By Ian Berger, JD
IRA Analyst

It’s that time of the year! College bills for the Fall semester are arriving, and you may be thinking of tapping into your retirement savings to help with the costs. If you’re under age 59 ½, be careful. Your withdrawal may be subject to a 10% early distribution penalty unless you are able to take advantage of an exception to that penalty. (Remember that, even if you qualify for the exception to the penalty, distributions from traditional IRAs will be taxable.) Here’s what you need to know about the higher education expense exception:

1. Take it from your IRA. Penalty-free withdrawals for higher education are only available from your IRA (including SEP and SIMPLE IRAs). If you take an early distribution from your company plan, you’ll be hit with the 10% penalty.

2. Watch the timing. There are no dollar limits on penalty-free withdrawals; however, the distribution can’t exceed the amount of education expenses paid in the same calendar year.

3. Make sure the school qualifies. Any accredited post-secondary (post-high school) educational institution – including a foreign institution – qualifies as long as it is eligible to participate in a student aid program administered by the U.S. Department of Education.

4. Make sure the student qualifies. To be penalty-free, the expense must be for education of the IRA owner or his spouse, or for any child or grandchild of either. Siblings, nieces, nephews and cousins don’t qualify.

5. Make sure the expense qualifies. Qualifying expenses include tuition, fees, books, supplies and equipment required by the school. Expenses for computers and related equipment used at school are penalty-free – even if not required by the school. Note that a person must be considered at least a half-time student in order for room and board to qualify. Finally, expenses paid for with tax-free educational assistance (i.e., with scholarships, Pell grants, Coverdell education account distributions and veterans’ educational assistance) are not eligible for the 10% exception.

6. Keep good records. It is important for you to retain good documentation of the expenses you paid for with the IRA funds. In case of an IRS audit, the burden is on you to prove the distribution was for a qualified education expense.

7. File 5329. Your IRA custodian will issue a Form 1099-R showing an early distribution, but the 1099-R will not reflect an exception to the 10% penalty. It will be up to you to file Form 5329 to claim the exemption.



By Sarah Brenner, JD
Director of Retirement Education



I have a client who died in 2021 before taking his 2021 RMD. He designated various charities as beneficiaries of his IRA.

The IRA custodian is advising the executor to take the RMD, however according to a previous post by Mr. Slott, Revenue Ruling 2005-36 states in this scenario the RMD is to be paid to the beneficiaries. I suggested the client ask the custodian to request confirmation from their legal department.  Any other steps?

Thank you,



You are right to question the IRA custodian on this. The rules are clear that when the IRA owner dies without taking the RMD for the year of death, it must still be taken. There is often confusion, though, over who must take it. When an IRA owner dies, the funds then belong to the beneficiary. So, it is the beneficiary who must take the year of death RMD if the IRA owner dies prior to taking it. This was confirmed by the IRS in Revenue Ruling 2005-36. You may want to share this guidance with the IRA custodian as support for your position.


Hi, I bought your 2020 edition of Retirement Decisions Guide and had a question regarding changes in IRA inheritance.

Regarding a Roth IRA, if a spouse inherits, is the spouse exempt from ever taking any distributions and if so, would that only be if the spouse made the Roth his/her own rather than treating as an inherited Roth?

And any nonspouse inheriting a Roth, are they only required to take the entire account by the end of the 10th year but do not need to take any before then?

Sorry to bother you but I can’t find these 2 questions addressed anywhere else.

Thanks for all of the advice you have shared over the years



Thank up for being a reader of the 2020 Retirement Decisions Guide!

Roth IRA beneficiaries are subject to the new SECURE Act rules when a Roth IRA owner dies after 2019. A spouse beneficiary can do a spousal rollover to her own Roth IRA, or she can keep the Roth IRA as an inherited IRA. If a spousal rollover is done, no distributions are required. If it remains an inherited IRA, she can still use the stretch as an eligible designated beneficiary (EDB) under the SECURE Act or she can elect the new 10-year rule. A nonspouse beneficiary who is not an EDB would be subject only to the 10-year rule.

The 10-year rule requires that the account be emptied within 10 years of the year of death. However, there are no annual required distributions in the 10-year period.


By Andy Ives, CFP®, AIF®
IRA Analyst

1. What is the NUA (Net Unrealized Appreciation) tax break? It is the opportunity to pay tax at long-term capital gains rates on the appreciation of company stock held within a company plan vs. paying ordinary income rates on that growth.

2. Who is a potential candidate for NUA? Anyone with highly appreciated company stock in their workplace plan, like a 401(k).

3. Can it be any company stock? It must be the company stock of the company that sponsors the 401(k). The company stock can be held as individual shares within the plan or as a stock fund that is converted to shares upon distribution.

4. How do you define “highly appreciated”? “Highly appreciated” is subjective. There is no magic percentage dictating what level of growth makes for a good NUA opportunity. Every person is different, and every person will have an NUA “tipping point” where it makes sense.

5. Can anyone take advantage of the NUA tax break? No. A person must hit an NUA “trigger event,” of which there are only four: Reaching age 59½ (although the plan is not required to allow an in-service distribution at that age); Separation from service (not for the self-employed); Disability (only for the self-employed); and Death. To be eligible for NUA, one of these triggers must be met.

6. What actions will “activate” the NUA trigger? Any distribution from the plan, such as an RMD, will activate the trigger. A partial rollover could activate the trigger, as could an in-plan Roth conversion. If the trigger is activated, the NUA lump sum distribution transaction must be completed by the end of that same calendar year, or that specific NUA trigger opportunity will be lost.

7. Do you have to completely empty the 401(k) account? Yes, there must be a full lump sum distribution. A successful NUA transaction requires the entire 401(k) balance to be emptied in one calendar year. Typically, non-NUA assets get rolled to an IRA, and the NUA stock is transferred in-kind to a non-qualified brokerage account.

8. Will late additions to the plan disqualify the lump sum distributions? No, dividends or other late additions that trickle into the 401(k) account in the next year will not disqualify the lump sum payout.

9. Can an NUA transaction be done before age 59 ½? Yes, if another trigger is activated, like separation from service. The age-55 exception will allow some people under age 59 ½ to avoid the 10% penalty on the NUA transaction. If under age 55, the 10% penalty will only apply to the cost basis of the NUA stock (and any non-NUA stock assets that are not rolled over).

10. Is NUA an all-or-nothing deal? No. Partial NUA transactions are allowed. However, any company stock that is rolled over to an IRA will forever lose the NUA tax-break opportunity.


By Sarah Brenner, JD
Director of Retirement Education

On July 15 and 16, financial advisors from around the country gathered virtually for Ed Slott and Company’s Instant IRA Success workshop. We took a deep dive into the rules governing retirement accounts and engaged in some lively discussions of issues that advisors on the front line are facing regularly as they help their clients plan for a secure retirement. Here are five takeaways to share from our recent meeting:

1. The SECURE Act has upended retirement planning. The SECURE Act became a reality in 2020 and with it came the end of stretch IRA for most IRA beneficiaries. In its wake are many questions about the new rules and where to go from here when it comes to transferring wealth to the next generation. At the workshop, there was much discussion as to the correct interpretation of the new 10-year payment rule, especially in light of the recent confusion related to Publication 590-B. In its revision to that publication, the IRS had to make revisions to correct the impression that RMDs would be required during the 10-year period. It is clear as well that there is a lot of interest from both advisors and retirement savers in potential replacements for the stretch IRA, such as life insurance or charitable trusts.

2. Many believe we are headed for tax increases. There is much uncertainty when it comes to tax planning right now, stemming from concern that today’s rates won’t be around long. Several informal polls taken during the meeting show that many advisors believe that the historically low income tax and federal estate tax levels are likely to rise in the near future.

3. The Net Unrealized Appreciation (NUA) tax break is currently generating a lot of interest as markets boom. The NUA tax break allows plan participants who take lump sum distributions, including in-kind distributions of highly appreciated employer stock, to take advantage of favorable capital gains tax rates. With markets way up and many taking early retirement due to the pandemic, this is a perfect storm for NUA.

4. IRA trusts may be less useful, but for some IRA owners they will still be needed. The SECURE Act may have downgraded trusts as a planning strategy for IRAs with the new 10-year rule for most beneficiaries including trusts. However, advisors recognize that for some situations like minor beneficiaries, special needs beneficiaries and those with credit issues, a trust still may be a good choice. Advisors and their clients are eagerly waiting on SECURE Act guidance from the IRS to fill in the gaps on how the rules for trusts as IRA beneficiaries will work going forward.

5. Roths still rule. Roth accounts were the subject of lots of attention during the workshop. We had discussions about the recent news reports of a tech titan’s multibillion Roth IRA, stories of continued client interest in Roth conversion, and reports of Congress’ move toward more “Rothification.” Knowing the rules, including the often confusing five-year rules for tax-and -penalty-free distributions, is more important than ever.

Thank you to all who attended Instant IRA Success and made it a great event for everyone! If you could not make this past workshop, consider joining us for our next virtual Instant IRA Success workshop which will be held on September 23 and 24.


Ian Berger, JD
IRA Analyst


Mr. Slott,

Would a person who took a Coronavirus-Related Distribution from his IRA in 2020, with intent to repay within 3 years, be disqualified from taking a distribution and making a 60-day rollover in 2021 if it is within 12 months of the CRD

Thank you,



Hi Betty,

The repayment of a CRD is considered a trustee-totrustee transfer between IRAs. As such, the once-per-year rollover rule does not apply. Therefore, there would be no reason why a 60-day IRA rollover could not be done within 12 months of the CRD.


