By Ian Berger, JD
IRA Analyst

The recently-enacted “Coronavirus Aid, Relief, and Economic Security Act,” or CARES Act, includes special tax relief for IRA and company plan withdrawals made in 2020 and for company plan loans.

Who gets relief? Both the distribution and plan loan relief apply only to “qualified individuals.” Not everyone meets this definition. The definition includes:

· individuals diagnosed with the SARS-CoV-2 or COVID-19 virus by a test approved by

the CDC;

· individuals whose spouse or dependent is diagnosed;

· individuals who experience “adverse financial consequences” on account of:

>  being quarantined;

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

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

>  closing or reducing hours of a business owned or operated by the individual.

The law gives the Secretary of the Treasury the authority to expand this definition.

Which distributions get relief?  If you are a “qualified individual,” up to $100,000 of distributions from IRAs and company savings plan made in 2020 are eligible for relief. IRA and company plan distributions are aggregated for this purpose.

What are the relief provisions for withdrawals? There are three withdrawal-related relief provisions. The first waives the 10% early distribution penalty. That penalty normally applies to IRA or company plan withdrawals if you are under age 59 ½, unless an exception applies. The CARES Act adds a new exception to that penalty but only if you are a “qualified individual.”

The second provision provides relief if your financial situation improves and you no longer need the withdrawn funds. “Qualified individuals” can repay, tax-free, 2020 withdrawals to an IRA or company plan. Repayment must be made within three years of the date the money was received. If you have already paid taxes on a withdrawal that you later decide to repay, you can file an amended tax return to recover the taxes.

In most cases, your withdrawal will be taxable. To cushion the blow of getting hit with the entire tax in the year of distribution, the CARES Act permits you to spread any federal income tax over three years.

What are the relief provisions for loans? If you participate in a company plan that allows loans, the CARES Act increases the maximum amount of any new loan taken by September 23, 2020. If you are a “qualified individual,” you can borrow up to 100% of your account balance – but no more than $100,000 (reduced by the amount of any outstanding loans). In addition, you can get a break on repaying existing loans. For repayments normally due between March 27, 2020 and December 31, 2020, you can delay repayment for a year.

It appears that these tax relief provisions are available from your plan only if your employer allows it. We expect that most companies will.


By Sarah Brenner, JD
IRA Analyst

As the coronavirus pandemic has spread, many Americans have been hit hard. Their retirement accounts have also taken a serious blow as markets have plummeted. In these tough times, there is a bit of good news as the government has come through with some relief for retirement savers.

IRA Deadline Extended until July 15

The IRS has extended the tax-filing deadline for 2019 federal income tax returns from April 15 to July 15. The extension of the tax-filing deadline also postpones the deadline for making 2019 prior-year contributions to traditional and Roth IRAs from April 15 to July 15. This is good news for retirement savers, giving them a little more time to get their prior-year contributions done. To avoid confusion, anyone taking advantage of this postponed deadline should be sure to clearly indicate to the IRA custodian that the amounts contributed are 2019 prior-year contributions.

2020 RMD Waiver

On March 27, the massive “Coronavirus Aid, Relief, and Economic Security Act,” or the “CARES Act,” was signed into law. The CARES Act includes a waiver of required minimum distributions (RMDs) for 2020. This waiver applies to company savings plans and IRAs, including both traditional and Roth inherited IRAs.

In addition, the CARES Act impacts 2019 RMDs for those who reached age 70 ½ in 2019 and have a required beginning date of April 1, 2020. Any 2019 RMD amount remaining and not already withdrawn by January 1, 2020 is waived.

The RMD waiver can help you if you would have had to take an RMD this year based on much higher end-of-2019 account values. Now you can avoid the tax bill altogether.

Other Relief

The CARES Act also waives the 10% early distribution on distribution of up $100,000 from IRAs and plans for individuals who meet the requirements of being affected by the coronavirus. The tax would still be due on pre-tax distributions, but could be spread evenly over three years, and the funds could be repaid anytime during the three years.


Rules for plan loans are relaxed for those who meet the definition of being affected by the coronavirus with loan limits increased and repayments postponed.


By Sarah Brenner, JD
IRA Analyst


With the COVID-19 changes to push the tax filing back to July 31st, can someone still make a 2019 contribution until that date or do all contributions need to be made by the usual April 15th deadline this year?



Hi Jerry,

This is a question we have been getting a lot!

The IRS has confirmed that the deadline for making both traditional and Roth IRA prior year contributions has been delayed to July 15, along with the tax-filing deadline. If you are making a prior year contribution after April 15, be sure that it is clearly designated as such to ensure proper handling by the IRA custodian.


Hello. Love the newsletter.

Under the SECURE act (boo!) what is the definition of a “minor” child?  I’m assuming it’s age dependent. Thank you.

Tom G.


Hi Tom,

Thanks for reading the newsletter – we are happy you find it helpful!

A minor child of the account owner (but not a grandchild) qualifies under the SECURE Act as an eligible designated beneficiary and can stretch IRA payments until the age of majority or up to age 26 if still in school. The age of majority is determined by state law and is age 18 in most states.


By Andy Ives, CFP®, AIF®
IRA Analyst

By their nature, small businesses struggle in the shallows. Now they face a tsunami. However, when the shutters are removed and customers return and the employees are back on the payroll, normal day-to-day concerns will be a welcome relief. My guess is that many small business owners will create improvements, look to reward dedicated employees, and try to build a better safety net for themselves and their teams should another calamity strike. We could see this materialize in the establishment of more retirement plans.

A recent editorial suggested that plan participants be allowed to invade their workplace retirement accounts – without penalty – as a financial crutch during the coronavirus shutdown. Time will tell if this comes to fruition. While it is a creative idea, not all businesses offer a plan. Many small business owners don’t have two nickels to rub together. Regardless, the conversation around budgeting for and implementing a retirement plan – a safety net – must be held.

