneficiary. Why did the IRA account owner name the trust? Bad advice? Was he simply trying to keep up with the Jones’ who bragged about their trust? Did he read someplace that all trusts are great? Was he intentionally trying to make things difficult for his IRA beneficiaries? Sadly, “making things difficult” is oftentimes the unintended result.

Assuming we are not talking about minors or those with special needs, etc., and assuming the original IRA owner is not looking to control post-death distributions, items to consider when pondering a trust as your IRA beneficiary include:

There is no tax benefit that can be gained with a trust that cannot be earned by naming a person directly as IRA beneficiary. In fact, a poorly designed trust or mismanagement of the trust assets could result in an even higher tax bill, not to mention the costs to create the trust in the first place. Compare trust legal fees to how much it costs to simply name a specific person on your IRA beneficiary form. (Hint: The answer is zero dollars for the latter.)

If your goals are to streamline the process and ease the trouble of claiming the IRA by your beneficiaries, then do not name a trust. If your beneficiaries are healthy, mature adults, then just name them directly. That way they can easily establish an inherited IRA and do with it as they please. If you name a trust, the custodian could throw a monkey wrench into the inherited IRA plans. While we have seen IRS guidance allowing trust beneficiaries to establish inherited IRAs when the trust was named as the IRA beneficiary, the custodian still needs to play ball. In addition, there have been multiple occasions where a decedent merely wanted to pass his IRA to his surviving spouse, no strings attached, but inadvertently attached a rope by naming a trust as IRA beneficiary. Surviving spouses have paid thousands of dollars for IRS private letter rulings, all to obtain permission to bypass the trust and complete a basic spousal rollover. These unnecessary trusts, as IRA beneficiary, were all a titanic waste of time and money.

Trust administration requirements are daunting. If a family member with little to no trust experience is named trustee, then expect problems. I have over two decades in the financial services industry, and I want nothing to do with being trustee of a trust. No thanks. Leave that to the corporate trustee – they are the professionals. Which of course means there will be additional steps and fees involved vs. if you had just named the intended beneficiary directly.

I may get some heat from those who think a trust as IRA beneficiary is the right solution every time, but experience tells me otherwise. Desk bruises on my forehead prove the struggle. Please, for my health, do not name a trust as your IRA beneficiary unless there are specific, sensible reasons to do so, and you have obtained experienced, unbiased, professional guidance.


By Ian Berger, JD
IRA Analyst


I can’t find the answer to this question anywhere, so I thought I’d go straight to the experts.

Does the CARES Act waive the requirement for a surviving spouse to distribute the RMD in 2020 prior to re-registering the IRA in the surviving spouse’s name? The deceased spouse had reached their required beginning date.

I’ve read Notice 2020-51, but it does not address this issue specifically.



Normally, if an RMD is due in the year the IRA owner dies and it had not already been paid to the owner, the beneficiary must take the RMD. That includes surviving spouses. However, because the CARES Act waived 2020 RMDs, year-of-death RMDs for an IRA owner who died in 2020 are not required.


My client is 85 years old. He took his 2020 RMD on 1/08/2020. He died in April 2020.

Can we put his RMD back into his IRA?



Hi Jay,

Good question! The IRS guidance allowing unwanted RMDs to be repaid by August 31 is very broad. However, it’s not clear the IRS relief would cover this situation. Ultimately, it will be up to the IRA custodian to allow repayment of the RMD. Even if the custodian allows it, returning the RMD could have income tax or estate tax ramifications that should be carefully considered.


By Ian Berger, JD
IRA Analyst

Hidden within the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) signed into law last December is a provision giving businesses extra time to establish certain new tax-qualified retirement plans.

Prior to the SECURE Act, a new workplace plan had to be adopted by the last day of the employer’s tax year. Despite that deadline for adopting a new plan, businesses were always allowed extra time to make retroactive employer contributions for any year (including the plan’s first year). The employer contribution deadline is the due date (including extensions) of the company’s federal tax return.

Under the SECURE Act, businesses now have the same deadline – the corporate tax return due date (including extensions) – for taking the necessary steps to put a new retirement plan into place.

The change is effective for plans newly adopted in fiscal years starting in 2000. So, a business can’t adopt a new plan retroactively in 2020 for 2019.

Example: Sweets Candy Company wants to start up a new profit sharing plan. The company’s fiscal year ends December 31, and the deadline (including extensions) for its corporate tax return is the following October 15. If Sweets wanted to have the new plan in place for 2019, it would have needed to adopt the plan by December 31, 2019. Sweets was unable to meet that deadline. However, it will have until October 15, 2021 to adopt the new plan for 2020.

The SECURE Act change brings the deadline for establishing new qualified plans in line with what the deadline has been for setting up new SEP IRAs.

Importantly, the new extended deadline only applies to qualified plans that are entirely employer funded, such as profit sharing plans and pension plans. It does not apply to 401(k) plans. Because of the timing rules for 401(k) deferral elections, a new 401(k) plan effective in one year cannot be established after the end of that year.

For many small businesses, final financial numbers for a tax year are not available until after the year is over. The new extended deadline will give companies extra time to decide whether they can afford to retroactively adopt a new qualified plan to reap the benefits of a tax deduction and kick-start individual retirement savings.


By Sarah Brenner, JD
Director of Retirement Education

Last year the SECURE Act became law and eliminated the stretch IRA for millions of IRA beneficiaries. However, for some IRA beneficiaries the stretch lives on.

For most beneficiaries, the stretch is now replaced with a ten-year payout period. Beginning for deaths in 2020, the ten-year rule will apply to designated beneficiaries who are not eligible designated beneficiaries under the SECURE Act.  Eligible designated beneficiaries include spouses, minor children of the IRA owner, chronically ill and disabled individuals and beneficiaries who are not more than ten years younger than the IRA owner. Eligible beneficiaries can still use the stretch.

There is another often overlooked group of beneficiaries out there who also can still use the stretch. That would be beneficiaries who inherited IRAs prior to 2020. Anyone who inherited an IRA in 2019 or earlier would still be able to use all of the old rules for required distributions, including the stretch. These beneficiaries are grandfathered under the SECURE Act. This means that millions will be using the old rules and stretching distributions from their IRAs for years to come. The stretch will not be going away for these beneficiaries.

Example: Kendra, who is age 23 this year, is the beneficiary of her grandmother’s IRA. Her grandmother died in 2019. Kendra is not affected by the SECURE Act and can stretch RMDs over her life expectancy. Because Kendra is 23, her distribution period will last about 60 years.

There is one important limitation, however. While the SECURE Act allows beneficiaries who inherited IRAs prior to 2020 to continue using the stretch, any successor beneficiary who inherits after 2019 must use the ten-year payout rule. The old rules allowing a successor beneficiary to step into the shoes of the original beneficiary and continue the stretch are gone under the SECURE Act.

Example: Juan inherited an IRA from his uncle in 2015. He has been using the stretch and taking distributions over his life expectancy. His successor beneficiary is his son, Aiden. Juan dies in 2020. Aidan is subject to the ten-year payout rule.


By Sarah Brenner, JD
Director of Retirement Education


I have a very simple ROTH IRA question. I borrowed money from my ROTH IRA with the intention of paying it all back in 60 days.

To avoid any penalty, must I make one repayment of all the money I borrowed? Or, can my repayment be made in two parts, all within the sixty days?

Thank you,



Hi Paul,

It sounds like you might be concerned about the once-per-year rollover rule. That rule says that you can only roll over one IRA distribution in a 365-day period. However, there are no restriction on the number of rollover deposits. So, if you took funds from your Roth IRA in one distribution, you may roll over this distribution in as many rollover deposits as you like – as long as you do so by the 60-day deadline. Keep in mind that this must be the only distribution you roll over between IRAs within 365 days for it to be allowed.



Am I allowed to convert my inherited traditional IRA to a Roth IRA?

Thank you.



An inherited traditional IRA cannot be converted to a Roth IRA. The tax code does not allow for this. It is kind of a strange restriction, because an inherited employer plan, like a 401(k), can be converted to a Roth IRA. Nonspouse plan beneficiaries are able to convert, but nonspouse IRA beneficiaries are out of luck. It does not seem consistent, but that is how the rules work.