Hello Sir/Madam,

We had a question on Roth conversions in our office that is stirring up quite a debate, and we are hoping that you could add your expert opinion,

Bob Smith, Age 65 (in 2021), US Resident, US Citizen & US Tax Filer

  1. Bob has a Traditional IRA worth $100K (with no cost basis).
  2. In January of 2019, he opens up a new Roth IRA and converts the entire $100K amount into this new Roth via a Roth conversion in Jan 2019.
  3. Bob pays the tax due in 2019 for this Roth conversion on his federal tax return.
  4. In January of 2021, Bob takes a withdrawal of $10,000 from this Roth conversion account.  Let’s assume that Bob invested the funds in the money market and this Roth is still worth the original $100K at the time of the withdrawal.


Question:  Has Bob violated the 5-year holding period rule that would subject him to the penalty?  Or, is he exempt because he is over age 59 ½?

Thank you in advance for your time and assistance with this.

All my best,



Hi Steve,

Distributions of Roth conversions are never subject to the 10% early distribution penalty if the individual has attained age 59 ½. So, Bob’s distribution would be penalty-free  If he were under 59  ½, the 5-year holding period would apply, and he would have to wait until 2024 to receive a penalty-free distribution.


Ian Berger, JD
IRA Analyst

In the May 17, 2021 Slott Report, we discussed the rules governing required minimum distributions (RMDs) from defined benefit (DB) plans, also known as “pension plans.” We said that DB plan payments usually have no problem satisfying the RMD rules, but there are two special rules that sometimes apply.

One special rule kicks in when someone elects a “joint and survivor annuity” with a non-spouse beneficiary more than 10 years younger. (A joint and survivor annuity is an annuity payable over the participant’s lifetime and, if the beneficiary outlives the participant, continues over the beneficiary’s remaining lifetime.) When the beneficiary is more than 10 years younger than the participant, the survivor benefit cannot exceed a certain percentage of the amount payable to the participant. The maximum percentages are based on the age differences between the participant and the survivor and are set forth in an IRS table. The May 17 Slott Report has an example of how this works.

The second special rule applies when a DB lump sum payment is made in a year when an RMD is required. This often happens when a company with a pension plan offers a “lump sum buyout” to retirees. In a lump sum buyout, the retiree is given a limited opportunity to elect a lump sum payment in exchange for giving up future periodic payments.

In that situation, the portion of the lump sum that is an RMD cannot be rolled over. A DB plan can calculate the portion of the lump sum that is an RMD in one of two ways. The first is by using the defined contribution plan/IRA RMD rules and treating the lump sum amount as the retiree’s account balance as of the previous December 31. The second is to treat one year of annuity payments as the portion of the lump sum that is an RMD.

Example: Savannah, age 74, is a DB plan retiree receiving monthly annuity payments of $2,000. In 2021, Savannah’s former employer offers her a lump sum of $300,000, which she accepts. If the plan calculates Savannah’s 2021 RMD using the defined contribution plan/IRA plan rules, her RMD would be $12,605 ($300,000 / 23.8). Savannah could roll over $287,395 ($300,000 – $12,605). If the plan calculates her RMD using the alternative method, the 2021 RMD would be $24,000 ($2,000 x 12), and Savannah could roll over $276,000 ($300,000 – $24,000).


By Andy Ives, CFP®, AIF®
IRA Analyst

A surviving spouse has a number of options regarding how to deal with IRAs inherited from his or her deceased spouse. The age of both the deceased and surviving spouse will most often dictate the decision as to how to proceed. Typically, a surviving spouse who is age 59 ½ or older will do a spousal rollover with the assets. A spousal rollover allows the surviving spouse to consolidate the inherited IRA into her own, thereby minimizing future paperwork and confusion. She will have full and unfettered access to the assets (other than potential taxes due).

For surviving spouses who are under age 59 ½, the option to keep the inherited assets as a beneficiary (inherited) IRA often makes the most sense. This strategy acts as a safety net should she need access to the inherited IRA dollars. As a beneficiary IRA, the surviving spouse would have full access to the inherited assets, penalty free. At age 59 ½, she can do a spousal rollover, thereby consolidating the inherited IRA into her own. At that point, when she is over age 59 ½, the 10% penalty will never again apply. (Note: there is no deadline to complete the spousal rollover. Even if her husband tragically died when she was only in her 30’s, she could elect an inherited IRA, have full access to the dollars, and then do a spousal rollover 20+ years later.)

On occasion, surviving spouses will elect to split the inherited IRA assets, which is permitted. The surviving spouse might choose to move half of the money into her own account (spousal rollover) and keep the other half as an inherited IRA. One rationale for such a split could be to limit the under-age 59 ½ spouse’s access to inherited dollars by leaving a smaller portion in the beneficiary IRA. The reasons for splitting are far and wide.

This permission for surviving spouses to split inherited IRAs raises an interesting question. We know that, under the SECURE Act and recently clarified by the IRS, an eligible designated beneficiary (EDB) can choose the 10-year payout OR choose to stretch inherited IRA payments over his or her own single life expectancy. However, this choice is only available if the deceased IRA owner dies prior to his required beginning date (RBD). If the deceased owner is past his RBD, the EDB can only stretch payments. (You cannot elect to stop RMDs via the 10-year payout option.)

Is an EDB, like a surviving spouse, also allowed to split an inherited IRA, thereby choosing the 10-year payout option on part of the assets, and stretching the rest? This question is unknown as it is not addressed in the SECURE Act.

Example: Two adult brothers, ages 60 and 61, die in a car crash. Both deceased siblings owned their own IRA and named their younger sister Grace, age 55, as their primary beneficiary. Grace is an EDB as she is “not more than 10 years younger” then either of her older brothers. Since both of the brothers died before their RBD, Grace can choose to stretch payments over her own life expectancy, or she can choose the 10-year payout option.

If she wanted to, it seems completely reasonable that Grace could stretch one of the brother’s IRAs and choose the 10-year payout for the other. After all, these are two different decedents. But could she split one of the IRAs, stretching a portion and taking the 10-year on the other portion? That is a question that is still unknown.


Sarah Brenner, JD
Director of Retirement Education



I recently saw an email from you on QCDs when deductible IRA contributions are made in the same year. It discussed how these two transactions interact with each other.

I am also wondering if the offset to the QCD would also occur for a SEP IRA or SIMPLE IRA contribution?

Thank you for your help.



Hi Doug,

There are some complicated rules that apply when an individual makes deductible IRA contributions and does qualified charitable distributions (QCDs). The bottom line is that this should be avoided because it can result in part or all of a QCD being considered taxable.

It is a different story, however, when it comes to QCDs and a SEP or SIMPLE contribution. Making a SEP or SIMPLE IRA contribution will not impact the tax advantage of the QCD.


We are reading several interpretations of the new 10-year rule for designated beneficiaries for inherited IRAs. Does the 10-year rule begin in the year following the original account owner’s death? For example, if the account owner dies in 2020, the clock begins in 2021, and the account must be fully liquidated by the end of 2030?

Thanks for your assistance!



Hi Jesse,

You are correct. The funds will need to be distributed by December 31 of the tenth year following the year of death. If the IRA owner dies 2020, the account would need to be emptied by December 31, 2030.


Sarah Brenner, JD
Director of Retirement Education

When you contribute to a traditional IRA you make a deal with Uncle Sam. You can get a tax deduction and tax deferral on any earnings in your IRA. However, eventually the government is going to want its share and will require funds to come out of these accounts. That is when you must start required minimum distributions (RMDs). You may not need the money and you may not want the tax hit. Here are some strategies that can help reduce your RMD.


If you are planning on giving money to charity anyway, why not do a Qualified Charitable Distribution (QCD) from your IRA? If you are 70 ½, you may transfer up to $100,000 annually from your IRA to a charity tax-free. The QCD will also satisfy your RMD, but without the tax bite.

Still-Working Exception

Are you still working after age 72? If you do not own more than 5% of the company where you work and the company plan offers a “still working exception,” you may be able to delay taking RMDs from your company plan until April 1 following the year you retire. If your plan allows, you can roll your pre-tax IRA funds to your plan and delay RMDs on these funds too. Just be careful. If you have an RMD for the year from your IRA, you must take it before you can roll over the rest of the funds.


A Qualifying Longevity Annuity Contract (QLAC) is a product designed to help with longevity concerns. Any funds you invest in the QLAC are not included in your balance when it comes to calculating your RMDs until you reach age 85. This will reduce your RMDs. You can purchase a QLAC with the lessor of 25% of your retirement funds or $135,000. The 25% limit is applied to each employer plan separately, but in aggregate to IRAs.

Roth IRA Conversions

If reducing RMDs is a top concern for you, you may want to consider a Roth conversion. This is because you are not required to take RMDs from your Roth IRA during your lifetime. While conversion is a taxable event, you can exchange a one-time tax hit for a lifetime of never having to worry about RMDs and their tax consequences. Keep in mind your beneficiaries will need to take RMDs from the inherited Roth IRA. However, these distributions will most likely be tax-free.

The Sweet Spot

Once you reach age 59 1/2, you can access your IRA funds without penalty. From age 59 ½ to age 72 is the sweet spot for IRA planning. The money is yours penalty-free if you choose to take a distribution. However, you are not required to withdraw specific amounts each year during the “sweet spot” as you will be once RMDs are required. Take advantage of these years to take money from your IRA on your own schedule. If you are now retired and your income is lower, this may be the time to take taxable IRA distribution to reduce RMDs later. You might consider using these funds to purchase life insurance or fund an HSA (Health Savings Account), if you are eligible.


By Andy Ives, CFP®, AIF®
IRA Analyst


Hi. My name is John and I have a Roth question. I have read your most recent book but did not find the answer to this question. I have made non-deductible contributions to a traditional IRA for many years, so about half of the account is basis. I have no Roth account (yet). I recently left my job and rolled over my 401(k) into a separate rollover IRA. Will I have to include this rollover IRA along with the traditional IRA as part of the pro-rata rule in order to take advantage of Roth conversions? Hopefully, I did not screw up by removing funds from my prior employer.