Obviously, no two businesses are exactly alike. Every employer has different goals, and every employee has different needs. Does a restaurant in the Florida Panhandle with young seasonal employees and high turnover require the same plan as the mature architectural firm in Uptown Charlotte? Doubtful. Will a start-up law office and a start-up landscape company require the same plan design features? Probably not. Fortunately, there are options.

But where to begin? How do you carve a path through a dense jungle? Proper questions are a machete. Ultimately, the advisor and business owner should hack their way through the overgrowth of the unknown together. Some questions to consider are: Why do you want to implement a plan? What has been your experience with plans? Have you ever participated in a plan? As the conversation evolves, points of pain and items of need will manifest on their own.

Additional questions might include: What are your goals? Are you looking to attract and retain the best talent? Is this plan for you, so you can sink as much money as possible into your own retirement, or is it for your employees? (If the business owner will not be participating, there could be concerns about the viability of the plan. Energy and enthusiasm start at the top and trickle down. Without true buy-in from ownership, workplace plans often die on the vine.) Be forewarned, “greed” can drive some small business owners to exclude as many employees as possible by adopting strict plan eligibility rules. “Need” oftentimes results in a workplace plan that employees will proudly brag about to their friends.

More detailed questions will become relevant. How much do you personally intend to contribute to the plan? Who will be the plan administrator? Liability concerns? Is creditor protection important? Would you like to allow both employer and employee contributions? Will there be a matching component? Does a profit share feature interest you? Roth? Loans?

Through the Q&A process, the most appropriate type of plan will reveal itself. Maybe a SIMPLE is best, maybe a SEP. Possibly a 401(k) is a better fit. The retirement plan jungle is thick, but you can get through it. I suggest a small business owner seek out and partner with a knowledgeable advisor, who can in turn introduce a helpful TPA and a trusted record keeper. Ask questions, keep an open mind, and start the search for the best plan for your small business!


By Ian Berger, JD
IRA Analyst

It’s common for IRA owners to leave their assets to multiple beneficiaries – for example, their children. Before the SECURE Act, it usually made sense to split the IRA into separate accounts either before or after death. That’s because beneficiaries could stretch payment of their shares over their life expectancy. But, if there were multiple beneficiaries and the account was not split, each beneficiary was required to use the life expectancy of the oldest beneficiary – the one with the shortest life expectancy. Splitting accounts allowed each beneficiary to use her own life expectancy.

Under the SECURE Act, most non-spouse beneficiaries must use the 10-year payout rule, which requires the entire IRA to be emptied by December 31 of the tenth year following the owner’s death. No annual distributions are required. Life expectancy is no longer used to calculate payouts for beneficiaries subject to the 10-year rule.

So, does this mean that splitting IRAs is no longer a worthwhile strategy? Not at all. Here are several good reasons why it still makes sense to create separate accounts:

When a spouse is co-beneficiary. Surviving spouses can take advantage of special IRA distribution rules that no other beneficiaries can use. For example, a surviving spouse can roll over inherited IRAs to her own IRA. However, those special rules are available only if the spouse is a sole IRA beneficiary. So, if a spouse is an IRA co-beneficiary, look to create a separate account for her to make sure she can use the special payout rules.

When an eligible designated beneficiary is co-beneficiary. Under the SECURE Act, certain individuals, called eligible designated beneficiaries (“EDBs”), can still use the stretch. These are: surviving spouses; minor children of the account owner; disabled individuals; chronically ill individuals; and individuals no more than 10 years younger than the owner. But, if one beneficiary is an EDB and the others are not (for example, one beneficiary is a minor child and one is an adult child), the EDB can only use the stretch if a separate account has been established for the EDB.

When a co-beneficiary is a non-living beneficiary. Sometimes, an IRA owner will leave part of the IRA to a charity (or another non-living beneficiary) and the remainder to one or more individuals. Non-living beneficiaries must use the least favorable IRA distribution rules (which could result in a payout period of less than 10 years). So, unless the IRA is timely split, the individual co-beneficiaries will also be stuck with those restrictive payout rules.

Practical reasons. There are also practical reasons why splitting IRAs while still alive is wise. It allows the owner to invest each account in a way that is best suited for each beneficiary. And, following the owner’s death, each beneficiary is guaranteed to have the freedom to decide whether to accelerate IRA payouts during the 10-year period or wait until the end.

Remember that if the IRA owner doesn’t split the account during his lifetime, the beneficiaries can still do it after his death. But there is a deadline for splitting: December 31 of the year after the year of the original owner’s death.


By Andy Ives, CFP®, AIF®
IRA Analyst


A daughter who has been diagnosed with rheumatoid arthritis is listed as the beneficiary on her father’s Roth IRA.  Does this disease qualify as a “chronic illness” for purposes of the exception to the 10-year rule? Is there a definition that the IRS uses for chronic illness? If she doesn’t take the inherited IRA after 10 years but withdraws it based on her life expectancy, will the IRS send a letter to her where she has to prove chronic illness?  If the IRS doesn’t agree, what will they assess her since the amount is not taxable?


There is no list of illnesses that qualify as “chronically ill.” Instead, to meet the criteria as a chronically ill individual under the SECURE Act, the daughter must be certified (by a licensed health care practitioner) to be unable to perform at least 2 activities of daily living for at least 90 days, or require “substantial supervision” due to a severe “cognitive impairment.” It is incumbent upon her to proactively prove she is chronically ill if she intends to stretch inherited IRA payments over her life expectancy. If the IRS rejects her claim of chronically ill and the inherited IRA is not emptied after 10 years, there will be a 50% penalty on any dollars remaining in the account, despite the fact that this is an inherited Roth IRA.


When I move my 401(k) to an IRA, I understand that I have to take the RMD first. Can I use that RMD as a QCD?

Thank you


You are correct that you must take your RMD from the 401(k) prior to rolling over any balance to an IRA. That is because RMDs are considered “first dollars out,” and because RMDs are ineligible for rollover. Since the RMD is applicable to the 401(k) plan, it cannot be offset with a QCD. Only RMDs from IRAs qualify for a QCD.