By Andy Ives, CFP®, AIF®
IRA Analyst

A financial advisor contacted me about her client who had recently passed away. The advisor was legitimately concerned about a rollover check received by the now-deceased individual. It had not been deposited into his IRA prior to death. Was her client’s estate stuck with a taxable distribution? Could the financial institution refuse the rollover because the person was no longer of this earth? 
If an IRA owner or plan participant takes a distribution, but then dies while the money is still outside of a qualified account, his executor (or those responsible for his financial affairs) may roll that distribution over. In a court case from way back in 1982, an employee took a distribution from his work plan but died before rolling it over. The court allowed his executor to roll over the distribution.
However, in a different scenario with different circumstances, the IRS made an opposite ruling. A plan participant established a traditional IRA and requested a direct rollover from his work plan to his IRA. But he died before all the assets were liquidated and, more importantly, prior to the money being distributed. The IRS denied the rollover, presumably because the rollover was never initiated, i.e., the assets had not yet been paid out.
Or course, rollovers must be completed within 60 days of receiving the distribution. If a person dies while the distribution is still in his possession, this deadline can sneak up on beneficiaries. Oftentimes, the original distribution is not even discovered by the beneficiaries until well after the 60-day period has expired. As such, numerous requests have been filed with the IRS asking for an extension of the 60-day window. The IRS has been generous and, on many occasions, allowed late rollovers due to the death of the IRA owner or plan participant.
In 2016, the IRS began allowing certain late rollovers if the account owner provided the receiving financial institution with a “self-certification” letter. However, “death of account owner” is not one of the IRS’s 11 acceptable self-certification excuses. (“One of my family members died” is the closest option within the 11 reasons.) While death of the IRA owner is not specifically listed, it might still pay to use self-certification since the IRS has consistently allowed such late rollovers by surviving spouses.
The death of any individual is a traumatic event. Thankfully, the IRS appears to have a heart when death occurs during a rollover.


By Ian Berger, JD
IRA Analyst

With more 401(k) plans offering Roth contributions and more folks taking distributions from their plans, now’s a good time to review the tax rules governing Roth 401(k) distributions.

Qualified distributions. If your Roth 401(k) distribution meets the requirements for a “qualified distribution,” you’re in luck: It comes out completely tax and penalty-free. A distribution is qualified if it meets two conditions. First, you must be age 59½ or older at the time of distribution (or the distribution must be on account of disability or death). Second, you must have held the Roth 401(k) account for more than five years. This five-year holding period starts on January 1 of the first year you made a Roth contribution to the plan from which you are now taking the distribution.

Example 1: Nia began participating in her employer’s 401(k) plan 10 years ago and made her first Roth 401(k) contribution to that plan six years ago. At age 60, Nia takes a distribution from her Roth 401(k) account. Since Nia is age 59½ or older and she made her first Roth 401(k) contribution more than five years ago, her distribution is tax and penalty-free.

Non-qualified distributions. If your distribution is not qualified, a portion will be subject to tax under the pro-rata rule. To determine how much is taxable, first divide the amount of your Roth 401(k) contributions by your total Roth 401(k) account balance (contributions + earnings). Then, multiply that fraction by the amount of your distribution. Finally, subtract this amount from your distribution amount.

Example 2: Tamal, age 30, takes a $12,000 hardship withdrawal from his Roth 401(k) account. He has made $80,000 of Roth 401(k) deferrals, and his total Roth 401(k) account balance (contributions + earnings) is $100,000. The fraction of Tamal’s Roth 401(k) contributions to his total account balance is 4/5 ($80,000/$100,000). This means that $9,600 ($12,000) x 4/5) of his $12,000 withdrawal is non-taxable. The remaining $2,400 is taxable and, unless an exception applies, is also subject to the 10% early distribution penalty.

Other 401(k) accounts. When you calculate whether your Roth 401(k) distribution is subject to taxes, you can ignore other taxable amounts within your 401(k) plan, such as accounts holding pre-tax deferrals or employer matching contributions.

Special Rules for 2020. If you are an affected person under the CARES Act, you can take up to $100,000 of 2020 distributions from your IRA or your employer plan and receive several tax breaks. First, you won’t be subject to the 10% early distribution penalty. Second, you can spread taxable income ratably over three years. Third, you can recoup taxes on the distribution by repaying all or part of it to an IRA or company plan within three years.

Example 3: If Tamal (from Example 2) lost his job because of COVID-19 and took his Roth 401(k) withdrawal in 2020, he would be exempt from the 10% early distribution penalty. Also, he could spread taxes on the $2,400 taxable portion over three years or recover taxes paid on it by repaying all or part of the $2,400 within three years.


By Andy Ives, CFP®, AIF®
IRA Analyst


Once the RMD’s for 2020 were suspended, I withdrew what would have been my RMD from my traditional IRA and deposited it in my Roth IRA.  Can I now withdraw that amount from my Roth and repay it to my traditional IRA?

Thank you.




Once you deposited the RMD amount into your Roth IRA, it became a conversion. Roth conversions can not be reversed (“recharacterized”). Therefore, you cannot withdraw the dollars from the Roth and return them to the traditional IRA. On a positive note – those dollars are now in a Roth IRA growing tax-free. In addition, that amount has been removed from your traditional IRA, which will result in a lower RMD next year.


With IRS Notice 2020-51, can inherited IRA RMD’s taken in 2020 be rolled over (or repaid) back to the inherited IRA account? In section III D, the IRS mentions “in the case of an IRA owner or beneficiary who has already received a distribution of an amount that would have been an RMD in 2020 but for section 2203 of the CARES Act or section 114 of the SECURE Act, the recipient may repay the distribution to the distributing IRA…”

The word “beneficiary” is causing many to think inherited IRA’s are now included, but I’m not so sure that is the case…  Thank you!


Yes, IRS Notice 2020-51 allows RMDs from inherited IRAs to be repaid. However, there are some strict guidelines: Only the RMD can be repaid; it must be repaid to the same IRA where it came from; and the repayment of the inherited IRA RMD must be done by August 31, 2020. If you miss the cutoff, then you are stuck with the RMD and any possible taxes due.


By Sarah Brenner, JD
IRA Analyst

It happens. You have made a 2019 contribution to the wrong type of IRA. All is not lost. That contribution can be recharacterized. While recharacterization of Roth IRA conversions was eliminated by the 2017 Tax Cuts and Jobs Act, recharacterization of IRA contributions is still available and can be helpful in many situations.

Maybe you contributed to a traditional IRA and later discovered the contribution was not deductible. Or maybe you contributed to a Roth IRA, not knowing that your income was above the limits for eligibility. You may recharacterize the nondeductible traditional IRA tax-year contribution to a Roth IRA and have tax-free (instead of tax-deferred) earnings if your income is within the Roth IRA contribution limits for the year. Or, if your Roth IRA contribution is an excess contribution because your income was too high, you may recharacterize that contribution to a traditional IRA because there are no income limits for traditional IRA contributions.

While the much-delayed 2019 tax-filing deadline (July 15, 2020) has now passed, it’s still not too late to recharacterize your 2019 IRA contribution. The deadline for recharacterizing a 2019 tax year contribution is October 15, 2020 for taxpayers who timely file their 2019 federal income tax returns. This is true even if you do not have an extension. You may need to file an amended 2019 federal income tax return if you recharacterized after you have already filed.

If you decide that recharacterization is a good move for you, contact your IRA custodian. You will need to provide the custodian with some information to conduct the transaction, such as the amount you would like to recharacterize and the date of the contribution.  Most IRA custodians can provide you with a form to collect all the necessary information to complete a recharacterization. The IRA custodian will then directly move the funds you choose to recharacterize, along with the earnings or loss attributable, from the first IRA to the second IRA. This is a tax-free transaction but both IRAs report the transactions to you and the IRS. You will receive a 2020 Form 1099-R from the first IRA and a 2020 Form 5498 from the second IRA.


By Andy Ives, CFP®, AIF®
IRA Analyst

The IRA and plan rollover rules have been in constant flux this year. We are now past the original July 15 extended rollover deadline. This was the first extension date created by IRS Notice 2020-23. Distributions from an IRA or company plan taken February 1 or later could have been rolled back to an IRA or company plan beyond the standard 60-day rollover window. This rule applied to any distributions that were otherwise eligible to be rolled over, including unwanted RMDs. As long as the dollars were returned by July 15, almost anyone could have taken advantage of the July 15 extended rollover period. (Distributions prohibited from using the July 15 reprieve included withdrawals taken in January of 2020, multiple 2020 distributions – because of the one-rollover-per-year rule – and non-spouse beneficiary distributions.)

Example 1: Jim took a non-RMD distribution from his IRA in February to buy a house. His plan was to replace (rollover) those dollars when his old house sold in March. But the closing was delayed, and Jim missed the 60-day rollover window. Fortunately for Jim, under Notice 2020-23, he was able to take advantage of the extended rollover period. When his old house did eventually sell, Jim replaced the IRA dollars via a rollover before July 15.

But these advantages are no longer available for non-RMD withdrawals. New guidance from the IRS in Notice 2020-51 extended the rollover deadline to August 31. However, this extension is for required minimum distributions only. Since RMDs are waived for 2020, those who took an RMD anytime in 2020 can now put everything back by August 31. Since the one-per-year rollover rule is also waived, those who took multiple RMD payments now qualify. Non-spouse beneficiaries are also eligible for this rollover relief. (Keep in mind that rollovers of RMDs that would otherwise violate the one-per-year rule or are made by non-spouse beneficiaries only qualify for Notice 2020-51 relief if they are returned to the same IRA from which they were taken.)