Thanks for your help,




Please don’t shoot the messenger, because the answer is not what you want to hear. Yes, you will have to include your “rollover IRA” in the pro-rata calculation. The IRS dictates that you must include all of your traditional IRAs, SEP and SIMPLE plans when doing the pro-rata math for a Roth conversion. It does not matter if these accounts are held at different institutions. Sadly, had you left the 401(k) dollars in the plan until the year after the Roth conversion, they would not have counted in the pro-rata calculation.


I would appreciate your views on the following scenario. IRA owner over the age of 72 has children who are not good with money. Owner anticipates dying in the next few years. If his kids are the beneficiaries of his estate, and if he names his estate as beneficiary of his IRA, then will the executor of his estate be able to disperse the IRA over the remaining “lifetime” of the deceased, thus controlling (more or less) the distribution of his IRA to the children? I realize it will eventually run out, but the IRA owner may appreciate that his kids will not have immediate access to all of the IRA.

Thanks in advance for your guidance and comments.




While this plan could work, it has the potential to fall apart. Yes, an estate as a non-designated beneficiary (and since the IRA owner is over the age of 72) would require RMDs to be paid to the estate from the estate-owned inherited IRA. The estate would then disseminate the RMD to the beneficiaries of the estate. However, an RMD is just that – a minimum payment. A person could always take more. This plan would require a strong and independent executor of the estate to rigidly adhere to the annual RMD schedule. To further complicate things, unhappy beneficiaries eager to get higher payouts could even mount legal challenges. Such a plan would also require the estate to stay open (adding additional expenses) for a number of years. A trust would probably be a better option. Trusts can be specifically designed to prevent spendthrift children from burning through accounts. The trustee of the trust could be allowed to distribute any amount annually, or none at all. This could continue in perpetuity. Granted, the IRA would need to be emptied within 10 years based on SECURE Act guidelines, and anything remaining in the trust after that time would get hit with high trust tax rates. Nevertheless, with a trust, you could extend the father’s hold on the assets beyond the 10-year period and beyond his single life expectancy.


Ian Berger, JD
IRA Analyst

Would you like to make charitable donations from your IRA but aren’t eligible for a qualified charitable distributions(QCD) because you’re under age 70 ½? Are you eligible for QCDs but want to donate more than the $100,000 annual limit? Are you interested in making charitable gifts from your 401(k) or other company savings plan? If you answered “yes” to any of these questions, you should be aware of a tax strategy just just for 2021 that we call the “Mega QCD.”

QCDs are a great way to transfer funds from your IRA directly to charity. The IRA withdrawal doesn’t count as taxable income, making it especially valuable if you’re taking the standard deduction rather than itemizing deductions on your taxes. QCDs can also be used to satisfy any required minimum distributions (RMDs) you must take in the year of the QCD.

But QCDs have restrictions. You must be age 70 ½ or older to use them. Annual QCDs are limited to $100,000 per person. And, QCDs can only be made from IRAs – not company plans.

For 2021 only, there’s a way to get around each of these limits. Normally, your itemized deduction for charitable contributions in a year can’t exceed 60% of your adjusted gross income (AGI). But Congress suspended the 60% charitable deduction limit for 2020 cash donations and extended that suspension to 2021. (This was done to try to help struggling charities during the pandemic.) So, for 2021, any cash gift to charity – no matter how large– can be deducted up to your AGI.

This means you can take any withdrawal from your IRA or company plan during 2021 and turn around and donate that same amount to charity. The distribution will be taxable to you as AGI, but because of the suspension of the 60% limit, all of that AGI will be wiped away from your taxes as a charitable deduction.

Since the Mega QCD isn’t technically a QCD, you’re not limited to $100,000. And, unlike a QCD, you don’t have to be 70 ½ to use the strategy. (Just remember that if you’re under 59 ½, you’ll be hit with a 10% early distribution penalty that can’t be wiped away.) Even better, the Mega QCD can be used for company plans as well as for IRAs – as long as you’re eligible for a plan withdrawal.

A few caveats: If you’re required to take 2021 RMDs, the Mega QCD can’t be used to offset RMDs like QCDs can. But there’s nothing preventing you from doing a QCD up to $100,000 to offset any RMDs and also using the Mega QCD to make charitable gifts beyond $100,000.

Also, many additional taxes, credits and deductions (like medical expense deductions, Medicare IRMAA charges and taxation of Social Security benefits) are tied to AGI. IRA or company plan withdrawals, even if deductible, can boost your AGI and may raise your taxes. Finally, the Mega QCD is available for 2021 only and only works if you’re itemizing deductions.

By all means, talk to your financial advisor or CPA before pulling the trigger on this strategy.


By Andy Ives, CFP®, AIF®
IRA Analyst

By now, we all know the SECURE Act outlined a group of people that are still permitted to stretch inherited IRA payments over their own single life expectancy. This group is called “eligible designated beneficiaries” (EDBs). Yes, anyone who inherited an IRA prior to the SECURE Act is grandfathered and can continue to stretch required minimum distribution (RMD) payments. However, if you inherit IRA assets after the SECURE Act (i.e., if the original IRA owner died in 2020 or later), only EDBs can stretch.

The list of EDBs is short: Surviving spouses; Minor children of the account owner up to the age of majority (or if still in school, up to age 26); Disabled individuals; Chronically ill individuals; Individuals not more than 10 years younger than the IRA owner.

That last group is intriguing – “individuals not more than 10 years younger than the IRA owner.” It is a massive amount of people. Subtract 10 years from your age. Anyone in America (and beyond) who falls into that age category (or older) is a potential EDB for your IRA.

Example 1: Jana turns 50 years old today. Subtract 10 years. Anyone who is turning 40 today, and anyone who is older than 40 today, could qualify as an EDB for Jana’s IRA. Even people who are older than Jana could qualify for the stretch on her IRA as they are “not more than 10 years younger” than her.

All of Jana’s siblings are age 40 or older. They would qualify as EDBs for Jana’s IRA. Jana’s living parents are ages 75 and 80. They would both qualify as EDBs for her IRA. Jana’s neighbors, ages 44 and 43, respectively, would qualify. In fact, most of the faculty at the university where Jana teaches could qualify as an EDB for her IRA because the bulk of the professors are age 40 or older. (There is no requirement that a person must be related to qualify as an EDB.)

While the “not more than 10 years younger” EDB category is only loosely defined in the SECURE Act, logic tells us that it is measured from specific birthdate to birthdate. There is no wiggle room. There is no language about “how old a person turns or would have tuned this calendar year.” The SECURE Act dictates that EDBs are established based on specific age on the date of death. Period. Just because a person passes away does not mean he stops aging.

Example 2: Ike is age 68 and 6 months old when he dies. Any of Ike’s beneficiaries who are exactly age 58 and 6 months old or older on his day of death will qualify as an EDB. Ike’s friend Abe is listed as a beneficiary on Ike’s IRA, but Abe just turned 58. He is not an EDB on the day of Ike’s death when EDBs are determined. Abe thinks that if he waits 6 months to claim the inherited IRA, he will become an EDB. Abe thinks that, since Ike died at age 68 and 6 months, if he waits to establish an inherited IRA when he is 58 and 6 months, he will be able to “age into” stretching payments. Abe is incorrect. The “not more than 10 years younger” EDB eligibility requirement is time-stamped on the day when Ike passed away.

Be aware of the intriguing “not-more-that-10-years-younger” EDB category. It includes a heck of lot more people than you might think.


Ian Berger, JD
IRA Analyst


I rolled over an IRA in March 2021 from an TD Ameritrade institutional account to a TD Ameritrade retail account. I currently would like to do a 60-day short-term rollover. Would this not be allowed because of the one rollover per 12 month period or is a 60-day short-term rollover treated differently? Thank you for your time.


Any traditional IRA-to-traditional IRA rollover or (Roth IRA-to-Roth-IRA rollover) is subject to the once-per-year rollover rule. That would include a “short-term” rollover. So, if you receive another IRA distribution within 12 months of your receipt of the TD Ameritrade institutional account, you can’t do a tax-free rollover – even a “short-term” rollover – of the second distribution.


Hello, I did a back door conversion of 401(k) money to a Roth IRA in 2019. I was older than 59 ½ when I did that (born 1953). I am under the belief that the account must be in existence for 5 tax years before earnings can be withdrawn without tax.

Others tell me that since I was older than 59 ½  and paid taxes on conversion, both my converted funds, subsequent contributions and earnings are okay to be withdrawn anytime. In other words, there is no 5 year waiting period. Is that correct?



Hi Howard,

This is an issue that trips up lots of people. Whether earnings on your 2019 conversion (and on any subsequent contribution) are tax-free depends on when you did your first contribution or conversion to ANY Roth IRA.

If you did your first contribution or conversion before 2017, then your 5-year waiting period is over, and you can take tax-free earnings now. But, if your first contribution or conversion was after 2016, earnings won’t be tax-free until the end of the 5-year period that started on January 1 of the year for which you did that first contribution or conversion. Also keep in mind that the IRS says that earnings are considered to come out after contributions and conversions, so you can always take out the principal amount of your Roth IRA contributions or conversions tax-free.


Sarah Brenner, JD
Director of Retirement Education

The pandemic has upended the workplace and caused many people to rethink their career path. For some older workers this may mean considering early retirement. For those workers, access to retirement savings can be key, and avoiding early distribution penalties is critical. While most distributions taken from a retirement account before age 59 ½ are subject to an early distribution penalty, the tax code carves out an exception for distributions from certain employer plans taken by those who are age 55 or older in the year they separate from employment. Here are 5 things you must know about the age-55 rule.