By Sarah Brenner, JD
IRA Analyst

The coronavirus has been wreaking havoc on markets and millions of retirement account balances have suffered significant losses. This has left many IRA owners looking at lower account balances after several years of gains and wondering what the next step should be. One strategy to consider in a market downturn is a Roth IRA conversion.

Why Convert Now?

When you convert your traditional IRA to a Roth IRA, your pretax traditional IRA funds will be included in your income in the year of the conversion.  This increased income may impact deductions, credits, exemptions, phase-outs, the taxation of your social security benefits and Medicare Part B and Part D premiums; in other words, anything on your tax return impacted by an increase in your income.

That is a tax hit, for sure, but keep it in perspective. Remember, the extra income is only for the year of the conversion. The trade-off is the big tax benefit down the road. If you follow the rules for qualified Roth IRA distributions, all your Roth IRA funds, including the earnings, will be tax-free when distributed. Not a bad deal!

A Roth IRA conversion done when the market is down is a bargain. Remember, your tax bill is based on the value of the traditional IRA assets at the time they are converted to a Roth IRA. Convert now when values are low and reap the benefits of tax-free earnings later when the market bounces back.

Beyond the volatile markets there are other good reasons to convert now. Tax reform has lowered tax rates for many and scaled back the AMT. These historically low tax rates will not be here forever. There is a window of opportunity to take advantage of them. Like many of the changes under tax reform, they are scheduled to sunset in a few years. No one knows for sure what the future will bring, but with large deficits a likely possibility, many see future tax rates as moving much higher. Converting now is a way to lock in today’s low rates and avoid worries about the uncertainty of future taxes.

Thinking conversion may be the right move? Ask yourself three questions. First, when will the money be needed? If you need your IRA money immediately for living expenses, converting may not be for you. Second, what is your tax rate? If your income is lower, that may favor conversion. Third, do you have the money to pay the tax on the conversion? It is best to pay the conversion tax from non-IRA funds.

Not sure about converting? The good news is that conversion is not an all-or-nothing decision. You can always hedge your bets and do a partial conversion of your traditional IRA.

Is Conversion Right for You?

Should everybody convert? No, of course not. Conversion is not one size fits all. Also, remember that conversions are now irrevocable. There is no more recharacterization or the ability to undo a conversion. This means you must be very sure before you go ahead with the transaction. Are you a good candidate? Is now the time for your conversion? Professional advice is more valuable than ever. The best way to find out what is right for you is to discuss conversion options with a knowledgeable financial or tax advisor.


By Andy Ives, CFP®, AIF®
IRA Analyst

When a person takes a distribution from his IRA or workplace plan, he has 60 days from the day of receipt to redeposit (i.e., roll over) those dollars into another qualified account. This assumes no other disqualifying rollovers have been done in the past 12 months and these dollars are otherwise eligible to be rolled over. If he fails to redeposit all or a portion of the withdrawal within the 60-day window, whatever amount remains outside of the IRA or workplace plan will potentially be subject to tax and potential penalties.

How common are 60-day-rollover fails? Very. Unfortunately, people take withdrawals from retirement plans all the time, fully intent on rolling the money back. However, the reality is that many miss the deadline. But what if there were extenuating circumstances as to why the dollars were not rolled over within the 60-day period? After all, sometimes life gets in the way of the best intentions. In the past, there was no possible fix other than to petition the IRS via an expensive private letter ruling (PLR). PLRs are time consuming, costly, and there is no guarantee the decision will go your way.

Enter “self-certification.” Facing so many requests for an extension of the 60-day rollover window, in 2016 the IRS unveiled a no-cost alternative to a PLR. But tread lightly, self-certification is not a “get-out-jail-free” card. It is not a full waiver of liability, and it is not a second chance for rollovers previously denied. Also, it appears that the money out on rollover cannot have been used during the 60-day window. For example, was your rollover really just a short-term loan? Did you put a down payment on a new house with your rollover but didn’t sell your old house quickly enough to replace the rollover funds? It’s likely that self-certification won’t work because you used the money.

The IRS outlined 11 valid reasons for missing the 60-day deadline. These range from errors by a financial institution to simply misplacing a check. If you were seriously ill or incarcerated – those are also acceptable. Was there a postal error? Was the check lost and never cashed? Was your principal residence severely damaged? All are life events and rollover miscues potentially remedied with self-certification.

In fact, the IRS went so far as to create a model self-certification form letter for you to give to the IRA custodian or plan administrator. (Don’t send it to the IRS.)  Listed on this letter are the 11 allowable reasons for the late contribution. Just don’t mail the letter. Do the rollover as soon as possible and keep all documentation on file. If the rollover is questioned in the future, present your evidence and the form letter. While the IRS has full authority to disallow the rollover, you will have at least made a legitimate effort to rectify the situation.

Self-certification is a valuable tool that can delay or avoid potentially thousands of dollars in taxes, penalties and fees. While it can save an otherwise failed rollover, be sure to seek competent tax and financial advice before proceeding. Also, confirm that your situation fits one of the 11 permissible reasons…and maybe consider avoiding 60-day rollovers altogether.


By Ian Berger, JD
IRA Analyst


Hi Ed,

First of all, I’m a big fan.  Now here’s my question:

If I do a backdoor Roth conversion with exclusively nondeductible IRA contributions, is there a 5-year clock on withdrawing the converted dollars without penalty?  In this case there are no other outstanding IRA dollars. I know there’s a 5-year clock on conversions of deductible contributions. I wouldn’t think there would be a 5-year clock on withdrawing converted nondeductible IRA contributions, but I couldn’t find anything definitive saying that it was okay.  What say you?




Hi Chris,

Thanks for the nice compliment! The 10% early distribution penalty typically applies to distributions of converted amounts if you’re under age 59 ½ and the conversion was less than five years ago. However, the penalty applies only to amounts that were taxable when the conversion was done. Since you had no deductible IRA funds, no part of your conversion was taxable. So, you don’t have to wait five years to withdraw the principal penalty-free. If you’re over 59 ½ (or some other exception, e.g., disability, applies), there is no penalty.