Going forward, any eligible rollover distributions, including 2020 RMDs, have the usual 60 days to be rolled over. Unwanted 2020 RMDs can still be rolled over after August 31, but relief from the once-per-year rule will be lost. In addition, non-spouse beneficiaries who miss the August 31 deadline will not be allowed to roll the distribution back.

Example 2: Margaret is 45. She did not know that RMDs were waived for 2020 and takes what she thought was her required amount from her non-spouse inherited IRA in late July. If she wants to roll the distribution back, it must be returned to the same inherited IRA, and it must be returned by August 31.

Example 3: Tonya is 30. She takes a non-RMD distribution from her IRA in July and another in August. Tonya has 60 days from the date of either distribution to roll one of these withdrawals over if she chooses. The other is bound by the one-rollover-per-year rule and cannot be returned. Since neither distribution was an RMD, she gets no benefit from Notice 2020-51.


By Ian Berger, JD
IRA Analyst


For COVID “special” Aug 31 rollovers, am I allowed to return my 401(k) required minimum distribution (RMD) to my IRA?

Thank you,



Hi Maria,

Yes, the CARES Act and subsequent IRS guidance allows unwanted 2020 401(k) RMDs to be repaid through rollover to an IRA (or company plan) by August 31.


My daughter worked for a social services employee and had a 403(b) tax-sheltered annuity plan. Some of the contributions came from her employee, some came from her. Can she “rollover” the contributions from her employer into a Roth IRA? Thanks so much!


Yes, all 403(b) funds, including elective deferrals and employer contributions, can be converted directly to a Roth IRA. This can be done without having to first roll over the funds to a traditional IRA. Of course, she will need to pay income taxes on any amount converted, and the conversion cannot later be undone.


By Ian Berger, JD
IRA Analyst

Admittedly, it’s not such a bad problem to have. Nonetheless, it’s true that high-paid company plan participants can have their benefits limited by the IRS compensation limit.

The compensation limit is $285,000 for 2020 and goes up most years based on cost-of-living increases. It was $280,000 for 2019 and $275,000 for 2018.

Pay above the limit can’t be used in determining employer contributions made to 401(k) plans and SEP and SIMPLE IRAs. Excess pay also can’t count towards benefits earned in defined benefit pension plans.

Example 1: Khalil is an eligible employee in a SEP IRA plan with pay of $300,000 in 2020. For 2020, Khalil’s employer makes a 10% SEP contribution for all eligible employees. Khalil’s contribution is limited to $28,500 (10% x $285,000).

Example 2: Brandi has pay of $350,000 and makes $19,500 of 2020 elective deferrals in her company’s 401(k) plan. The company matches 50% of elective deferrals, taking into account elective deferrals up to 6% of pay. The plan may only recognize $285,000 of Brandi’s pay. Although she makes $19,500 of elective deferrals, only $17,100 (6% x $285,000) can be matched. Therefore, Brandi’s matching contribution is limited to $8,550 (50% x $17,100).

The compensation limit also restricts pay that can be taken into account in certain IRS nondiscrimation testing that company plans are required to pass. The effect of that restriction is to make it harder for plans to pass those tests.

For example, many 401(k) plans must annually perform the ADP test. (The test is not required if the employer makes “safe harbor” contributions.) This test limits deferrals by highly-compensated employees (HCEs) based on the level made by non-highly compensated employees (NHCEs). First, a deferral percentage (deferrals divided by pay) for each employee is calculated. But only pay up to the compensation limit can be used in that calculation. Second, an average deferral percentage for all NHCE’s and an average for all HCE’s are calculated and compared.

Example 3: Company A, with three NHCEs and one HCE (Jeremy), performs the ADP test for 2019. Assume Jeremy’s actual 2019 pay is $380,000. Because of the compensation limit, however, only $280,000 (the 2019 limit) can be recognized.

Employee                          Elective deferrals                    Pay              Deferral Percentage

NHCE1                                     $      0                              $40,000                        0%

NHCE2                                      3,600                                60,000                      6.0

NHCE3                                      4,800                                80,000                      6.0


HCE                                         19,000                              280,000                      6.8

The NHCE average deferral percentage is 4.0% [(0% +6.0%+ 6.0%)/3], and the HCE percentage is 6.8%. Under IRS rules, the HCE percentage can’t be more than 6.0%, so the plan fails the ADP test. If all of Jeremy’s 2019 pay ($380,000) could be used, his deferral percentage would be 5.0%, and the plan would pass.


By Sarah Brenner, JD
IRA Analyst

The countdown to the much delayed 2019 tax filing deadline is on. The deadline is July 15, 2020, which is only a couple of days away. Time is running out. Is your IRA ready?

Making Your 2019 IRA Contribution

Due to the COVID-19 pandemic the 2019 tax-filing deadline has been extended until July 15, 2020. This means that July 15, 2020 is also the deadline for making a 2019 IRA contribution. This is true even if you have an extension to file your tax return. An extension does NOT give you extra time to make a traditional or Roth IRA contribution. So, if you are thinking about making a 2019 contribution, the clock is ticking.

The rules do allow IRA custodians to accept prior-year 2019 contributions after the tax-filing deadline if they are mailed with a postmark of July 15 or earlier. This is true even if the contribution does not reach the custodian until after the deadline has passed. Be sure to follow your custodian’s procedures for making an IRA contribution and clearly indicate that your contribution is for the prior year (2019).

If you are making a 2019 traditional IRA contribution that is deductible, be sure to report it on your tax return to claim that deduction. If you are making a nondeductible contribution, be sure to file IRS Form 8606 with your tax return. That is how you claim your basis in your IRA. That will be important down the road when you take distributions from your IRA to avoid taxation on your nondeductible contributions. What about your Roth IRA contribution? Well, Roth IRA contributions do not show up anywhere on your tax return, but you will want to track them yourself to avoid complications with future Roth IRA distributions.

The rules allowing those age 70 ½ or over to make traditional IRA contributions under the SECURE Act do not apply to 2019 contributions. If that is your situation, you are out of luck when it comes to making an IRA contribution for 2019. The good news is starting for 2020 your age will not longer bar you from making an IRA contribution.

Still Time

Time is not running out for all 2019 IRA transactions. After July 15, 2020, there are a number of IRA transactions that can still be done.

If you are looking to make a SEP IRA contribution, you may have more time. The deadline is different than it is for traditional or Roth IRA contributions. The deadline to establish and fund a SEP for 2019 is the business’ tax-filing deadline, including extensions.

There is also still time to change your mind about a 2019 IRA contribution. The deadline to recharacterize a 2019 IRA contribution is October 15, 2020. For example, if you made a Roth IRA contribution and later decide that a traditional IRA contribution would have been a better move for you, you could recharacterize that Roth IRA contribution to a traditional IRA, even after the July 15, 2020 deadline.

There is still time as well to remove an unwanted contribution. For example, if you made a contribution to your traditional IRA and later discovered it was nondeductible, you can remove it, plus earnings attributable, by October 15, 2020.

October 15, 2020 is also the deadline to remove true excess 2019 IRA contributions and avoid the 6% excess contribution penalty. If you miss this deadline you will be stuck paying the penalty and it will continue to accrue for each year the excess remains in the IRA.



By Sarah Brenner, JD
IRA Analyst



I am aware of the IRA one-rollover-per-year rule. What I can’t find is if a married couple that files jointly violates the rule if they each do a rollover from their own individual IRAs?

For example: One person has an IRA in their name and takes a distribution and rolls it over within the 60-day limit avoiding the taxable distribution. Now, can the other spouse also take a distribution from their own IRA and do the same without incurring a taxable distribution?

Thanks so much.



Hi Maggie,

Good news for married couples! While the once-per-year rule is strict and limits an IRA owner to rolling over only one IRA distribution in a 365-day period, this rule applies per person, not per couple. In your example, each spouse could do a rollover within the same 365-day period without concern about the once-per-year rule.


I am 71 years old as of March 2020.  Does the SECURE Act permit me to open a new spousal IRA account this year?



Hi Steve,

The SECURE Act does away with the age limit for IRA contributions for contributions made for 2020 or later. This would include spousal contributions. So, if you file jointly and your spouse has enough earned income to cover your contribution, you can make spousal contribution to your IRA for 2020 regardless of your age.