1. You must be age 55 or older in the year you separate from service. This rule can be tricky, if you separate from service prior to the year you reach age 55, you cannot use this exception. This is true even if you wait until the year you turn age 55 to take the distribution. It is your age in the year of separation from service that matters, not your age at the time of the distribution.

2. The age-55 exception only applies to the plan where you separate from service at age 55 or later. Many workers have more than one employer plan. They may still have funds in a plan with an employer they left years ago. The age-55 exception only applies to those assets you have in a plan where separation from service happened in a year you reached age 55 or later.

3. The age-55 exception never applies to IRAs. The rules for exceptions to the 10% early distribution penalty can be confusing. Some exceptions apply to both plans and IRAs. Some apply only to IRAs, and some apply to just plans. The age 55 exception only applies to plans. It never applies to IRAs. It also does not apply to IRA-based work plans like SEP or SIMPLE plans.

4. If you roll over to an IRA, the age-55 exception is lost. Rolling funds over from a plan to an IRA after leaving a job can be a good move in many cases, but not always. If funds are rolled over to an IRA from a plan, the age-55 exception is lost on those funds. If you are considering taking advantage of the age-55 exception, you will want to stick with the plan and forego the IRA, at least until you reach age 59 ½.

5. The age-55 exception is not an optional provision. Employer plans have a lot of flexibility when it comes to what provisions they offer. Just because the law allows some options, that does not necessarily mean that a plan will. However, some parts of the tax code are not optional. A plan cannot make the age-55 exception off limits if you are eligible.


Ian Berger, JD
IRA Analyst
Follow Us on Twitter: @theslottreport

In the June 16, 2021 Slott Report, we discussed how an in-service distribution made in the year of separation from service can inadvertently create an excess IRA contribution if that distribution is rolled over when a required minimum distributions (RMD) is due. A related issue is how rollovers and transfers from 401(k) plans (or other company plans) and IRAs are treated differently when an RMD is required.

If you do a 60-day rollover from an IRA (that is, the distribution is paid directly to you) in a year when an RMD is due, the RMD is required to come out first. That’s because RMDs are not eligible for rollover. The same rule applies to 60-day rollovers from 401(k)s. If you mistakenly roll over all or a portion of an RMD from either an IRA or a plan, the rolled over RMD is considered an excess IRA contribution. You will then be subject to an annual 6% penalty unless you withdraw the excess amount (the RMD), plus any earnings attributable to it, by October 15 of the following year.

However, if you do a direct (trustee-to-trustee) transfer (that is, the funds are paid directly to another custodian) instead of a 60-day rollover, the rules are different for IRAs and plans. If the transfer is from an IRA, the RMD does not have to be distributed before the remaining amount can be transferred. But you would still have to remember to take the RMD by the end of the year from the new IRA. If you forget, you could be hit with a 50% excise tax on the unpaid RMD – although the IRS will often waive that penalty.

You do not have the same flexibility with an RMD if the direct transfer is made from a company plan. In the eyes of the IRS, a company plan transfer is a distribution and then a rollover. Repeat after me: RMDs can’t be rolled over. So, whether it’s a 60-day rollover or a direct transfer from a plan, the RMD must be paid first.

Another source of confusion concerns the due date of the first RMD when rolling over 401(k) funds. Usually, you can defer your first RMD to April 1 of the following year. (However, that means you will have two taxable RMDs in that following year.)

But what if you retire in the year you first become subject to RMDs and want to do a transfer or rollover from your 401(k) that same year? Unfortunately, if you proceed with the transfer or rollover, you cannot defer the first RMD until the next year. The only way to delay the first RMD would be to also delay your 401(k) rollover or transfer until a subsequent year. If you put off your 401(k) rollover or transfer until the very next year, both of your first two RMDs must come out before you can do the rollover or transfer.

Keep in mind that the rules in the preceding paragraph also apply if you use the “still-working exception” to delay your first RMD until the year of retirement beyond age 72.


Sarah Brenner, JD
Director of Retirement Education


A client of mine born in 1952 passed away in March 2021 and the IRA passed to her mother who is 91 years old. So, the 10 year rule applies to liquidate the IRA as she is not an eligible designated beneficiary (EDB). If the mother passes away at age 95 and leaves the inherited IRA to her son – how long does the son have to liquidate the account???

All the best



Hi Stevan,

Interestingly enough, the mother IS an EDB in this case! She is “not more than 10 years younger than the IRA owner.” However, based on her age, stretching payments over her life expectancy will only allow for about 5 years of payments. If she would pass away, the son as the successor beneficiary of an EDB would then have 10 years to empty the account.

An EDB can also elect the 10-year rule when the IRA owner dies prior to their required beginning date. This could be another option for her. If she dies prior to end of the 10-year period, her son, as her successor beneficiary, must distribute any remaining funds by the end of that same 10-year period. In this case, that would mean the inherited IRA must be distributed by December 31, 2031.


I am 43 years old and would like to pull $12K out of my employer-sponsored 401(k) and roll it into a Roth IRA. Can this be done, and if so, is there a penalty for doing so? Will I be taxed on the $12K if I roll it into a Roth?



Hi Mark,

There are several issues here. First, in order to be eligible to convert funds from your 401(k), you must be eligible to take a distribution. Based on your age, if you are still working for the employer, that may not be possible. If you are eligible to take a distribution, you can choose to do a Roth IRA conversion if the funds are eligible for rollover. If the funds are pretax, they will be taxed when you convert (i.e., directly rolled over into a Roth IRA), but there will not be a 10% penalty. There is never a 10% penalty on a distribution that is converted to a Roth IRA.



By Andy Ives, CFP®, AIF®
IRA Analyst

A required minimum distribution (RMD) from a 401(k) (or other employer plan) must be taken prior to rolling remaining plan dollars to an IRA. An RMD cannot be rolled over, so it must be withdrawn before any rollover is completed. While this concept appears somewhat basic, it is easy to get sideways with the rules. Additionally, unexpected changes in employment, combined with the still-working exception, can retroactively create RMD problems.

Many retired people of RMD age (70 ½ prior to the SECURE Act, age 72 since) look to consolidate retirement accounts. Since they are no longer working for a company, the idea of rolling 401(k) plan assets into an IRA makes sense. Easy enough. However, before a rollover can be completed, the annual plan RMD must be taken first. You cannot roll the entire balance into the IRA and then take the plan RMD from the IRA later in the year. Not allowed.

If the plan RMD is erroneously rolled into the IRA, then we have an excess contribution in the IRA for the RMD amount. This excess (plus any earnings attributable to the excess) must be removed from the IRA, and that withdrawal must be coded as an excess contribution withdrawal. If the excess is not removed by the following October 15, there is a 6% penalty for every year it remains.

Individuals of RMD age who are still working can oftentimes delay the start of plan RMDs. Most plans offer an optional plan feature called the “still-working exception.” If a plan participant does not own more than 5% of the company and the plan allows, she can delay her required beginning date (RBD) to April 1 of the year following the year of separation from service. (Note that this exception does NOT apply to IRAs, SEPs or SIMPLEs. It also does not apply to employer plans if a person is not currently working for that company.)

Nevertheless, despite the best-laid RMD plans, unexpected changes in employment can transform a proper rollover into a problematic excess contribution. Here’s how:

Example: Janice, age 74, has been working for a small business for 20 years. She has diligently made salary deferrals into the company’s 401(k) plan and has accumulated $250,000. Since the plan has the still-working exception, Janice does not need to take an RMD from the plan until she separates from service. Janice intends to retire next year. In preparation for retirement (and in order to access a particular investment unavailable in her work plan), Janice takes an in-service distribution of $100,000 which she rolls into her IRA. She wisely leaves $150,000 in the 401(k) so that it will not factor into her IRA RMD next year. After December 31, she plans to roll the remaining $150,000 to her IRA.

Soon after Janice’s $100,000 rollover, torrential rains and flooding destroy the company. The doors are shuttered, and the entire staff is let go. Since Janice has now officially “separated from service” – even though the separation was not her decision – the still-working exception no longer applies. Janice now has an RMD on her plan assets for this year. The “first-dollars out rule” dictates that the first dollars taken from a plan or IRA include the RMD. As such, Janice’s $100,000 rollover is retroactively deemed to have included her 401(k) RMD. Despite her best-laid plans, she now has an excess contribution in her IRA that must be addressed.


Sarah Brenner, JD
Director of Retirement Edcuation

June is PRIDE Month. This June also marks the sixth anniversary of the landmark Supreme Court case Obergefell v. Hodges, which legalized same-sex marriage. In the wake of this decision, millions of same-sex couples headed to the alter over the past few years.

Many of these newlyweds, never expecting to see a day when they would be allowed to marry, may not have paid much attention to the special breaks that married couples receive under the tax code. When it comes to IRA rules, spouses have many advantages, and couples in same-sex marriages are no exception. Here are four special IRA rules for spouses that same-sex couples should know about:

1. Spousal IRA contributions: If you are not working you may think you are ineligible to make an IRA contribution. That might not be the case.  If you are married, you may be able to contribute to your IRA based on their spouse’s taxable compensation for the year. An individual could make spousal IRA contributions in some years and regular IRA contributions in others.

To make a spousal contribution for 2021, you must be legally married on December 31, 2021 and file a joint federal income tax return for 2021. For same-sex couples, this would not include civil unions. If you are divorced or legally separated as of that date, neither is eligible for a spousal contribution, even if they were married earlier in the year.