I have a quick question about 60 day Roth conversion rollovers.  If someone takes a distribution from their traditional IRA in December of 2019, but then within 60 days rolls it over to a Roth in 2020, is Form 8606 required to be filed for tax year 2019 or 2020?

Thanks for your help.



If the Roth conversion took place in 2020, you will file Form 8606 for 2020.


By Ian Berger, JD
IRA Analyst

The amount of annual elective deferrals you can make to a 401(k) or 403(b) plan is limited by the tax code. If you discover that you’ve over-contributed in 2019, time is of the essence to correct the error. If you don’t act quickly, the tax consequences are serious.

What is the limit?  For 2019, you were limited to $19,000 in elective deferrals (plus an additional $6,000 if you were at least age 50 at the end of the year). It’s important to remember your deferrals to each company savings plan are normally aggregated for purposes of this limit. (There is an exception if you participate in both a 457(b) plan and a 403(b) plan.)

How do you know whether you’ve exceeded the limit?  Most plans have mechanisms in place to prevent you from exceeding the deferral limit in that plan. The problem normally arises if you participated in two different plans during the year (for example, you changed jobs). The W-2 you received from each employer should indicate the amount of elective deferrals in Box 12. Or, you can check your plan statement.

What do I do if I’ve exceeded the limit?  Don’t panic, but contact your plan administrator as soon as possible. To avoid double taxation (see below), the plan must correct the excess amount by April 15, 2020. Since correction may take some time, it’s important that you do this quickly. If you don’t know how to reach the plan administrator, contact your company’s HR department.

What happens next? The plan must make a “corrective distribution” of the excess amount – adjusted for earnings or losses on the excess. The earnings or losses cover the period between the date the excess deferral was made and December 31, 2019. You will receive a corrected W-2 that adds back the excess deferrals to your 2019 taxable wages. Earnings on the excess are taxable to you in 2020.

Example: Hannah, age 40, made pre-tax elective deferrals of $10,000 to Company A’s 401(k) plan before she left Company A to join Company B on July 1, 2019. Hannah then made another $10,000 of pre-tax deferrals to Company B’s 401(k) between July 1 and December 31, 2019. She has exceeded the 2019 deferral limit by $1,000. The excess $1,000 of deferrals earned $75. Hannah becomes aware of this problem and immediately contacts the administrator of Company B’s plan.

Before April 15, 2020, the plan makes a corrective distribution of $1,075 to Hannah. Company B also sends Hannah a corrected 2019 W-2 showing an additional $1,000 of 2019 taxable income. She must include the $75 as taxable income for 2020.

What if the April 15 deadline is missed? This definitely creates double trouble. The excess deferrals are taxed to you both in the year they are contributed and in the year they are eventually paid out.

What if I make excess deferrals in a 457(b) plan?  The rules for correcting 457(b) excess deferrals are different than those described in this article. Contact your plan administrator for more details.



By Sarah Brenner, JD
IRA Analyst

The SECURE Act eliminated the age restriction on contributions to traditional IRAs. The rule outlawing contributions for those 70 ½ or older is no more. This is good news for older IRA owners who are still working or have a spouse who is. Now, traditional IRAs have joined Roth IRAs as available options for eligible savers of all ages. This new rule may seem straightforward, but we have been getting some questions about who is eligible and when it is effective.

Making Contributions and Taking RMDs

One area of confusion for some IRA owners is how the new rule eliminating the age limit for traditional IRA contributions works with another new rule in the SECURE Act, the rule raising the RMD age to 72. IRA owners who reached age 70 ½ in 2019 cannot take advantage of the new ruling delaying RMDs until age 72. They must still take an RMD for 2019 by April 1, 2020 and another RMD for 2020 by December 31, 2020. However, even though they lose out on the new delayed RMD rule, they can still take advantage of the new rule eliminating the age restriction for traditional IRAs.

This will create a situation similar to what has always been the case for SEP and SIMPLE IRAs. Contributions may be coming in for those who are eligible as RMDs are being paid out.

Example 1: Grace is a pre-school teacher. She reached age 70 ½ in 2019. She must take an RMD for 2019 by April 1, 2020 and an RMD for 2020 by December 31, 2020. She can also make a 2020 traditional IRA contribution.

SECURE Act Does Not Apply to 2019 Prior Year Contributions

Another area of confusion is when the rule eliminating the age 70 ½ limit for traditional IRA contributions is effective. This rule is effective for contributions for tax years 2020 and later. It is NOT effective for 2019 contributions. This is true even for prior year 2019 contributions made in 2020. The old pre-SECURE rules apply to 2019 contributions, and those rules do not allow contributions for years in which an individual is age 70 ½ or older.

Example 2: Gabe, 77, works part time at a local hardware store. He would like to contribute to a traditional IRA. Gabe may make a contribution for 2020 to his traditional IRA. However, he cannot make a prior year contribution in 2020 for 2019.


By Sarah Brenner, JD
IRA Analyst


My dad was 86 when he died and I inherited half of his IRA, which I elected to stretch.  Am I correct in thinking that since I am not yet 70 ½, I am not allowed to direct qualified charitable distributions (QCDs) from this IRA?  Please advise.

Thanks, Ron.


Hi Ron,

You are correct. Beneficiaries can do QCDs, but to be eligible the beneficiary must be age 70 ½. If you have not yet reached that age, you may not do a QCD.


We have not been able to find a clear answer on this…

If a non-spouse beneficiary inherits an IRA and is bound by the new 10-year rule and passes away within the 10 years, is the successor beneficiary bound by the original 10-year timeframe?  Does the account still need to be emptied by the end of the 10th year of the original owner’s death?



Hi Mike,

The SECURE Act is only a little over two months old and there are still a lot of questions about the details. We will need guidance from the IRS to clarify some of these issues. While it is not completely clear, an analysis of the SECURE Act provisions leads us to believe that if a beneficiary dies within the 10-year payout period, a successor beneficiary would not get an additional 10-year period. Instead, the account would need to be emptied within whatever time remains of the original beneficiary’s 10-year period.


By Andy Ives, CFP®, AIF®
IRA Analyst

True or False?  “It is mathematically impossible for an IRA account owner to have his first required minimum distribution (RMD) be due for the year 2020.”