By Andy Ives, CFP®, AIF®
IRA Analyst

As we have written on many occasions, the “Coronavirus Aid, Relief, and Economic Security Act” (CARES Act) waives required minimum distributions (RMDs) for 2020. This waiver applies to company savings plans and IRAs, including both inherited traditional and inherited Roth IRAs. While that sounds like a straightforward announcement, the RMD waiver has generated a landslide of inquiries and confusion since the CARES Act was passed in late March. Here are a dozen of the most popular and widely applicable Yes/No questions and answers:

1. My RMD is sent to me automatically on a monthly schedule. Even though I already took a portion of my 2020 RMD, can I stop the remaining monthly payments? YES

2. My 75-year-old father passed away in January without taking his 2020 RMD. Now my siblings and I are establishing inherited IRAs. Do we need to take his year-of-death RMD? NO

3. Can I still take my 2020 RMD if I want to? YES

4. Since RMDs are waived for 2020, if I decide to take it anyway, does that mean there is no tax due on that withdrawal? NO

5. If I received multiple 2020 RMD payments, can I roll them all back to my IRA? YES (as long as they are all returned by August 31, 2020).

6. I have an inherited IRA and already took my RMD. Can I roll it back/replace it? YES (as long as the inherited RMD is repaid to the same IRA by August 31, 2020).

7. Will I need to take both my 2020 and my 2021 RMD next year? NO

8. Since RMDs are waived, can I do a Roth conversion without taking my RMD first? YES

9. I turned 70½ last year and my first RMD was for 2019, but my required beginning date was April 1, 2020. I delayed taking this first RMD until 2020. Is that RMD waived under the CARES Act? YES

10. Can I now roll my 401(k) into an IRA without taking the 2020 RMD? YES

11. Can I still do a qualified charitable distribution (QCD) even though my RMD is waived? YES (as long as you are otherwise eligible).

12. Do I need to be  an “affected person” under the coronavirus rules for the RMD waiver to apply to me? NO


By Ian Beger, JD
IRA Analyst

There’s been a flurry of recent government regulation of company retirement plans. Here’s a quick summary:

Electronic Disclosure of Retirement Plan Documents

On May 27, 2020, the Department of Labor published a final regulation making it easier for employers to issue retirement plan notices to participants electronically. Notices can be posted on a website or mobile app or delivered via email. Employees who prefer hard copies can opt out of electronic delivery and receive paper disclosures instead. The DOL rule applies only to retirement plan notices required under ERISA (e.g., summary plan descriptions). It does not apply to notices required by the Internal Revenue Service or employer health plan communications.

Employers are not required to use the new regulation. They may instead rely on an existing DOL rule allowing electronic disclosure in limited situations. Or, they can furnish paper documents by hand-delivery or by regular mail. The new rule is effective July 27, 2020.

Private Equity Investments in 401(k) Plans

For the first time, the DOL has endorsed the use of private equity as an investment option in 401(k) plans. (In a nutshell, private equity is ownership of company shares that, unlike stocks, are not publicly traded.) For many years, defined benefit plan sponsors have invested plan assets in private equity. However, 401(k) plan sponsors have been reluctant to offer it as part of their investment menu because of ERISA liability concerns.

The DOL guidance, issued June 3, 2020, allows plan sponsors to make private equity available as one part of a 401(k) investment option that also offers other, more traditional, investments (for example, a target date fund that also offers stocks and bonds). Plan sponsors cannot offer direct investment in private equity. Proponents of the new rule say that it will open up these investments to rank-and-file employees who have been shut out of the opportunity. Critics say that its risk profile, high fees and lack of transparency make private equity an inappropriate investment for most employees.

ESG Investments

In recent years, defined benefit plan sponsors have been under increasing pressure to take into account ESG (environmental, social and governance) criteria when choosing appropriate investments for plan funds. On June 23, 2020, the DOL proposed a new rule warning that ERISA requires that economic considerations be the sole focus in selecting plan investments. ERISA fiduciaries may not invest in any investment vehicle that is more concerned with satisfying ESG criteria than making money.

The DOL guidance does allow more leeway for offering ESG funds as an investment option under a 401(k) plan.

The regulation is proposed and will not become final until after comments are received and considered by the DOL.

Suspending or Reducing 401(k) Safe Harbor Contributions

Many 401(k) plans offer “safe harbor” employer contributions as a way of automatically satisfying nondiscrimination tests. The contributions can be either matching contributions or across-the-board contributions. One condition for using the safe harbor is that contributions must normally remain in effect for the entire plan year.

In Notice 2020-52, issued June 29, 2020, the IRS allows employers to suspend or reduce safe harbor contributions after March 13, 2020 for the balance of the year, regardless of whether the employer is suffering an economic loss. However, to take advantage of this relief, the employer must adopt a plan amendment suspending or reducing the safe harbor contributions by August 31, 2020.



By Andy Ives, CFP®, AIF®
IRA Analyst


If someone took two IRA distributions earlier in 2020 that were considered RMDs, and now wishes to repay the cumulative amount back into the same IRA, are there any rules about the number of rollover deposits they can make in order to do so? Must it be done in 1 transaction, or 2, or could it be spread out across even more?

Thank you,




With IRS Notice 2020-51, released on June 21, the one-rollover-per-year rule and the 60-day rollover rule can both be bypassed for RMD payments that are returned by August 31, 2020. In your situation, one of the earlier RMD payments can go back as a rollover, and the other can be returned to the same IRA as a “repayment.” There is no limit on the number of “repayments” that can be done, as long as they are a return of RMD dollars and go back to the same IRA from which the RMD originated.


My custodian messed up my 2019 RMD (I’m in my 80s) and didn’t distribute it until January 10, 2020.  When I filed my 2019 taxes, I asked for a waiver of the 50% penalty on the missed 2019 RMD, armed with a letter from my custodian, and as expected, got it.

Now it’s June 2020 and RMDs for 2020 are fully waived. Is my January 10, 2020 distribution (taken to fulfill my 2019 RMD) considered a RMD for 2020 and therefore waived and eligible for rollover?

Also, a large part of the January 2020 distribution was for my 2019 withholding, which unfortunately went into 2020 rather than 2019.  ls there a way to reverse it or to apply 2020 tax payments to my 2019 taxes due July 15th?


The CARES Act waived RMDs due in 2020. While it was taken in calendar year 2020, your distribution on January 10 was an RMD that was actually due in 2019. As an RMD due in 2019, it does not fall under the CARES Act waiver. As for the taxes withheld, since the distribution was actually taken in calendar year 2020, those dollars withheld will apply to 2020. Unfortunately, there is no way to reverse the withholding or to assign dollars withheld in 2020 to the previous year.


By Sarah Brenner, JD
IRA Analyst

IRAs are supposed to be for saving for retirement but in challenging economic times like these many individuals may be forced to take distributions before retirement age. Be careful! If you tap your IRA before reaching age 59 ½, the bad news is that you run the risk of being hit with the 10% early distribution penalty. The good news is that there are some exceptions to this penalty. You IRA distribution will still most likely be fully taxable, but you can spare yourself the additional 10% penalty if one of these exceptions apply to you.

Birth or Adoption

Beginning in 2020, the SECURE Act adds a new 10% penalty exception for births or adoptions.  It is limited to $5,000 for each birth or adoption. To qualify, the distribution must be taken within one year from the date of birth or when the adoption in finalized.

First Home Purchase

If an individual takes a distribution from their IRA and uses the funds to acquire a first home, the 10% early distribution penalty does not apply. The definition of first-time home buyer for purposes of this exception may not be what many expect. The definition of first-time home buyer is someone who has not owned a home for the past two years. 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.

Higher Education

If an individual takes a distribution from their IRA for qualified higher education expenses, the 10% early distribution penalty does not apply. Such expenses include post-secondary tuition, fees, books, supplies and required equipment. The education expenses must occur in the same year as the IRA distribution.

Health Insurance for the Unemployed

If an individual takes a distribution from their IRA to pay for health insurance when unemployed, the 10% early distribution penalty does not apply. The insurance can be for the IRA owner, a spouse, or dependents.


A distribution taken from an inherited IRA after the death of an IRA owner is never subject to the 10% penalty. It does not matter what the age of the IRA owner was or what the age of the beneficiary is.


If an individual takes a distribution from their IRA, the 10% penalty will not apply if they are disabled. The standard for disability for this purpose is a strict one and it is difficult to meet. The IRA owner must be unable to engage in any gainful activity because of a physical or mental condition. The condition must be expected to last a long or indefinite period of time or be expected to result in death. In other words, the disability must be total and permanent.

72(t) Payments

IRA owners may set up a series of payments from an IRA and avoid the early distribution penalty. These payments are sometimes called 72(t) or substantially equal periodic payments. To qualify, the payments must be calculated in a very specific way and must be taken at least annually. If there is a modification of the payments before the individual reaches age 59 ½ or before five year have passed, she will be hit with the 10% penalty on all distributions already taken prior to age 59 ½ under the payment plan.