2. Ability to use the Joint Life Expectancy Table for Required Minimum Distributions (RMDS): When you reach age 72, you must start taking distribution annually called required minimum distributions. These are calculated by using life expectancy tables provided by the IRS. IRA spouse beneficiaries who are more than ten years younger than the IRA owner may use the Joint Life Expectancy Table. This results in smaller RMDs versus using the Uniform Lifetime Table, which is required to be used to calculate lifetime RMDs for all other IRA owners.

3. Spousal Rollover: Only a spouse beneficiary can roll over or transfer an inherited IRA from her deceased spouse into their own IRA. This is known as a spousal rollover. There is no deadline for a spousal rollover. Once the spousal rollover is done the funds are treated like any other IRA funds you own. There are no RMDs if you are not yet age 72. Non-spouse beneficiaries do not have this option.

4. Inherited IRAs for Spouses: Not every spouse beneficiary will want to do a spousal rollover. Sometimes to avoid early distribution penalties it can make more sense to keep an inherited IRA. Under the SECURE Act, most beneficiaries will need to empty the inherited IRA by December 31 of the tenth year following the year of death. However, eligible designated beneficiaries (EDBs) will still be able to take RMDs from the inherited IRA based on their own life expectancy. A spouse is one of those EDBs.

As a spouse beneficiary you can take advantage of a special rule unavailable to non-spouse beneficiaries. If you are the sole beneficiary, and if your spouse dies before their RBD, you can delay RMDs from the inherited IRA until the year your spouse would have attained age 72. That can mean a delay of many years before RMDs from the inherited IRA must begin.

Even when spouse beneficiaries are subject to RMDs, they receive a special break when calculating that amount. Spouse beneficiaries have the advantage of being able to recalculate their life expectancy. Over time, this results in lower RMDs for spouse EDBs compared to non-spouse EDBs.


By Andy Ives, CFP®, AIF®
IRA Analyst


How can the beneficiaries of an estate roll a 401(k) paid to the estate to a Roth IRA? What steps must be taken?




Inherited IRAs cannot be converted to inherited Roth IRAs, but inherited 401(k) plans can be converted. This is an anomaly in the rules, but it is allowed. However, if the 401(k) was already paid to the estate, those former plan dollars cannot be rolled back to a traditional IRA or converted. Non-spouse beneficiaries cannot do 60-day rollovers with inherited IRA or plan dollars. Once they are paid out (in this case, to the estate), they must remain paid out and are taxable.


Dear Sir/Madam,

I have recently heard that the government may change the RMD age to 75 from the present 72.  Is there any truth to that?

Thank you,

Dr. John


Dr. John,

There is proposed legislation in Congress that would gradually raise the RMD age from 72 to 75. As with all legislation, there are suggestions and negotiation before anything becomes law. Many of today’s rumors begin when people read “proposals” and confuse them for final policies. While rumors abound, it is important to focus on the current rules Yes, there are RMD age proposals, but the current RMD age is 72. If there are any authoritative changes, rest assured it will be big news and we will clearly write about it.


By Ian Berger, JD
IRA Analyst

On April 14, we reported that the IRS was apparently interpreting the SECURE Act’s 10-year payout rule in a surprising way – to require annual required minimum distributions (RMDs). Now, the IRS has made it clear (without actually saying so) that its prior interpretation was a mistake.

The SECURE Act changed the payout rules for most non-spouse beneficiaries of IRA owners who die after 2019. Those beneficiaries can no longer use the stretch IRA. Instead, they are subject to a 10-year payout rule, which requires the entire IRA to be paid out within 10 years of the owner’s death.

Most everyone thought that annual RMDs would not be required under the 10-year rule. That’s the way the IRS interpreted the 5-year payout rule, which applies when an IRA owner dies before his required beginning date (RBD) without designating an individual beneficiary. Applying the 10-year rule the same way would give a beneficiary the flexibility to take out any amount (or no amount) from the inherited IRA in years 1-9, as long as she emptied the entire account by year 10.

But in a revision of Publication 590-B dated March 25, 2021, the IRS strongly hinted that it was treating the 10-year rule differently than it has treated the 5-year rule. It would require annual RMDs to be paid in years 1-9 and the remaining IRA funds to be paid out in year 10.

Many commentators believed the IRS had simply made a mistake, and that turned out to be the case. In a subsequent revision of Publication 590-B dated May 13, 2021, the Service made clear that annual RMDS aren’t required under the 10-year rule, after all:

For example, if the owner died in 2020, the beneficiary would have to fully distribute the plan by December 31, 2030. The beneficiary is allowed, but not required, to take distributions prior to that date.

The IRS may have cleared up that mess, but it created a new one. This involves the question of when exactly the 10-year period ends. The IRS has said that the 5-year payout period ends on December 31 of the year containing the 5th  anniversary of death. Most assumed that the 10-year period would be applied the same way and, indeed, one part of the most recent Publication 590-B confirms that:

The 10-year rule requires the IRA beneficiaries who are not taking life expectancy payments to withdraw the entire balance of the IRA by December 31 of the year containing the 10th anniversary of the owner’s death.

But hold on. Two paragraphs later, the IRS says that the ending date of the 10-year period is different when a beneficiary receiving stretch payments dies or when a minor child receiving stretch payments reaches the age of majority:

[I]n either of those cases, the 10-year period ends on the 10th anniversary of the beneficiary’s death or the child’s attainment of majority.

Fortunately, this won’t be an issue for anyone until at least 2030. But we’ll let you know when it is sorted out.


By Andy Ives, CFP®, AIF®
IRA Analyst

With the passage of the SECURE Act, once common IRA beneficiary planning strategies have been upended. For example, no longer can just anyone stretch payments on an inherited IRA. You must qualify as an “eligible designated beneficiary” (EDB) to stretch using your single life expectancy. As we have written many times, EDBs include surviving spouses, minor children of the account owner (up to majority, or if still in school, up to age 26), disabled and chronically ill individuals, and individuals not more than 10 years younger than the IRA owner.

All other living, breathing IRA beneficiaries will now use the 10-year rule. There are no annual required minimum distributions (RMDs) during the 10-year window, but the account must be emptied by the end of the tenth year after the year of death.

In light of these new beneficiary payout rules, it came as no surprise that people began thinking of ways to leverage them for maximum benefit. Can I structure a payout this way? What if I do this? Some ideas were creative, some destined to fail. Occasionally, an idea was imaginative enough that it demanded debate as to its legitimacy.

For example, based on a creative inquiry, I wrote a Slott Report entry in May 2020 called “Does Membership Have its Privileges? Spouse Beneficiaries and the 10-Year Payout.” In that blog I discussed a beneficiary planning idea (loophole?) that was not clearly addressed in the SECURE Act. The premise was for a spouse beneficiary to elect the 10-year rule in order to stop RMDs on inherited dollars. If the deceased original owner had been taking RMDs, the spouse (also of RMD age) could potentially choose the new 10-year option created by the SECURE Act as opposed to doing a spousal rollover. If permitted, this would halt RMDs on those inherited dollars for a decade.

Alas, with the recent release of IRS Publication 590-B, “Distributions from Individual Retirement Arrangements,” this loophole appears to have been closed. For EDBs, including spouse beneficiaries, the payout options are predicated on whether the original IRA owner had reached his required beginning date (RBD) – April 1 of the year after turning of 72. The RBD determines when lifetime RMDs are to begin.

If RMDs were initiated to the original account owner (i.e., he died on or after his RBD), then the 10-year option is off the table for EDBs. Spouse beneficiaries can either do a spousal rollover or keep the account as an inherited IRA. Non-spouse EDBs can only stretch payments based on life expectancy.

Note that the elimination of the 10-year rule after the original IRA owner reaches his RBD is applicable to EDBs only. All other living, breathing IRA beneficiaries who are not EDBs can still use the 10-year rule. (In fact, the 10-year rule is the only option for non-EDBs.)

Despite all the acronyms included above, this scenario is now clear. As soon as we receive guidance on other SECURE Act uncertainty, we will pass it along.


By Ian Berger, JD
IRA Analyst


Hi! I attended the February 2021 IRA seminar and had a question re: Roth conversions.  The seminar discussed rolling over assets held in a company plan into a Roth IRA. I’m dealing with a client that wants to roll over a lump sum from a state pension plan into a Roth IRA.  Can you tell me if in your experience this is generally permitted (assuming tax is paid on the conversion amount)?

Thank you in advance.



Hi Patrick,

Lump sum distributions from tax-qualified employer retirement plans can be rolled over to a Roth IRA. A state pension plan would qualify as a tax-qualified plan. Moving funds from the plan to a Roth IRA is a conversion, which is a taxable event.


If you are an employee who participates in a 401(k) and you are a non-owner employee and retire at, for example, age 73, do you have to take an RMD in the year you retire or can you take your RMD by April 1 of the year following retirement?

If you can take your RMD by April 1 of the following year, does that mean you have to take two RMDs in that year?


If you delay RMDs beyond age 72 under the “still-working exception,” the first RMD is due for the year you retire. You can defer the RMD for that year until the following April 1, but that would give you two RMDs for that following year. Be careful, though. If you want to do a rollover of your 401(k) funds, any RMD due must be taken first before the balance can be moved to an IRA. So, if you do a rollover in the year you retire, the RMD must be distributed prior to the rollover and cannot be delayed until the following year.


By Sarah Brenner, JD
Director of Retirement Education

It has been well over a year since the SECURE Act became a reality, transforming the rules for inherited IRAs and doing away with the stretch IRA for most beneficiaries. While the SECURE Act statute gave us framework for the new rules, there are large gaps that need to be filled in and many unanswered questions remain.

IRA owners and practitioners who work with retirement plans have been struggling with these questions. There are issues with exactly how the new 10-year rule will work, and those issues were made more confusing by contradictory language in the recently released, and then corrected, IRA Publication 590-B. There are also questions about whether separate accounting still matters and how grandfathered and multi-beneficiary IRA trusts will be treated. These are just a few of many areas that need to be clarified.