Here’s why this statement is true.

First, we are not talking about inherited IRAs. If the account owner died in 2019, then the first RMD for the beneficiary needs to be taken by December 31, 2020. Inherited IRAs do not fit this statement.

Next, we are not talking about workplace retirement plans – like a 401(k). The reason this statement does not apply to a 401(k) is because of the pesky “still-working” exception. If a plan has the still-working exception feature and an older employee separates from service in calendar year 2020, then the first RMD will also be due for 2020.

The reasons why it is mathematically impossible for an IRA account owner to have his first RMD be due for the year 2020 are as follows.

1. Anyone who turned 70 ½ in 2019 would be required to take their first RMD for 2019. Granted, the first RMD may be delayed until April 1 of the following year (2020), but this RMD would still be considered a 2019 RMD. Those who turned 70 ½ before 2019 are already on to their second-or-more RMD in 2020.

2. Didn’t the SECURE Act change the RMD to age 72? It did, but a person who turns 72 in 2020 – whether his 72nd birthday is January 1 or December 31, 2020 – is already taking RMDs and would fall into category 1 above. Any RMD taken in 2020 would not be the first RMD.

3. Anyone born on or after July 1, 1949 will turn 70 ½ in 2020 or later. These individuals qualify under the SECURE Act and can delay their first RMD until age 72. If you were born exactly on July 1, 1949, you would have turned 70 ½ on January 1, 2020. Your 72nd birthday will be July 1, 2021, and your first RMD will be for calendar year 2021. While that first RMD can be delayed until April 1, 2022, it will still be labeled as your 2021 RMD. Regardless, neither of these years are 2020.

So, the year 2020 is unique. Legislation and the calendar dictate that it is, in fact, mathematically impossible for an IRA account owner to have his very first RMD be due for this year.

Bonus RMD Trivia: Name a year where a 70 ½ year-old IRA account owner’s very first RMD could have been completely skipped?

Answer: 2009. The Worker, Retiree, and Employer Recovery Act of 2008 waived all 2009 RMD requirements for IRAs and workplace plans due to the 2008 stock market crash.


By Ian Berger, JD
IRA Analyst

Who can offer them? Most company retirement savings plans, such as 401(k), 403(b) and 457(b) plans, are allowed to (but not required to) offer plan loans. Loans are not allowed from IRAs or SEP and SIMPLE-IRA plans.

What is the maximum amount I can borrow? Plan loans are generally limited to the lesser of 50% of your vested account balance, or $50,000. Your employer can allow an exception to this rule: If 50% of your vested account balance is less than $10,000, you can still borrow up to $10,000.

Example 1: Justin participates in a 401(k) plan that allows plan loans. Justin’s vested account balance is $16,000. If his plan doesn’t allow the exception, the most Justin can borrow is $8,000. If the plan allows the exception, he can borrow up to $10,000.

Can I have more than one loan at a time? Yes, but any new loan, when aggregated with the outstanding balance of the existing loan, can’t exceed the plan’s maximum limit.

How long do I have to repay the loan? Generally, you must repay a plan loan within 5 years. But a loan used to purchase your principal residence can have a longer repayment.

How are loan repayments made? Loans must be repaid in substantially equal amounts made at least quarterly. Most plans require repayment through payroll deduction.

What are some advantages of taking a plan loan?

· Plan loans don’t require a credit check, and the application process is simple and quick.

· As long as the loan satisfies the above rules, it isn’t a taxable distribution.

· Plan loans usually offer better interest rates than commercial loans. Also, repayments are made back to your account – not to a bank.

What are some disadvantages of taking a plan loan?

· By borrowing against your account, you are reducing the tax-deferred savings that you may need for retirement.

· If your loan violates one of the plan loan rules, your entire outstanding balance will be taxable income to you and can’t be rolled over.

· If you terminate employment with an outstanding loan balance and can’t pay off your balance, your account will be offset by the loan balance. That balance is considered a distribution subject to tax and penalty. You can avoid the tax hit if you can come up with the funds to roll over the unpaid balance to an IRA. The rollover deadline is April 15 of the year following the year the offset occurs (or October 15 if you file for a tax return extension).

Example 2: Elena, age 45, terminates employment on February 15, 2020 with a $50,000 401(k) account balance and a $20,000 loan balance. Elena does not have the funds to repay the loan balance. On March 10, 2020, the plan offsets her $50,000 account balance by the $20,000 loan balance and distributes $30,000 to her. Elena has until April 15, 2021 (or October 15, 2021 if she files for an extension of her 2020 tax return) to find other sources to replace the full $20,000 so she can complete a full rollover. Otherwise, she would owe taxes on the $20,000 and a 10% early withdrawal penalty of $2,000.


By Andy Ives, CFP®, AIF®
IRA Analyst


Looking for your help. Husband has an inherited IRA (from his dad prior to the SECURE Act) and was taking RMDs using the single life table. Husband passes away in 2020 and leaves the inherited IRA to his wife who is age 65. What are the wife’s options for distribution?





Under the SECURE Act, if a beneficiary owner of an inherited IRA dies in 2020 (or later), the next beneficiary in line (the successor beneficiary) is bound by the 10-year payout rule. Even if the successor beneficiary would otherwise be allowed to stretch payments as an eligible designated beneficiary (i.e., spouse, disabled individual, etc.), that person is still saddled with the 10-year rule. There are no annual RMDs over the 10 years, but the wife must empty the account  by the end of the 10th year after the year of her husband’s death.


Hello. I recently inherited an annuity from my father. His advisor advised me to take a lump sum distribution from the annuity and deposit into my inherited IRA. I subsequently received the check for the lump sum distribution and handed it over to her for deposit into my inherited IRA.  She stated that as long as I did not cash the check, I would not be taxed until the funds were eventually withdrawn from the inherited IRA. However, I now have received a 1099-R for the funds. The original annuity company stated that we should have completed a non-taxable transfer. What is the best way to clear up this situation with the IRS?

Thank you very much for your time!