Reservist Distributions

A reservist who is called to active duty after September 11, 2001 for more than 179 days or for an indefinite period of time may take penalty-free distributions from their IRA.  The distribution must be made no earlier than the date the reservist was called to active duty and no later than the end of the active duty period. Also, the IRA owner can repay part or all of these distributions to an IRA within a two-year period after the active duty period is over.

Deductible Medical Expenses

IRA distributions are not subject to the 10% penalty if the distribution does not exceed the IRA owner’s deductible medical expenses for the year. The medical expenses can be for the IRA owner, a spouse or a dependent. An individual is not required to itemize deductions on their tax return in order to be eligible for this exception.

Tax Levies

IRA funds paid due to a tax levy by the IRS are not subject to the early distribution penalty. This only applies when the IRA is actually levied by the IRS.


By Andy Ives, CFP®, AIF®
IRA Analyst

After a six-month sprint through a diabolical obstacle course of new laws, a pandemic, record unemployment, deaths, confusion and complete disruption of everyone’s professional and personal lives, this seems like a good time to recap the madness of the previous 180 days.

January 1, 2020 – The Setting Every Community Up for Retirement Enhancement (SECURE) Act became effective. Remember this law? Passed in late December, the SECURE Act upended the retirement world. Some of the SECURE Act’s more consequential changes include:

· RMD age raised to 72.

· Age limit eliminated for traditional IRA contributions.

· Annuities more readily available in employer plans.

· Stretch payments on inherited IRAs eliminated for all but an entirely new class of “Eligible Designated Beneficiaries.”

January/February 2020 – Rumblings in the news about a virus.

February 24 – 28 – Worldwide stock markets report largest one-week declines since the 2008.

March 13, 2020 – National emergency declared due to the coronavirus (COVID-19) outbreak. Schools and businesses shuttered. Some hospitals overrun with the sick and dying.

March 20, 2020 – In Notice 2020-18, the Treasury Department and IRS announce the federal income tax filing due date is extended from April 15 to July 15, 2020. This also extended the deadline for making prior-year contributions to Roth and Traditional IRAs.

March 23, 2020 – Dow Jones hits intraday low of 18,213.65.

March 27, 2020 – Coronavirus Aid, Relief and Economic Security (CARES) Act signed into law. In addition to being one of the largest economic stimulus bills in history at over $2 trillion, the CARES Act also impacted retirement accounts, as such:

· Required minimum distributions (RMDs) waived for 2020.

· Coronavirus-related distributions (CRDs) created as a means for eligible individuals to gain access to retirement dollars penalty-free.

· Company plan loan rules expanded.

June 19, 2020 – IRS releases Notice 2020-50 which includes additional information on CRDs. The new guidance makes more individuals eligible for tax-advantaged distributions permitted under the CARES Act.

June 21, 2020 – IRS releases Notice 2020-51. The rollover deadline for repaying unwanted 2020 RMDs is extended to August 31, 2020. Inherited IRA RMDs can be repaid, and the one-rollover-per-year rule is waived for those who took multiple RMD payments in 2020.

Six months of crazy. 180 days. Feels like forever…and I didn’t even mention all the historic events unrelated to retirement. While we are all still figuring things out, this bumpy ride is far from over. Hang on tight, and be safe.


By Ian Berger, JD
IRA Analyst


Hi Ed,

If a person takes that 100k distribution, can they elect to split evenly in 2020-2022 as income? Or can they determine how to apply the income?



Hi Shannon,

Those persons who qualify for up to $100,000 of 2020 coronavirus-related distribution (not everyone does) can spread out income evenly over their 2020-2022 tax returns. Or, they can choose to have all of it treated as 2020 income. No other choices are available.


Under the SECURE Act, are children of the deceased required to change to the 10-year rule after reaching age of majority? I’m reading conflicting information on this. It was my understanding that because they are an eligible designated beneficiary (EDB), they get the benefit of lifetime RMDs.

Also, are Non-EDB’s required to take yearly RMD’s? If yes, how are these calculated since they are not using the Life Expectancy Table?

Thanks for the insight!



Hi Brenda,

Even though minor children are EDBs, they can use the stretch only until they reach the age of majority (or, until age 26 if still in school). At that point, they are no longer EDBs and must switch to the 10-year payment rule.

The 10-year rule is satisfied as long as Non-EDBs (e.g., adult children or grandchildren) receive the entire account by the December 31 of the tenth year following the year of the original owner’s death. No annual RMDs during the 10 years are required.


By Ian Berger, JD
IRA Analyst

The IRS has extended the rollover deadline for required minimum distributions (RMDs) taken from IRAs or company plans in 2020. In Notice 2020-51, released on June 23, the IRS said that any unwanted 2020 RMDs can be repaid via rollover to an IRA or company plan by August 31, 2020.

Normally, RMDs cannot be rolled over. However, the CARES Act waived 2020 RMDs (and first-time 2019 RMDs delayed until 2020) from IRAs and defined contribution plans. For this reason, amounts received in 2020 that would have been RMDs are eligible for rollover since they are technically not RMDs.

Many individuals had already received RMDs before the CARES Act was signed into law and wanted to repay those amounts to avoid paying taxes on the RMD. Earlier this year, the IRS extended the 60-day rollover deadline until July 15, 2020 for distributions made after January 31, 2020. Individuals receiving RMDs in January 2020 were out of luck. In addition, the once-per-year rollover rule prevented those receiving monthly RMDs from rolling over each RMD. (That rule prohibits an IRA owner from making more than one traditional IRA-to-traditional IRA or Roth IRA-to-Roth IRA rollover in any 12-month period.) Finally, non-spouse beneficiaries were unable to roll over RMDs from inherited IRAs since non-spouse beneficiaries can never do rollovers.

Notice 2020-51 extends the rollover deadline to August 31, 2020. The extended deadline covers RMDs taken any time in 2020 – including in January 2020. The IRS also says that RMD repayments will not count against the once-per-year rollover rule. This will allow all 2020 monthly RMDs to be repaid. The IRS also carved out an exception to allow non-spouse beneficiaries to repay inherited IRA RMDs.

Notice 2020-51 applies to RMD payments only. Withdrawals of non-RMD funds are still bound by the usual 60-day rollover deadline (or the July 15, 2020 deadline for distributions made after January 31, 2020). In addition, distributions of amounts other than RMDs are still subject to the once-per-year rollover rule.


Are you acting in your clients’ best interest when it comes to rollovers? On June 30, the new SEC Regulation Best Interest (Reg BI) becomes effective. Reg BI establishes a “best interest” standard of conduct for broker-dealers when they make recommendations to clients of any securities transaction or investment strategy involving securities. Reg BI specifically covers proposals for rolling over funds from a workplace retirement plan account to an IRA.

Under the new standard, brokers must “exercise reasonable diligence, care and skill when making a recommendation to the client.” This requires the financial professional to understand the risks and rewards of the recommendation, as well as its costs, for each client.

Closer scrutiny of client rollover advice means that a comprehensive analysis, including a discussion with the client about rollover benefits and drawbacks, is an absolute must for any advisor. With that in mind, it is imperative for advisors to educate themselves and thoroughly understand all the options and rules governing company plan-to-IRA rollovers.


By Sarah Brenner, JD
IRA Analyst

On June 19, the IRS released additional guidance on coronavirus-related distributions (CRDs) from retirement accounts. The new guidance will make many more individuals eligible for these tax-advantaged distributions allowed under the CARES Act.

What Is a CRD?

If you qualify as an “affected individual”, you can take up to $100,000 of distributions from your IRAs and employer plans in 2020. There is no 10% early distribution penalty if you are under age 59 ½, and you have an option to spread the federal tax on CRDs evenly over a three-year period beginning with the year 2020. You also have a three-year period to repay CRDs to an IRA or employer plan. Taxes can be refunded on the amounts repaid. Repayment does not have to be made to the same IRA or company plan from which the CRD was originally paid. While the 10% penalty is a non-issue you if you are over age 59 ½, you can still take advantage of the other two items of relief if you are eligible.

Increased CRD Eligibility

The new IRS guidance increases eligibility for CRDs by expanding the definition of an “affected individual” to include those who suffer financial hardship as result of having a reduction in pay or having job offer rescinded or delayed due to COVID-19.

Additionally, the new definition includes those who experience financial hardship due to the following new factors: a spouse or a member of the individual’s household being quarantined, furloughed or laid off or having work hours reduced due to COVID-19; being unable to work due to lack of childcare due to COVID-19; having a reduction in pay due to COVID-19; or having a job offer rescinded or start date for a job delayed due to COVID-19; or closing or reducing hours of a business owned or operated by the individual’s spouse or a member of the individual’s household due to COVID-19.

The complete guidance released by the IRS can be found here:

Good Advice is Essential

Do you have questions as to whether you fit the new expanded definition of “affected individual”? Or, are you unsure whether a CRD is the right move for you? In these turbulent times, good advice is more essential than ever. Be sure to discuss your situation with a qualified tax or financial advisor.