This is where regulations come in. The regulation process is a long one. First, proposed regulations must be written, then there is a comment period and ultimately final regulations are issued. This can take a while. For the last set of regulations explaining the RMD rules, this process took over a decade.

For those of us wondering what is happening with this process there is a bit of good news. At the recent virtual Federal Bar Association Insurance Tax Seminar, Stephen Tackney of the IRS Office of Associate Chief Counsel (Employee Benefits, Exempt Organizations, and Employment Taxes) confirmed that proposed regulations are on the way and promised they will provide answers to many of the questions the SECURE Act has raised. However, exactly when the regulations will arrive is still unknown. “I always say it’s in the ‘soon’ category; that means later than imminent but before eventually,” Tackney said.

Stay tuned to the Slott Report for the latest updates. We will be monitoring any IRS guidance on the SECURE Act carefully and closely watching the regulation process unfold. Hopefully, there will be more details on exactly how the new rules for inherited IRA work and more answers to our many SECURE Act questions in the near future, possibly even before the end of 2021.


By Sarah Brenner, JD
Director of Retirement Education


We have a client that owns two substantial IRA accounts plus a smaller beneficiary IRA.  Does the beneficiary IRA have its own RMD rules (the client has owned it for 10 years and has been taking RMD’s from it based on the old stretch IRA rules)?  Or can the beneficiary IRA be lumped together with the other IRA’s for RMD calculation purposes?  If so, can this year’s total RMD be withdrawn from the beneficiary IRA without having to touch the other two IRA’s?


Your client’s own IRAs and the inherited IRA are separate entities with their own guidelines. If the client inherited the IRA before 2020 it would be subject to the old pre-SECURE Act rules. That means that annual RMDs would be required. These RMDs are calculated separately from any RMDs that might be required on his own IRA. He cannot aggregate the RMD from the inherited IRA with the RMD from his own IRAs. This is not allowed. He can aggregate RMDs for his own two IRAs, but the RMD from the inherited IRA must be taken from the inherited IRA.


Dear Mr. Slott:

Thank you for all you do to keep advisors informed! I read your columns regularly in Investment News and wherever else they appear.

I have a scenario, and then a two-part question for you.

I had a 71-year-old client pass away in February 2021. He was not yet required to take RMD’s due to the Secure Act extension to age 72. His daughter has inherited his IRA. She named her spouse as primary beneficiary. If the daughter were to pass away before her 10-year distribution period ends, what is the status for the surviving spouse beneficiary re: his own RMD’s? Must he liquidate by the end of her 10-year period? Does he get a lifetime RMD period as surviving spouse beneficiary, or something else? Second part of the question, same scenario, but for an Inherited IRA opened pre SECURE Act? What happens if daughter dies under that scenario, re: the surviving spouse beneficiary’s own RMD period? Thanks in advance for your reply.



Hi Andrew,

This is an interesting question. If the IRA owner dies in 2020 or later, the SECURE requires that the 10-year rule applies for designated beneficiaries. If that beneficiary dies prior to the 10-year period being over, then the successor beneficiary would need to empty the account by the end of whatever remains of the 10-year period. The successor does not get a new 10-year period, nor can the successor beneficiary stretch payments.


If the original IRA owner had died before the SECURE Act, the beneficiary would have been eligible for the stretch. However, if that first beneficiary dies after the SECURE Act went into effect, the successor beneficiary would be subject to the 10-year rule and would need to empty the inherited IRA by the end of the 10th year following the year of the original beneficiary’s death. As successor beneficiary, they get the 10-year rule, even if the successor is the spouse of the first beneficiary.


By Ian Berger, JD
IRA Analyst

One of the cardinal sins you can commit with an IRA rollover is to run afoul of the IRS “once-per-year” rollover rule. Violating that rule triggers a taxable distribution and the 10% early distribution penalty if you are under age 59 ½. Plus, the forbidden rollover would be treated as an excess contribution subject to an annual 6% penalty unless timely corrected. Unlike missing the 60-day rollover deadline, violating the once-per-year rule is a mistake that cannot be fixed.

But the once-per-year rule is often misunderstood.

As background, remember that the once-per-year rule only applies to traditional IRA-to-traditional IRA rollovers or Roth IRA-to-Roth IRA rollovers.  The rule does not apply to company plan-to-IRA rollovers, IRA-to-company plan rollovers, or traditional IRA-to-Roth IRA rollovers (Roth conversions). Since 2015, the IRS has said that the once-per-year rule applies to all of a person’s IRAs – not to each IRA account separately. Traditional and Roth IRAs are combined when applying the rule. You can always get around the once-per-year rule by doing a direct transfer instead of a 60-day rollover.

Often, the once-per-year rule is expressed as disallowing more than one rollover in a one-year period. But that’s not how the rule really works. The rule actually says you can’t do a rollover of an IRA distribution made within one year of a prior distribution that was rolled over. So, the rule prevents you from doing more than one rollover of distributions made within a one-year period; it doesn’t necessarily prevent you from doing more than one rollover within a one-year period.

Example 1: Jackie received a traditional IRA distribution on November 1, 2020 that she rolled over to another traditional IRA on December 1, 2020. If Jackie receives a second traditional IRA (or Roth IRA) any time before November 1, 2021, the once-per-year rule prevents her from doing another 60-day rollover of that second distribution to another like IRA.

Example 2: Let’s say Jackie receives the second distribution on October 15, 2021 (within one year of the first distribution on November 1, 2020). She would still violate the rule even if she delays rolling over the second distribution until December 2, 2021 (more than one year after the first rollover on December 1, 2020).

Example 3: Now assume that Jackie receives the second distribution on November 10, 2021 (more than one year after the first distribution on November 1, 2020). She would not violate the once-per-year rule if she rolls over the second distribution on November 25, 2021 (within one year of the first rollover on December 1, 2020). In that case, doing two rollovers within a one-year period (on December 1, 2020 and November 25, 2021) is allowed.


By Andy Ives, CFP®, AIF®
IRA Analyst

An IRA owner can contribute only so much to a Traditional and/or Roth IRA annually. The IRA owner must also have earned income. The contribution limit for 2021 is $6,000, with a catch-up provision of another $1,000 for those age 50 and over. If a person does not have earned income, he is ineligible to contribute (not counting spousal contributions). If he makes too much, he will be ineligible to make a Roth IRA contribution. (Roth IRA income phase-outs for 2021 are $198,000 – $208,000 for those married, filing joint; $125,000 – $140,000 for single filers)

Nothing exciting here. These are basic regulations.

If a person violates these hard-and-fast rules, then we have an excess contribution that must be addressed. There are a handful of remedies. One could recharacterize (change) a Roth IRA contribution to a Traditional IRA contribution, or vice-versa. (This option is only available up to the cutoff date of October 15 of the year after when the excess contribution was made.)

Another fix prior to the October 15 deadline is to withdraw the excess contribution plus “net income attributable” (NIA). There will be taxes due on the NIA, and a 10% early withdrawal penalty on those earnings if the IRA owner is under 59 ½ years old. Still another fix is to leave the excess in the account, pay a 6% penalty on that excess, and carry forward the excess amount to the next year (or future year) when the IRA owner is eligible to contribute.

But what about fixing an excess contribution after the October 15 deadline? We must remove the excess, but believe it or not, we can leave the earnings on that excess in the account. It’s true. The IRA owner will still have to pay a 6% penalty on the excess amount for every year it remains, but with a weird quirk in the rules, the earnings on the excess can remain in the IRA.

My guess is the 6% penalty amount was chosen to wipe out a nominal gain based on a typical and conservative investment return. But what if the markets have been roaring for years? What if some annual returns were 20%, 30%, or more? (Based on recent market activity, these are not unreasonable numbers.) Could someone leverage high returns to intentionally abuse the excess contribution rules?

Example: In 2010, Bernie started contributing $2,000 annually to a Roth IRA for his 8-year-old son Billy. He did this for 10 years. Son Billy had no income and was totally ineligible for an IRA. Bernie invested in an S&P 500 ETF. The 10-year average annual return on the S&P 500 over the decade was 13.6%. In 2020, the account was worth nearly $38,000. Bernie withdrew the $20,000 excess and paid the annual 6% penalties that had accumulated to $6,600. Since the earnings could remain, son Billy keeps the Roth IRA with the remaining $18,000.

Bernie got lucky with a bull market, but did he game the system? Was the penalty worth getting $18,000 into a Roth IRA for his teenage son? When Billy is 59 ½, at 6% average annual growth, that’s nearly $200,000 in a Roth IRA that should not exist. However, when it comes to tax-free Roth IRA earnings, excess contributions alone won’t help. Tax rules dictate that an ineligible contribution to a Roth IRA does not start the 5-year clock for qualified earnings. That requires an eligible Roth IRA contribution…which Billy could make on his own. A valid and minimal Roth IRA contribution could fully legitimize Billy’s somewhat bogus Roth IRA.


By Andy Ives, CFP®, AIF®
IRA Analyst


Dear Mr. Slott,

I really enjoy your publications, website and educational programming on Public Television. You provide a tremendous service and information for investors and advisors alike. My questions pertains to distributions from an Inherited IRA and an Inherited Roth IRA for a non-spouse (daughter).

For example: Decedent (father) was age 75 at the time of death in 2020; daughter (sole beneficiary) was 53 last year. I understand as long as she begins RMDs in 2021 from both her Inherited Traditional and Inherited Roth IRA’s, she will not be forced to withdraw all funds within 5 years, but can withdraw over 10 years? Also, which IRS Table is used and is it the attained age of the beneficiary (in this case – 54 in 2021), or of the decedent if he/she were still alive?