After reading the first few lines of your question, I thought, “Oh, no.” Unfortunately, you were given bad information from both your father’s advisor and the custodian where the check was deposited. Non-spouse beneficiaries cannot do 60-day rollovers with inherited money. Only spouses can. The original annuity company is correct in saying the money should have been moved via a non-taxable transfer.

My “oh no” reaction was because this mistake cannot be reversed. The full amount of the distribution from the IRA annuity will be taxable (hence, your receipt of the 1099-R). In addition, you will need to remove the amount rolled into the inherited IRA. Since the annuity money was not eligible for rollover, it is technically an excess contribution in the inherited IRA and subject to a potential penalty.


By Sarah Brenner, JD
IRA Analyst

The SECURE Act overhauled the rules for beneficiaries of retirement accounts. One significant change it brought is the new 10-year payout rule. Here are ten things you need to know about the new 10-year rule.

1. The 10-year rule applies to most nonspouse beneficiaries when the account owner dies in 2020 or later. The bottom line with the SECURE Act is that very few nonspouse beneficiaries will escape the 10-year rule. While the new law does carve out some exceptions such as disabled or chronically ill individuals, most beneficiaries who used to be able to stretch out distributions over their lifetime will end up with the 10-year rule.

2. Spouse beneficiaries are not subject to the 10-year rule. Many people name a spouse as the beneficiary of their retirement account. Spouse beneficiaries escape the 10-year rule and can continue to use the stretch.

3. The account must be emptied by December 31 of the tenth year following the year of death. We expect the 10-year rule to work like the old 5-year rule with an end-of-year deadline.

4. The 10-year rule applies to successor beneficiaries. The rules have changed for successor beneficiaries. They must empty the account within ten years instead of continuing the stretch over the original beneficiary’s life expectancy.

5. There are no annual RMDs during the ten years. Nothing needs to be taken out of the inherited account until the end of the tenth year following the year of death.

6. Minor children will ultimately be subject to the 10-year rule. While minor children of the account owner can get the stretch, this won’t last forever. Once they reach the age of majority under state law or finish school (but no later than age 26), the 10-year rule will kick in.

7. Most trusts will be subject to the 10-year rule. Most trusts, like other nonspouse beneficiaries, will be subject to the 10-year rule.

8. Grandchildren who are retirement account beneficiaries will mostly be subject to the 10-year rule. Under the old rules, many retirement account owners would name a grandchild as an IRA beneficiary to get the maximum stretch. This will not work anymore. Unless a grandchild is chronically ill or disabled, the 10-year rule will apply.

9. Roth IRA beneficiaries are also subject to the 10-year rule. The SECURE Act requires Roth IRA beneficiaries to use the same set of rules as traditional IRA beneficiaries, resulting in the 10-year rule applying to most Roth IRA beneficiaries.

10. Failure to comply with the 10-year rule results in a big penalty. If a beneficiary does not empty the account by the end of the tenth year following the year of death, there is a serious penalty. A 50% penalty will apply to any amount not taken from the inherited account.


By Andy Ives, CFP®, AIF®
IRA Analyst

A spouse beneficiary of an IRA faces many decisions. There is great flexibility and many items to consider. For example, how old was my spouse when he or she passed and what impact will that have on my available choices? Do I need money now? How can I minimize my tax burden? Will penalties apply if I withdraw from the account? By systematically considering each question and leveraging the rules, a spouse beneficiary can create a unique plan that fits his or her needs. After all, with the loss of a spouse, the last thing anyone wants to deal with is money problems derived from poor planning.

Example 1: Married couple John and Janet are both 55 years old. John dies and leaves his traditional IRA to Janet. Janet will need immediate access to the account to cover living expenses. Based on these facts, the decision is clear. Janet should establish an inherited IRA. By choosing this route, she will have full access to the account penalty-free. Of course, taxes will still be due, but at least Janet can avoid the under-age 59 ½ 10% early withdrawal penalty.

By choosing an inherited IRA, Janet will accomplish several goals. Since John died before his required beginning date, Janet can delay any required minimum distributions (RMDs) from the account until John would have been age 72. Then, when Janet is actually 59 ½, she can do a spousal rollover and move the remaining balance of the inherited IRA into her own IRA. At that point, when she is over 59 ½, there is no more 10% penalty to be concerned with, so consolidating accounts makes sense. There is no time limit for when a person must complete a spousal rollover.

Oftentimes a surviving spouse, based on misinformation, will jump to an erroneous decision. There are numerous real-life examples where poor planning and a general misunderstanding of the spousal inheritance rules lead to disaster. In one case, a young widow elected a spousal rollover of a $2.6 million IRA. She then took a $997,000 distribution. Since she was under 59 ½, a 10% penalty of $97,000 applied.

Example 2: Ed (age 73) and Edna (age 65) are a married couple. Edna dies and leaves her IRA to her husband Ed. Ed has plenty of money and is trying to reduce income to minimize taxes. Ed and his financial advisor evaluate the options. If Ed does a spousal rollover, all of Edna’s IRA money will immediately be moved into Ed’s IRA. Since Ed is already taking RMDs, this new influx of cash will increase his IRA balance, thereby increasing his future RMDs and tax burden.

However, as a spouse beneficiary, Ed has other options. Another possibility is to establish an inherited IRA. Since Edna died before her required beginning date, RMDs from this inherited account can be delayed until December 31 of the year that Edna would have turned age 72. Once again, the decision is clear. Based on Ed’s primary goal of reducing income and taxes, an inherited IRA is the way to go. Ed can delay any RMDs from Edna’s account for another 7 years. If Ed’s goals change, there is nothing stopping him from withdrawing more from the inherited IRA or consolidating accounts via a spousal rollover at any time in the future.

Every scenario is different, and every person has their own set of objectives. A spousal rollover is not always the perfect fit. It is imperative to be aware of all options available. There is no need to rush into a decision. Systematically work through the alternatives and carefully consider all possibilities.