By Sarah Brenner, JD
IRA Analyst


Thank you for all the great resources you provide. I have been looking for an answer to my specific situation and have not been able to find a clear answer to what I think is a pretty straight forward situation/fact pattern.

I take my RMDs spread over a monthly basis on the 6th of each month. (I have taken four in 2020 – Jan, Feb, Mar, Apr). Under the new legislation that extends the “60-day rollover window” for distributions taken on or after February 1, 2020 to July 15, 2020, am I able to roll back all three distributions (Feb, Mar and Apr) in one contribution (rollover) into my IRA, or am I limited to only being able to roll back one month’s worth of distributions?

Thanks for your help and all you do.



This is a question that we have been getting frequently in the wake of the CARES Act waiving RMDs for 2020. Many individuals have their RMDs set up to come out of their IRAs monthly. Unfortunately, the once-per-year rollover rule will limit you to rolling over only one of these distributions from your IRA. The news is better if your RMDs are being distributed monthly from an employer plan. In that case, all the distributions could be rolled over because the once-per-year rule does not apply to plan-to-IRA rollovers.



Our company currently subscribes to your publications. We had question we were hoping you could help us with.

If someone were to take a $10,000 IRA distribution on November 15, 2020 and then decided to use a 60 – day rollover and redeposit the funds in 2021, would they be able to reduce their 2021 RMD because the 2020 year-end balance would be lower by the $10,000?

Also, what would be the tax impact for 2020 and 2021? Would they need to still pick up the $10,000 income in 2020 even though it was re-contributed in 2021? It is our understanding that the 2020 1099-R would report the $10,000 as a taxable distribution.

We would appreciate any insight. Thanks again.




There is no loophole here allowing for a reduced RMD for the next year if funds are not part of the December 31 IRA balance. While normally an RMD is calculated using the December 31 prior-year balance, the rules require that the balance be adjusted for an outstanding rollover. In other words, using your example, the $10,000 that was distributed in 2020 but rolled over in 2021 would need to be added to the December 31, 2020 balance used to calculate the 2021 RMD.

The $10,000 distribution would be reported on a 2020 Form 1099-R. It would not be taxable, however, because it was rolled over. This is true even though the rollover happened in 2021.


By Andy Ives, CFP®, AIF®
IRA Analyst

FIX: Rolling Over the Tax Withheld on a Distribution. Was the mandatory tax of 20% withheld on your work plan withdrawal even though you intended to roll over the entire account? Did you change your mind on an IRA withdrawal and now want to roll it back, but you elected to have taxes withheld on the initial distribution? If money was withheld for taxes on a distribution from a work plan or an IRA and you want to roll over the distribution plus taxes withheld, you can make up the difference “out-of-pocket.” The money withheld and sent to the IRS is gone, but you can replace that withholding with other dollars, roll over the full amount, and have a credit waiting for you for the amount withheld when you do your taxes next year.

NO FIX: No Rollover for Non-Spouse Beneficiary Inherited IRA. If you took a distribution from your inherited IRA with the idea of moving the account to another provider via a 60-day rollover, you made an egregious error. Non-spouse owners of inherited IRAs are not permitted to do 60-day rollovers, and there is no way to put the money back. The full distribution amount is now yours to keep…along with any taxes that might apply.

FIX: Missed RMD. Failure to take a required minimum distribution (RMD) is commonplace. Whether it is an RMD from your own IRA, the year-of-death RMD for a recently deceased account owner, or an RMD from an inherited IRA, they are frequently missed. While the penalty is 50% of the untaken RMD amount, there is a fix. Take the missed RMD. Properly complete tax Form 5329 (“Additional Taxes on Qualified Plans”). Fall on your sword in a letter to the IRS and say that it will never happen again. You should have a positive outcome.

NO FIX: Unwanted Roth Conversion. If you did a Roth conversion and decided later that you could not afford the tax bill, or maybe the Roth conversion disqualified you from financial aid, there is no going back. Roth conversions are permanent and cannot be recharacterized.

FIX: Changing a Roth Contribution to a Traditional IRA (or vice versa). While recharacterizing a Roth conversion is off the table, recharacterizing a Roth contribution is still an option. If you made a contribution to a Roth IRA and later learned that you did not qualify due to the income restrictions, or if you made a contribution to a traditional IRA and later learned that you could not deduct the contribution, both of those contributions can be recharacterized (changed) to the other type of IRA. It will be as if the original contribution was made to the proper IRA. The deadline for recharacterizing a contribution is October 15 of the year after the contribution. (Or you could simply withdraw the contribution by the same cut-off date.)

NO FIX: Botching a Net Unrealized Appreciation (NUA) Transaction. If you are eligible for NUA and fail to complete a lump sum distribution after a trigger event, or if you roll over your company stock to an IRA, there is no going back. The NUA opportunity is lost forever.

FIX: Excess IRA Contribution. Before the October 15 deadline? Remove the excess contribution plus all net income attributable (NIA). No tax forms due, no 6% penalty. After the deadline? Remove the excess, file Form 5329, and pay the 6% penalty. (Surprisingly, the NIA can remain in the account when the fix is addressed after the deadline.)


By Ian Berger, JD
IRA Analyst

In the wake of the coronavirus pandemic, the IRS has temporarily relaxed the rule that spousal consent to certain retirement plan distributions and loans must be witnessed personally by a notary public or a plan representative. In Notice 2020-42, issued June 3, 2020, the IRS says that remote witnessing can be used for 2020 spousal waivers.

This issue arises most frequently when a married participant in a private-sector defined benefit plan or money purchase pension plan elects a lump sum distribution (including a coronavirus-related distribution under the CARES Act) or a plan loan. The plan is not allowed to pay the lump sum or make the loan unless the participant’s spouse gives written consent. [This spousal consent rule does not apply to most 401(k) or 403(b) plans or any governmental or church-sponsored plans.] IRS rules require that spousal consent must be witnessed in the physical presence of a notary public or a plan representative.

Written spousal consent is also required when a married participant in any private-sector plan [including a 401(k) or 403(b) plan] chooses a beneficiary other than the spouse. Here again, a notary or a plan representative must personally witness the spouse’s consent.

Because of the social distancing and stay-at-home practices required during the coronavirus crisis, satisfying this physical presence requirement has been challenging. In light of this, the IRS has waived this requirement for any spousal consents made in 2020. The new rules are different depending on whether the consent is witnessed by a notary or by a plan representative.

Elections witnessed by a notary public can be made remotely through live audio-visual technology (such as a Zoom conference call), as long as the system complies with state notary requirements.

As an alternative to witnessing by a notary, many plans allow a plan representative to witness spousal waivers. During 2020, those elections can also be made remotely through live audio-visual technology, as long as the following requirements are satisfied:

· The spouse must show a valid photo ID to the representative during the conference call;

· The conference must allow for live interaction between the spouse and the plan representative;

· The spouse must fax or email a copy of the signed document to the representative on the same day it is signed; and

· After receiving the document, the representative must return the signed document back to the spouse with an acknowledgement that it was witnessed remotely.

These new rules should help resolve what had been a thorny plan administrative issue brought about by the public health crisis.


By Andy Ives, CFP®, AIF®
IRA Analyst


Under the SECURE Act, if we can assume a Special Needs Trust can qualify for the stretch via the disabled beneficiary, what happens when the special needs trust beneficiary passes? The next named beneficiary (remainder) is a brother and/or nephew under this trust. Yet it’s already an inherited IRA. Would that formula continue to the next remainder beneficiary in line, i.e., would the stretch continue?


The SECURE Act left many questions unanswered, especially when it comes to trust beneficiaries, but your situation may have an answer. You are correct that, under the new law, there are special rules for a trust for disabled or chronically ill beneficiaries that allow RMDs to be paid from the IRA to the trust using the beneficiary’s life expectancy. For these beneficiaries, the SECURE Act includes a provision allowing for “applicable multi-beneficiary trusts.” One of the ways to qualify as an “applicable multi-beneficiary trust” is to provide that no beneficiary, other than an eligible designated beneficiary, has any right to the IRA funds until the death of the eligible designated beneficiary. In your situation, assuming none of the remainder beneficiaries are disabled or chronically ill, upon the death of the disabled beneficiary, the remainder beneficiaries will be subject to the 10-year payout rule. There is no continuation of the original stretch. However, if any of the remainder beneficiaries are disabled or chronically ill, the SECURE Act does not tell us how payouts will be treated. Future IRS guidance will be needed.


Hi Ed,

If a person takes a $100k distribution, can they elect to split it evenly in 2020-2022 as income? Or can they determine how to apply the income?