Thank you in advance,



Glad to hear that our educational material is helpful! As for your questions, the adult daughter beneficiary in your scenario will not have a required minimum distribution (RMD) to take from either the inherited Traditional IRA or the inherited Roth IRA. (This assumes she is not disabled or chronically ill.) She will also not have to worry about her age or any life expectancy table to figure RMDs. Since dad died in 2020, she is bound by the SECURE Act and can only select the 10-year payout option. There are no annual RMDs required during this period, but the entire account must be emptied by the end of the 10th year.

The 5-year rule does not apply. That only comes into play when a person dies before their required beginning date (RBD) with a non-designated beneficiary, like an estate. If a person dies on or after their RBD with a non-designated beneficiary, then we use the decedents single life expectancy to calculate annual RMDs (sometimes called the “ghost rule”). However, neither the 5-year rule nor the ghost rule are applicable in the scenario you described.


I have a client who made a non-deductible IRA contribution of $6,000 into her IRA a number of years ago. She did file Form 8606 the year she made this contribution. She is now turning 72 years old and has to start taking her RMD from the IRA account. How is the non-deductible IRA contribution of $6,000 factored into her RMD calculation?



When determining her RMD, the $6,000 will have no impact. Simply calculate the RMD like normal using the entire balance as of December 31 of the previous year. The taxation of distributions including RMDs, is based on the pro rata rule. The $6,000 non-deductible dollars (basis) in her IRA currently accounts for a certain percentage of the overall assets. For example, if the entire IRA is worth $300,000, the $6,000 would represent 2%. Any distribution would include 2% of that basis and would be 98% taxable.


By Sarah Brenner, JD
Director of Retirement Education

The SECURE Act may have upended the rules for inherited IRAs, but the rules for spouse beneficiaries remain as advantageous as ever. In fact, naming a spouse as an IRA beneficiary is a better option than ever before. Now, an older spouse beneficiary will get more favorable payout options than a much younger adult child. Why? That is because the adult child must use the 10-year rule. No such restrictions exist for spouses. The SECURE Act keeps all the special benefits for spousal beneficiaries intact.

The special rules for spouse beneficiaries only apply if the spouse is the sole IRA beneficiary. However, even if the spouse is one of several IRA beneficiaries, the spouse can still qualify as a sole beneficiary if her share is split into a separate IRA by December 31st of the year following the year of the IRA owner’s death.

• Spousal Rollover – Only a spouse beneficiary can roll over or transfer her inherited IRA into her own IRA. There is no deadline for a spousal rollover. If the deceased spouse died on or after his required beginning date, the year-of-death required distribution has to be taken before a 60-day rollover is permitted. However, an RMD can be transferred (trustee-to-trustee) to another account and taken later in the year.

• Inherited IRAs for Spouses – Under the SECURE Act, most beneficiaries will need to empty the inherited IRA by December 31 of the tenth year following the year of death. However, eligible designated beneficiaries (EDBs) will still be able to take RMDs from the inherited IRA based on life expectancy. A spouse is an EDB. If the spouse is the sole beneficiary, and the IRA owner dies before his RBD, the spouse can delay these RMDs from the inherited IRA until the later of December 31st of the year after the year of the account holder’s death, or the year the account holder would have attained age 72.

If you inherited an IRA from your spouse, it may make sense to keep it as an inherited IRA when you are under age 59½, instead of doing a spousal rollover. If a spousal rollover is done, the account would be treated as your own IRA. If you want to take any money out before age 59½, there would be a 10% penalty which is assessed on retirement plan owners who tap into their retirement accounts early (assuming no other exceptions apply). But this 10% penalty does not apply to beneficiaries. After reaching age 59½, you would still have the rollover option available. Choosing to remain a beneficiary does not restrict you from being able to roll over later on. However, once the spousal rollover is done, there is no going back. Don’t jump to spousal rollover too quickly.

Example: Francie dies before her RBD, at 50, and named her spouse, Brian, as IRA beneficiary. Brian is 53 years old. He has two choices. He can either keep an inherited IRA or do a spousal rollover. If Brian chooses to remain a beneficiary, he does not have to begin taking RMDs from the inherited IRA until December 31 of the year that Francie would have attained age 72. That is more than 20 years with no RMDs. Brian also will be able to access the IRA funds without the 10% penalty apply, despite his age. He can decide at any time to do a spousal rollover.


By Ian Berger, JD
IRA Analyst

Rules governing defined benefit (DB) plans are typically more complicated than defined contribution (DC) plan rules. But required minimum distributions (RMDs) are one area where the DB plan requirements are easier to understand.

If you’re in a DB plan, your benefit payments must begin no later than your “required beginning date” (RBD) – just like with IRA distributions or DC plan benefits. Your RBD is generally the April 1 following the year you reach age 72. However, if your DB plan allows the “still-working exception,” you can delay your RBD until you retire.

As a practical matter, most DB plan benefits begin at one of three dates; (1) the plan’s “early retirement date” (often age 55); (2) the plan’s “normal retirement date” (often age 65); or (3) the actual retirement date, for folks who work past their normal retirement date. So, most DB benefit payments automatically satisfy the RBD requirement.

Unlike in DC plans, DB plan participants don’t have individual accounts. So, the RMD in a DB plan isn’t calculated by dividing an account balance by life expectancy. Instead, DB plans satisfy the RMD rules if benefits are made in periodic payments over the life of the participant or the joint lives of the participant and a beneficiary, and the benefit amount doesn’t increase. (There’s an exception for cost-of-living increases.)

In just about every case, DB benefits are paid exactly that way. They are usually paid monthly, and participants can choose between a “single life annuity” (an annuity over the participant’s life only) or a “joint and survivor annuity” (an annuity over the participant’s life and, if the beneficiary outlives the participant, over the beneficiary’s remaining life).

This explains why the RMD rules are usually no big deal for DB plans.

There are, however, two RMD DB plan rules that are a little tricky. One rule kicks in when someone elects a joint and survivor annuity with a non-spouse beneficiary more than 10 years younger. In that case, the survivor’s benefit cannot exceed a certain percentage of the amount payable to the participant. The maximum percentages are set forth in an IRS table.

Example: Chloe retires at age 70 and elects a joint and 75% survivor annuity with her son, age 45, as beneficiary. Under that annuity, Chloe will receive payments over her lifetime and, if her son outlives her, he will receive 75% of that amount over his remaining lifetime. Because of the 25-year age difference, however, the plan cannot pay Chloe a joint and survivor annuity that provides a survivor benefit more than 66% of the benefit she will receive during her lifetime. Chloe will have to choose a different type of annuity.

The second rule applies when a DB lump sum payment is paid when an RMD is due. We’ll tackle that rule in a future Slott Report.


By Ian Berger, JD
IRA Analyst


Good afternoon. We have a client who was 19 years younger than her spouse. He passed away this year. We are planning to keep this as an inherited IRA for now. Can we move the assets to her own IRA at any time?

Thank you, stay safe and have a great day,



Hi Julie,

Yes, a surviving spouse can roll over the deceased spouse’s IRA to her own IRA at any time after death. Often, younger surviving spouses delay doing a spousal rollover until they reach age 59 ½. That’s because, as long as the IRA remains an inherited IRA, the surviving spouse can take a distribution from it before 59 ½ without the 10% early distribution penalty.


I was in your workshop in February, and I just now have an issue that I would like a clarification.

Vince passed away in 2008, his daughter inherited the IRA and is stretching it over her single life expectancy. She passes away in May of 2020. Is her husband (the listed beneficiary of her stretch IRA) able to be an “eligible designated beneficiary” and continue the stretch, using his wife’s remaining life expectancy?




Hi Thierry,

Thanks for attending our 2-Day IRA Workshop for Financial Advisors!

Unfortunately, because the daughter died after 2019, the husband (a successor beneficiary) cannot “step into her shoes” and continue the stretch. Instead, he is subject to the new 10-year payout rule under the SECURE Act. He is not required to take annual RMDs and can take as much or as little as he wants each year. However, he must empty the entire inherited IRA by December 31, 2030.


By Andy Ives, CFP®, AIF®
IRA Analyst

As we inch toward the extended 2020 tax deadline of May 17, many filers are still laboring over their returns. Some are completing the final return for a loved one lost in what was a brutal year. As is human nature, most taxpayers try to squeeze every last deduction and income-reducing item into their prior-year numbers. While maximizing all available and legal tax-cutting strategies is the proper way to file a return, be aware that not all tax benefits are available to all tax filers, especially after a person has passed away.

One common question is, “Can I make an IRA contribution for my deceased spouse or family member?”

The IRS ruled long ago that, once an IRA owner dies, a contribution cannot be made on that person’s behalf. The rationale from the IRS cannot be argued with. In one of the most logical IRS opinions ever issued, the IRS simply said that a contribution made after the death of the account owner “would not be a contribution for retirement purposes.”

In other words, a retirement contribution (either for the current year or prior year) cannot be made after you are dead because you no longer need a retirement plan. The IRS stated that “the primary purpose of the IRA is for retirement.” Even if a person was alive for the entire prior year and had qualified earnings, no contribution is allowed.

Example: Simon died from COVID-19 in February 2021, but he had not yet made his IRA prior-year contribution for 2020. Even though Simon had qualified earnings in 2020 and was alive for the entire year, his representative cannot initiate a prior-year 2020 IRA contribution on Simon’s behalf. If the contribution is made, it will be an excess contribution and potentially subject to a 6% penalty.

While a person with qualified earnings cannot have an IRA contribution made for him after death, a spousal contribution could be made based on the deceased person’s earnings. If Simon (from the example above) had a wife, and if she did not have any earned income of her own, she could make a prior-year 2020 IRA contribution for herself based on Simon’s qualifying income. After all, she is still alive and, in the eyes of the IRS, still in need of retirement dollars.