By Ian Berger, JD
IRA Analyst

Most workplace retirement plans allowing elective deferrals fall into one of these varieties:

  • 401(k) plans for employees of private sector companies.
  • 403(b) plans for employees of tax-exempt employers, public schools and churches.
  • 457(b) plans for employees of state and local governments.

Although many of the tax rules governing these types of plans are the same, there are some important differences. (This article doesn’t cover the Thrift Savings Plan, for federal government workers and the military, or 457(b) “top-hat” plans for employees of tax-exempt employers.)

What’s the same?  These tax rules apply to all three types of plans:

  • Elective deferrals are limited (to $19,500 for 2020), but employees who are age 50 or older at the end of the year can make catch-up contributions (up to $6,500 for 2020).
  • Roth contributions may be offered.
  • Plan loans may be offered.
  • Hardship withdrawals may be offered (although the 457(b) hardship standards are stricter than the 401(k) and 403(b) standards).
  • Required minimum distributions (RMDs) are required, but the “still-working exception” may be used. That exception allows employees who do not own more than 5% of the company (after applying family aggregation rules) to defer RMDs until the year they separate from service or retire.
  • Rollovers of eligible distributions to IRAs or other plans must be offered. In addition, 20% of the distribution must be withheld for federal income taxes (and possibly an additional amount for state income taxes) for eligible distributions that are not directly rolled over.
  • Rollovers of eligible distributions from IRAs or other plans are permitted. However, 457(b) plans allowing incoming rollovers from IRAs or non-457(b) plans must hold them in separate accounts.
  • 401(k) and 403(b) plans have always been able to offer in-service distributions at age 59 ½ or older. Following a change made by a 2019 law, governmental 457(b) plans can now also offer age 59 ½ or older in-service distributions.

What’s different?  These tax rules apply differently:

  • While 401(k) and 403(b) plans can offer after-tax contributions, 457(b) plans cannot.
  • In determining RMDs, 403(b) plans can be aggregated, but 401(k) and 457(b) cannot be. RMDs for pre-1987 403(b) accounts can be delayed until age 75.
  • A 10% early distribution penalty applies to certain 401(k) or 403(b) distributions made before age 59 ½. The penalty does not apply to 457(b) distributions – except for certain distributions of non-457(b) plan rollovers.
  • Only 403(b) plans allow for a special catch-up contribution for employees with 15 or more years of service. Only 457(b) plans allow a special catch-up for the last three years before an employee’s normal retirement age.


By Ian Berger, JD
IRA Analyst


For the last three years, I have done a back door Roth conversion. I do the conversion in January.

I am 68 years old and I am rolling over my 457(b) New York City deferred compensation plan funds to a rollover IRA with Vanguard. They will get the money around April 1, 2020. Will there be a tax penalty for the 2020 Roth conversion?


When you do a back door Roth conversion, the pro-rata rule applies if you have pre-tax funds in any of your IRAs. In that case, a portion of your conversion will be considered taxable based on the ratio of your pre-tax IRA funds to the sum of all of your IRA funds.

The pro-rata calculation is not based on the balances in your IRAs on the date of the conversion. The account balance used is the end of the year of the transaction.

So, if you are rolling your New York City account into a traditional IRA, you will have pre-tax IRA funds as of December 31, 2020. That means a portion of your 2020 back door Roth conversion will be taxable.


In looking at information regarding the exceptions for inherited IRAs under the SECURE Act, cited your company as a source to say “minors-but not grandchildren” are part of the exception.  However, I cannot find on the IRS site or any other for that matter that says grandchildren who are minors are NOT excluded.  Can you please provide the source for this?  Our firm would like to make all staff and advisors aware of this.

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

Best regards,



Hi Brenda,

You will find the reference to minor children in section 401(a)(2) of the SECURE Act. That section lists the categories of persons considered “eligible designated beneficiaries.” Eligible designated beneficiaries can continue to stretch out distributions over their life expectancy – even after the SECURE Act.

Besides minor children, other categories include: surviving spouses; disabled individuals; chronically ill individuals; and individuals no more than 10 years younger than the IRA owner. That section makes no mention of grandchildren – whether minor or not. This means grandchildren cannot use the stretch and instead are subject to the new 10-year payout rule.


By Sarah Brenner, JD
IRA Analyst

Many IRA owners have named trusts as their IRA beneficiaries. You may be one. Trusts offer control from the grave and can be a smart choice, especially to protect beneficiaries who may be minors, have special needs or simply are not good with money. Naming a trust as an IRA beneficiary has always had its problems. The rules are complicated and having a trust drafted and administered can come with a hefty price tag. The ability to stretch RMDs over a trust beneficiary’s lifetime, however, was often enough to outweigh the negatives. The SECURE Act changes this equation.

Enter the SECURE Act

Under the SECURE Act, most beneficiaries will no longer get the stretch. Instead, most beneficiaries, including trusts, will be subject to a 10-year payout rule. That means all the funds in the inherited IRA must be paid out either to the trust or the trust beneficiaries within 10-years. Keeping the inherited IRA intact and using the stretch to pay annual RMDs to a trust is now a relic of the past.

Because trusts were often drafted with the goal of using the stretch in mind, under the SECURE Act many trusts will no longer work as planned. Many include language that will result in faster than expected payouts or larger than expected tax bills.

Is Your Trust Still the Right Beneficiary?

Every IRA owner who has named a trust as their IRA beneficiary should rethink that decision and reevaluate if a trust is still the way to go. The answer may still be yes for some, but for many others it will be no. If a trust is your IRA beneficiary, you should contact your financial advisor to discuss your specific situation. You may need to confer with the attorney who drafted it and decide whether the trust is still the right beneficiary. It may need to be revised or maybe scrapped altogether. This is something you should take care of sooner rather than later. If careful planning is not done, the SECURE Act could mean that your hard-earned savings may end up going to Uncle Sam instead of to your heirs. That is an outcome no IRA owner would want.


By Sarah Brenner, JD
IRA Analyst


Can a QCD be used to pay dues to a charitable organization?


This is an area where we receive a lot of questions. To qualify as a QCD, there cannot be any benefit back to you from the funds that go from your IRA to the charity. Paying dues required for membership would be a benefit back to you and as such would not qualify as a QCD.