I believe you are referring to a Coronavirus-Related Distribution (CRD) created under the CARES Act. Assuming a person qualifies for a CRD and takes the maximum $100,000, the income from that distribution can all be applied to 2020, or it can be spread evenly over the three years (2020 – 2022). There is currently no option to divide up the income in any other manner.


By Sarah Brenner, JD
IRA Analyst

By now, most IRA owners have heard the bad news. The SECURE Act eliminates the stretch IRA for the majority of beneficiaries who inherit in 2020 or later. Instead, for most, a 10-year payout rule will apply. Here is how this new rule works and how, for some beneficiaries, there may be new planning opportunities available.

How It Works

This new 10-year rule works like the old 5-year rule worked. There are no annual RMDs. Instead, the entire account must be emptied by the 10th year after the year of death. In the 10th year following the year of death, any funds remaining in the inherited IRA would then become the required minimum distribution (RMD). If the funds are not taken by the deadline, a 50% penalty would be owed.

The Opportunities

While many IRA owners will miss the stretch IRA, for some, the 10-year rule may be beneficial. Even when the stretch IRA was available, not all beneficiaries used it. Not every beneficiary was interested in keeping an inherited IRA open for years and years. Some beneficiaries want the money faster. For them, the 10-year rule is a good fit.

Those beneficiaries that did take advantage of the stretch were locked into a rigid annual RMD schedule. The annual RMD had to be taken regardless of the beneficiary’s tax situation or there would be a 50% penalty. There were no other options.

What the new 10-year rule offers is flexibility. During the 10-year period, the beneficiary may choose to take nothing during a particular year or large distributions in others, as long as the account balance is emptied by the end of the 10-year term. This provides a tax planning opportunity. Distributions can be structured in such a way as to minimize the tax hit. There are no restrictions as long as the account is emptied by the end of the tenth year following the year of death.

The 10-year rule also provides a big opportunity for Roth IRA beneficiaries. Distributions from inherited Roth IRAs are almost always tax-free. A beneficiary could take no distribution until the tenth year, leaving all the earnings in the inherited Roth IRA to grow tax-free. The account could then be emptied in the tenth year after years of tax-free growth with no tax bill for the beneficiary.

Good Advice is Essential

Maybe you inherited an IRA in 2020 and are concerned about the 10-year rule. Or, maybe you are considering your estate plan and are thinking about how your beneficiaries will fare under the new rules. Now is a good time to consult with a knowledgeable tax or financial advisor. While the stretch IRA will be missed, the SECURE Act 10-year rule allows for new planning opportunities for those willing to think outside the box.


By Andy Ives, CFP®, AIF®
IRA Analyst

The King of the Land wanted to send 100,000 of his greatest warriors off to battle. However, he was told that 20,000 of the warriors needed to remain behind to protect the castle. The King of the Land did not like this news. He wanted a full complement of soldiers in the fight. So, the King of the Land decided to send all 100,000 warriors off to battle, and he used an additional 20,000 warriors from another army to protect the castle.

The investor wanted to convert $200,000 of his traditional IRA to a Roth IRA. However, it was recommended that he withhold 24% for taxes. The investor did not want to send only $152,000 to his Roth. The investor wanted all $200,000 growing tax-free. So, the investor had 0% withheld, converted the full $200,000, and used $48,000 from a non-qualified savings account to pay the taxes due.

Roth conversions are a taxable event that add to ordinary income for the year of the conversion. While the tax is not due immediately upon conversion, it will be owed at tax time. To get ahead of a potentially large tax hit, one can have a certain amount withheld at the time of the conversion (i.e., sent to the IRS). Any amount can be withheld for taxes, and the choice is yours.

The drawback is that withheld taxes that could otherwise be moved to the Roth IRA get sent to the government. For some, withholding is their only option. They may not have another source of funds to pay the taxes. They have no other army to protect their castle. But for those that do have other means, it is suggested they be leveraged. This is especially true for anyone doing a Roth conversion under the age of 59 ½ for the reasons outlined here:

Example: Jonathan is 45 years old and handles all his financial affairs on-line with no professional guidance. After logging into his account, he converts $50,000 to a Roth IRA and elects to have 20% withheld for taxes. Jonathan’s conversion results in only $40,000 going to the Roth ($50,000 x 80% = $40,000). The 20% withheld for taxes ($10,000) never actually gets converted and is, technically, a withdrawal prior to the conversion. Since Jonathan is under 59 ½ and no other exception applies, there is a 10% early withdrawal penalty ($1,000) on the money that was sent to the IRS. In addition, the $50,000 counts as ordinary income for the year, which pushes Jonathan above the income threshold for the financial aid he was receiving for his daughter’s college education.

Be careful before diving headfirst into a Roth conversion. Evaluate your income for the year and determine how much wiggle room you have before potentially pushing into the next tax bracket. Remember that Roth conversions can impact financial aid, IRMAA surcharges and other items based on income. While tax-free earnings in a Roth are a great motivator, also understand that using IRA funds to pay taxes on a conversion will reduce the conversion amount, thereby potentially setting your retirement account back.

Not everyone has extra cash in a non-qualified account available to cover the taxes on a Roth conversion. For that reason alone, it is imperative to do your homework. Consult with a financial professional. Understand the math and if a Roth conversion makes sense for you. Be the King of Your Land and protect your financial castle.


By Ian Berger, JD
IRA Analyst


I understand that I don’t have to take any RMDs during 2020.  However, is the CARES Act rule that it is an-all-or-nothing for RMDs or can I take a portion of my RMD for 2020 but not all



Hi John,

Since RMDs are waived this year, you have complete flexibility. In 2020 you can take none of what would have been your RMD, some of it, all of it, or even an amount greater than what would have been your RMD amount.



Under the CARES Act, I understand that a beneficiary of an inherited IRA may not return/rollover any RMD already taken in 2020 back into the IRA. But what if the beneficiary just inherited the IRA in 2020?  It is actually the decedent’s RMD that the beneficiary removed prior to enactment of the CARES Act.  May the beneficiary roll the decedent’s RMD back in?  I would appreciate your guidance on this.



Hi Veronica,

Since RMDs are waived for 2020, the decedent did not have an RMD for this year. As such, there is no year-of-death RMD. But some RMDs were taken before the waiver was announced, which sounds like your situation. Immediately upon death, the account belongs to the beneficiary, and any distributions are the beneficiary’s, not the decedent’s. The beneficiary here is simply a victim of timing. Non-spouse beneficiaries may never do IRA rollovers, including “return” rollovers of subsequently-waived RMDs already taken in 2020.


By Ian Berger, JD
IRA Analyst

As a result of the current economic downturn, we can expect more and more companies to offer lump sum buyouts to employees with defined benefit (DB) plan benefits. A lump sum buyout is a limited opportunity for DB plan participants to elect one lump sum distribution in exchange for giving up future periodic payments.

The decision of whether to accept a lump sum buyout is a difficult and important one. Because the stakes are so high, it is crucial that you consult with a financial advisor before making a final decision. Here are several factors that you and your advisor should consider:

· What are the terms of the buyout? The plan calculates your lump sum amount by determining the present value of future payments, using interest rate assumptions. The lower the interest rate assumption, the higher the lump sum. A lump sum offered in the current environment of very low interest rates is likely to be as high as it will ever be.

· How financially secure is the plan and the plan sponsor? If the DB plan sponsor goes out of business with an underfunded plan, your existing or future pension payments may be reduced. That would be a factor favoring a lump sum distribution. The Pension Benefit Guaranty Corporation (PBGC) insures pension benefits up to a certain amount. But, since the PBGC is experiencing severe financial difficulties, you probably shouldn’t count on the PBGC guarantee.

· How is your health? The lump sum offered you is calculated on the basis of average life expectancies. If you expect to outlive your life expectancy, then you may want to consider passing up the lump sum. However, if you are facing medical issues, taking the buyout offer might be the right decision.

· How much financial discipline do you have? It is extremely tempting to be offered an unexpected check for tens (or even hundreds) of thousands of dollars. Make sure you understand what you are giving up in exchange for that lump sum. If you spend the lump sum on a luxury item, it may be difficult to replace the lost monthly income.

· Understand the tax implications. DB plan monthly payments are typically fully taxable in the year received and cannot be rolled over. On the other hand, DB lump sum payments are eligible for rollover to an IRA. Once rolled over, your funds become subject to required minimum distribution (RMD) rules. But aside from that, IRA withdrawals are extremely flexible.

· Will your spouse consent?  If you are married, your spouse must consent before you can receive a lump sum.

These are just some of the factors that should be part of any consideration about accepting a lump sum buyout offer. Remember: Don’t make this crucial decision without getting help from an expert.