Conversely, a prior-year SEP IRA contribution can be made for an individual after that person has died. Why the differing rules? SEP contributions are not made by the account owner himself, but rather by the employer. The employer must still fund a SEP IRA for a qualifying employee, even if the employee has since passed away.

We can all agree that 2020 was a struggle, and we lost far too many people unnecessarily. As we work through our own tax returns (and those returns for the recently departed), be sure to know the rules. We all want to put the final punctuation mark on 2020. Be careful not to extend that miserable year by making an avoidable IRA contribution mistake.


By Sarah Brenner, JD
Director of Retirement Education

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


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

Other Changes

Other changes include the following:

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


Stay Tuned

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


By Sarah Brenner, JD
Director of Retirement Education


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

Thank you for your response,



Hi George,

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

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


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

Thank you,



Hi Curt,

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


By Andy Ives, CFP®, AIF®
IRA Analyst

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

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

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

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

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

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

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

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


By Sarah Brenner, JD
Director of Retirement Education

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

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

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

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

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

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

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


By Ian Berger, JD
IRA Analyst

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

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

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

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

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

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

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

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

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


By Ian Berger, JD
IRA Analyst


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

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

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

F. Perry


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


Good afternoon!

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

Thanks so much!




Hi Becky,

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


By Andy Ives, CFP®, AIF®
IRA Analyst

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

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

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

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

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

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

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

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


By Sarah Brenner, JD
Director of Retirement Education

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

Contribution Limits

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

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

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

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

May 17, 2021 Deadline

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

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

Backdoor Roth IRA Contributions

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

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


By Andy Ives, CFP®, AIF®
IRA Analyst

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

Will RMDs be waived again in 2021?

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

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

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

Will Roth IRA earnings become taxable?

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

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

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

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


By Sarah Brenner, JD
Director of Retirement Education


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

Any direction you can provide would be appreciated.



Hi Sally,

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

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


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


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


By Ian Berger, JD
IRA Analyst

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

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

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

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

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

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

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

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

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


By Andy Ives, CFP®, AIF®
IRA Analyst


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

Thank you




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



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

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

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

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

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

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

Thank you,




Thank you for being a loyal reader of our material! We wrote an update to the successor beneficiary rules and how they were impacted by the SECURE Act back on January 27, 2020. The link is here:

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


By Sarah Brenner, JD
Director of Retirement Education

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

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

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

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


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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


By Ian Berger, JD
IRA Analyst


Hi, Ed,

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

If you have time for a refresher . . . .

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

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

Thank you,



Hi Paula,

Look forward to seeing you in person hopefully very soon.

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


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




Hi Jim,

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


By Andy Ives, CFP®, AIF®
IRA Analyst

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


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


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



IF you…


AND your

filing status is…

AND your

modified AGI

is over…


THEN enter on

line 1 below…

are covered by an

employer plan

single or head of






  married filing jointly or qualifying widow(er)  




  married filing separately  




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




  married filing separately  





Line 1.  Enter applicable amount from the table above.

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

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

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

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

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

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

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

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

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


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


By Sarah Brenner, JD
Director of Retirement Education


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



Hi Robert,

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


Hi Ed,

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

Thank you for your help,



Hi Scott,

Our condolences on the death of your mother.

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

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


By Ian Berger, JD
IRA Analyst

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

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

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

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

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

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

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

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

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

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


By Andy Ives, CFP®, AIF®
IRA Analyst

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

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

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

Line 2. Enter:

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

Line 3. Subtract line 2 from line 1.

Line 4. Enter:

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

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

Line 6. Enter the lesser of:

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

Line 7. Multiply line 5 by line 6.

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

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

Line 10. Subtract line 9 from line 6.

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

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


By Andy Ives, CFP®, AIF®
IRA Analyst



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

Thank you for any help you can provide.




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

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


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


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


By Sarah Brenner, JD
Director of Retirement Education

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

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

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

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

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

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

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


By Ian Berger, JD
IRA Analyst

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

The answer is “sort of.”

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

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

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

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

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

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

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

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


By Ian Berger, JD
IRA Analyst


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

Thank you,



Hi Ray,

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


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

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


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


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

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

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

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

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

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

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

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


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

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

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

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

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

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


By Sarah Brenner, JD
Director of Retirement Education


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

Thank you in advance.



Hi John,

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


Hi there,

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




Hi Andrew,

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


By Ian Berger, JD
IRA Analyst

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

By Ed Slott, CPA

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

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

So, what exactly is this book about?

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

Why is this component so crucial?

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

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

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

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

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

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

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

What exactly is the retirement savings time bomb?

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

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

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

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

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

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

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



By Sarah Brenner, JD
Director of Retirement Education

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

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

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

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

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


By Ian Berger, JD
IRA Analyst

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

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

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

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

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

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


By Ian Berger, JD
IRA Analyst



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

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

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


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



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

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

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

I would greatly appreciate a response.

Thank you,



Hi Bill,

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

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


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


By Andy Ives, CFP®, AIF®
IRA Analyst

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

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

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

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

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

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

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


By Sarah Brenner, JD
Director of Retirement Education

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

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

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

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

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


By Andy Ives, CFP®, AIF®
IRA Analyst


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




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


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




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


By Ian Berger, JD
IRA Analyst

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

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

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

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

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

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

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

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

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

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


By Sarah Brenner, JD
Director of Retirement Educations



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



Hi Steve,

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

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


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


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

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


By Andy Ives, CFP®, AIF®
IRA Analyst

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

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

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

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

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

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

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

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


By Sarah Brenner, JD
Director of Retirement Education

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

1. Execute the SEP Documents.

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

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

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

2. Update the SEP Plan.

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

3. Fix Mistakes.

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


By Ian Berger, JD
IRA Analyst

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

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

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

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

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

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


By Ian Berger, JD
IRA Analyst


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

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

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

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

Thank you for any guidance you can provide.



Hi Denise,

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


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



Hi Renee,

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


By Andy Ives, CFP®, AIF®
IRA Analyst

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

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

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

What DOES Count as Compensation

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

· Earned income from self-employment also counts

· Royalties

· Commissions

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

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

What Does NOT Count as Compensation

· Unemployment compensation (as already mentioned)

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

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

· Deferred compensation

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

· Life insurance proceeds

· Disability insurance income

· Child support

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

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


By Sarah Brenner, JD
Director of Retirement Education

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

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

Reporting the Rollover

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

Here is how it works:

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

Once-Per-Year Rollover Rule

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

2021 RMD Concerns

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


By Sarah Brenner, JD
Director of Retirement Education


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




Hi Patrick,

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

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

Good luck and I hope this helps!


Hi Ed,

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


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


By Ian Berger, JD
IRA Analyst

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

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

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

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

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

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

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

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

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

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


By Andy Ives, CFP®, AIF®
IRA Analyst

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

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

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

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

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

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

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

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


By Andy Ives, CFP®, AIF®
IRA Analyst


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




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


Dear Sir,

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


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


By Sarah Brenner, JD
Director of Retirement Education

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

Is the following statement true or false?

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

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

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

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


By Ian Berger, JD
IRA Analyst

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

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

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

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

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

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

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

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


By Andy Ives, CFP®, AIF®
IRA Analyst

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

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

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

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

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

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

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

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

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


By Sarah Brenner, JD
Director of Retirement Education

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

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

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

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

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

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

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

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

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


By Sarah Brenner, JD
Director of Retirement Education


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


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


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


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


By Ian Berger, JD
IRA Analyst

From The Slott Report, December 30, 2019:

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

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

So much for predictions.

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


By Andy Ives, CFP®, AIF®
IRA Analyst

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

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

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

Busy, busy, busy!

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

Busy, busy, busy!

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

Busy, busy, busy!

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

Busy, busy, busy!


By Andy Ives, CFP®, AIF®
IRA Analyst


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

Thank you.


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


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





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


By Sarah Brenner, JD
Director of Retirement Education

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

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

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

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

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


By Ian Berger, JD
IRA Analyst

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

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

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

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

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

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

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

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

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


By Ian Berger, JD
IRA Analyst



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

Thanks you for your help,



Hi Marie,

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


Hello Ed,

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

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

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

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

Thank you



Dear Sharon,

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

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


By Andy Ives, CFP®, AIF®
IRA Analyst

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

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

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

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

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

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

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

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

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


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

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

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

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


By Sarah Brenner, JD
Director of Retirement Education

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

1. Do a 2020 conversion

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

2. Take a CRD

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

3. Do a 2020 QCD

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

4. Check 72(t) payments

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

5. Meet the requirements for NUA

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


By Sarah Brenner, JD
Director of Retirement Education


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

Thank you,



Hi George,

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


To the IRA Experts:

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

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

Thank you!!!



Hi Becky,

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


By Ian Berger, JD
IRA Analyst

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

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

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

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

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

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

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

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

Consider yourself warned!


By Andy Ives, CFP®, AIF®
IRA Analyst

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

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

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

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

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

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

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

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


By Andy Ives, CFP®, AIF®
IRA Analyst


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

Thank you.




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


Hello Ed,

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

Much appreciated,




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


By Sarah Brenner, JD
Director of Retirement Education

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

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

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

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

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

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

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

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

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

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

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



By Ian Berger, JD
IRA Analyst

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

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

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

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

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

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


By Andy Ives, CFP®, AIF®
IRA Analyst

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

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

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

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

Happy Thanksgiving from the Ed Slott Team!


By Sarah Brenner, JD
Director of Retirement Education

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


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

New Reason

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


By Ian Berger, JD
IRA Analyst


Good Morning,

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

Thank you,



Hi Linda,

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


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




Hi Greg,

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


By Ian Berger, JD
IRA Analyst

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

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

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

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

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

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

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

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

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