By Sarah Brenner, JD
IRA Analyst

More than 40 million Americans have filed for unemployment since the Corona virus pandemic hit in in the middle of March. With job loss can come questions of what to do with retirement savings such as your 401(k) plan. A rollover to an IRA may be good move for you. Here are three reasons why:

1. You can continue your retirement savings. When you contributed to your employer’s plan you made the smart decision to save for retirement. Rolling those funds over to an IRA will allow you to preserve those dollars for your retirement and even add to them in the future. You could keep your funds in an IRA and make IRA contributions or you could move the funds over to a future employer’s plan. Either way your retirement savings will remain intact and potentially grow.

2. You can avoid a tax hit. Times are tough and it may be tempting to hold on to any funds distributed to you from your employer plan. If you do, there will likely be a tax bill. Most retirement plan funds are taxable when distributed. Even worse, if you are under age 59 ½ you will be hit with a 10% early distribution penalty, unless an exception applies.

3. You can choose investments that are right for you. Losing a job or changing jobs can be stressful and overwhelming. It may be tempting to just ignore your retirement savings and leave them in your former employer’s plan.  By taking this path of least resistance, you may be missing out. Your employer plan may offer some solid investment choices. However. by rolling over to an IRA you can take advantage of many more. The choices for IRA investments are almost limitless and you should be able to find some that most closely suit your needs.

Rolling over to an IRA can offer many advantages, but everyone’s situation is different. Think carefully and weigh your options. If you do decide a rollover is for you, consider doing a direct rollover to an IRA instead of 60-day rollover. With a direct rollover your retirement funds can go right to your IRA. You avoid concerns about missing the 60-day deadline and you can skip any withholding requirements.

Don’t hesitate to consult a knowledgeable financial or tax advisor if you have questions. Your retirements savings are on the line. If you decide an IRA rollover is the right move for you, you will want to be sure the transaction is done properly.


The Setting Every Community Up for Retirement Enhancement (SECURE) Act single-handedly upended many long-standing retirement rules when it became effective on January 1, 2020. Shockingly, the SECURE Act was pushed to the back burner when all the world was impacted by the coronavirus pandemic. Only three months after SECURE was introduced to the American public, a second and equally enormous piece of legislation was passed – the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

How will history remember 2020? That is yet to be written and out of our control. How will your clients remember you and the actions you took during these trying times? It is said that crisis does not build character—it reveals it. Leading financial advisors, those who take the reins during one of the most uncertain and difficult periods in American history, need to be knowledgeable about both the SECURE and CARES Acts. As a leader, you must proactively communicate, educate and guide your clients through the morass. Here is what you need to know:



By Sarah Brenner, JD
IRA Analyst


Since no RMD in 2020 is required, what will the tax treatment be for QCD checks to charities written before the CARES Act became effective? Will 1099-R dollar amounts be included in AGI and charitable contributions only deductible if taxpayer itemizes on Schedule A? Do you recommend against making further QCD checks in 2020?



Qualified charitable distributions (QCDs) are alive and well in 2020. There is a good deal of confusion about this likely due to the fact that the CARES Act eliminated required minimum distributions (RMDs) for the year. The elimination of RMDs does not mean that QCDs are not available. QCDs still work the same way and are still a good strategy for charitably inclined IRA owners who are eligible. A QCD made earlier this year would still be excluded from your 2020 adjusted gross income (AGI).


Hi, I am retired and get Social Security. Can I still contribute to a regular IRA or Roth IRA?


To contribute to an IRA, you must have earned income. This is generally a salary or other taxable compensation for work. Social Security income does not qualify, so if that is your only source of income you cannot contribute to an IRA. If you happen to be married, you can make contribution to your IRA based on your spouse’s earned income if your spouse has any.


By Andy Ives, CFP®, AIF®
IRA Analyst

Gold members of a national hotel chain, big airline or just the local club expect lofty benefits for their dedicated patronage. Bronze members have access to A, B and C. Silver members have access to A, B, C, plus D, E and F. At the highest level, gold members earned not only A through F, but also whatever additional allowances their premium membership affords. Are gold members cut off from any exclusive discounts that a bronze or silver member receives? Not typically. Do bronze and silver-level members earn first-class seating or premium hotel rooms that honored gold members are barred from? Of course not. As the saying goes, “membership has its privileges,” and gold members at the top of the pyramid have it all.

Under the SECURE Act, the gold standard for IRA beneficiaries are Eligible Designated Beneficiaries (EDBs). This elite group of individuals are still allowed to stretch inherited IRA required minimum distributions (RMDs) over their own life expectancy. EDBs include spouses, minor children of the account owner, disabled individuals, chronically ill individuals, and beneficiaries not more than ten years younger than the deceased IRA owner.

Within this EDB group, it can be argued that spouses are the pinnacle. Spouses are the only EDB who can do a spousal rollover of an IRA into their own. Spouses are the only EDB who can choose an inherited IRA for a certain period (e.g., while they are under 59 ½), and then do a spousal rollover at any time in the future. Spouses also have the advantage of being able to recalculate their life expectancy when subject to RMDs on an inherited account, thereby lowering RMDs vs. non-spouse EDBs.

The surviving spouse: gold standard of the Eligible Designated Beneficiaries, top member of the EDB club. No other bronze or silver beneficiary – not another EDB, and certainly not a Non-Eligible Designated Beneficiary (NEDB) – should be able to do anything more flexible or tax efficient than the alpha EDB surviving spouse…or can they?

The SECURE Act created a 10-year payout rule for NEDBs. Not only is this class of beneficiary forbidden from stretching inherited IRA RMDs over their life expectancy, but they are forced to completely empty the inherited IRA by the end of the 10th year after the year of death of the original IRA owner. If an NEDB dies during this 10-year window, their successor beneficiary can only extend payments for the duration of that original 10-year timeframe.

Can a surviving spouse elect the 10-year payout? The SECURE Act is unclear, and the experts disagree. If a 75-year-old dies and leaves his IRA to his adult NEDB son, the son may use the flexible 10-year payout. If that same 75-year-old were to leave the IRA to his surviving spouse – a gold member of the EDB class – can she choose the 10-year payout?

The 10-year payout would allow her to avoid RMDs on the inherited IRA for a decade. It would also allow her to delay a spousal rollover, thereby preventing a combined RMD the following year. As a gold-member EDB, can she choose the 10-year option and do a spousal rollover right before the 10 years expire, thus avoiding the full 10-year payout requirement altogether?

Does membership have its privileges?


By Ian Berger, JD
IRA Analyst

The Coronavirus Aid, Relief, and Economic Recovery (CARES) Act continues to cause confusion. In the April 22, 2020 Slott Report, we discussed four misconceptions surrounding the new law. In this article, we add one more: If your employer refuses to offer CRDs, you can’t qualify for the special CARES Act tax breaks.

This statement is false.

The CARES Act allows workplace retirement plans [e.g., 401(k), 403(b) and governmental 457(b) plans] to offer a new kind of distribution – a coronavirus-related distribution (CRD). CRDs offer several tax breaks. If you are under age 59 ½, you are exempt from the 10% early distribution penalty. You may also spread taxes on the CRD over three years and/or recoup any taxes paid by contributing the CRD back to your plan or to an IRA and filing amended tax returns.

CRDs are not available to everyone. Under current rules, you are eligible only if you are a “qualified individual” under the following definition:

  • you are diagnosed with the SARS-CoV-2 or COVID-19 virus by a test approved by the    CDC;
  •  your spouse or dependent is diagnosed; or
  •  you experience “adverse financial consequences” on account of:

    – being quarantined;

    – being furloughed or laid off or having work hours reduced;

    – being unable to work due to lack of child care; or

    – closing or reducing hours of a business you owned or operated.

The IRS has said that it may expand these categories, but that has not happened yet.

If a plan offers CRDs, they are available in addition to normal plan distributions, such as hardship withdrawals or age 59 ½ distributions. But plans are not required to offer this new distribution option, and some have chosen not to.

However, just because a plan does not offer CRDs doesn’t mean that you can’t treat a normal plan distribution as a CRD – as long as you are a “qualified individual.”  In other words, you are not necessarily bound by whether your employer plan treats a distribution as a CRD. If you meet the definition of a “qualified individual,” you can still use the special tax breaks for 2020 distributions of up to $100,000.

Example: Jasmine, age 50, participates in a 401(k) plan that allows hardship withdrawals. Her employer has decided not to offer CRDs. Jasmine is a “qualified individual” because her husband has been diagnosed with COVID-19. She qualifies for and takes a hardship withdrawal of $40,000 from the plan on July 1, 2020. Even though the plan does not offer CRDs, Jasmine can treat her hardship withdrawal as a CRD and qualify for the special tax relief. Therefore, Jasmine will not be subject to the 10% early distribution penalty. She can also spread taxation of the withdrawal equally over three years and repay it within three years.

Keep in mind that any CRDs from your IRA are aggregated with CRDs from company plans for purposes of the $100,000 limit.