My brother and I are both recently retired. Our father is 90 years old. Dad has listed my brother and me as co-beneficiaries (each entitled to 50%) of his Roth IRA account upon his passing.

Do you believe this is the best/correct form of beneficiary title for my brother and me? If not, please detail what specifically you would recommend. What if my bother wants to cash out his 50% of the Roth account in the same year Dad passes, and I want to retain my 50% of for up to 10 years and then cash it out? Do we need to address this possibility with modified beneficiary title/instructions in advance?

Thank you,



Hi Greg,

Your father’s plan to name both you and your brother as equal beneficiaries directly on his Roth IRA beneficiary form is a good one. By your father indicating on the beneficiary designation form exactly who is entitled to the IRA funds after his death and exactly how much each beneficiary will get, many of the issues and complications that can arise after the death of an IRA owner will be avoided

After your father’s death, separate inherited Roth IRAs should be established for both you and your brother. Each of you can do what you like with your share. If your brother wants to take an immediate distribution of his share and you choose to maximize the time allowed by the 10-year rule, that is not a problem. There is no need for any additional instructions to be added to the beneficiary form to address this situation.


By Andy Ives, CFP®, AIF®
IRA Analyst

Do you want to access your IRA funds penalty-free, even though you are under age 59 ½ and no exception fits your situation? It can be done. Starting a new business and need capital from your IRA, but don’t want to pay the 10% early withdrawal penalty? There is a workaround. Lost your job and require funds to cover your mortgage and cell phone bill, but the only bucket of cash you have is your IRA? There is a pathway to the gold, but it is fraught with danger.

Like Indiana Jones sprinting through spiderwebs and dodging poison-tipped darts while leaping bottomless pits, the giant 72(t) boulder will roll fast at your heels. One misstep could result in crushing disaster. However, if it is the golden idol in the rear of the IRA cave you seek, there is a way.

The general idea of a 72(t) schedule (or a “series of substantially equal periodic payments”) is to open the door to an IRA before 59½ without a 10% penalty. However, you must commit to a plan of withdrawals according to the rules set out in Section 72(t) of the Internal Revenue Code. For example, you can begin the payment schedule from an IRA at any age, but it is required to continue for at least five years or until age 59½, whichever period is longer. (Start at age 42, and your daring cave escape must last 17+ years.)

The payments cannot be stopped during the term, unless the account owner becomes disabled, dies, or the account is decimated (say, from poor investment decisions). The IRA account to which the 72(t) schedule applies cannot have dollars added to it via contributions or rollovers. As such, consider splitting the IRA account prior to entering the 72(t) cave – the restrictions will only apply to the IRA being annuitized.

If you think you can avoid the thundering boulder by rolling over any unneeded 72(t) payments to a different IRA, that dead end will send you straight into the spears of the IRS. 72(t) payments are not eligible for rollover. Also, if the agreed upon schedule is modified, or if the balance in the IRA changes from anything other than normal gains and losses, then the 10% penalty will apply retroactively to all distributions taken prior to age 59 ½. More spears.

So how does one calculate the amount of the 72(t) payment? The IRS describes three primary allowable methods: Minimum Distribution, Amortization, and Annuity Factor. The Minimum Distribution method is essentially calculated in the same manner as RMDs when a person reaches his required beginning date. This method will generally produce the lowest annual payment, and it will fluctuate as the account balance and age factor change from year to year.

The Amortization and Annuity Factor Methods will produce higher annual withdrawals. Both methods allow you to use a “reasonable” interest rate to calculate the payment schedule. The IRS describes a reasonable interest rate as, “any interest rate that is not more than 120 percent of the federal mid-term rate…for either of the two months immediately preceding the month in which the distribution begins.”

Be wary. This is only a brief overview of the 72(t) process. Understanding the danger zones is paramount to survival. Read the cave map carefully, know the risks, and stay out of the light. By following the rules, you may get some spiderwebs stuck to your arms, but at least you can walk away with your golden 72(t) idol in hand.


Ian Berger
IRA Analyst

One important difference between IRAs and company retirement plans is spousal protection. Except for community property states, spouses of IRA owners do not have any rights to the account. By contrast, many workplace plans must provide spouses at least some financial protection.

In the world of company plans, spouses have potentially two types of protection, depending on the type of plan.

Spousal Consent to Plan Distributions. The first type of protection requires certain plans to pay a married participant’s benefit as a specific type of annuity – unless the participant elects another form of payment and the spouse consents. The required annuity type is called a “qualified joint and survivor annuity” (QJSA). A QJSA pays a monthly benefit over the participant’s lifetime and, if the spouse outlives the participant, pays the spouse a monthly benefit over the spouse’s remaining lifetime. This rule applies to all plans covered by ERISA, with one important exception. It does not apply to ERISA-covered 401(k) and 403(b) plans – unless the plan offers an annuity as an optional form of payment and the participant elects the annuity. Since most 401(k) plans offer only a lump sum form of payment, most 401(k) plans are exempt from the QJSA requirement. However, the QJSA rules always apply to ERISA-covered defined benefit pension plans.

Example 1: Jerry participates in is an ERISA-covered pension plan. Jerry is married when he retires, and he wants to elect an annuity that pays him a benefit over his lifetime only (with no spousal benefit after he dies). The plan can pay Jerry that type of annuity only if his wife consents. If his wife doesn’t consent, the plan must pay him a QJSA.

Spouse as Beneficiary. The second type of protection requires certain company plans to automatically treat a married participant’s spouse as his beneficiary – unless the participant designates another beneficiary and the spouse consents. This rule applies to all ERISA plans – ERISA-covered 401(k) and 403(b) plans do not get a free pass.

An offshoot of this rule is the requirement that, without spousal consent, death benefits for beneficiaries of married participants who die before retirement must be paid in the form of a “qualified pre-retirement survivor annuity.” A QPSA pays a monthly benefit to a spousal beneficiary over the beneficiary’s lifetime. The QPSA rule does not apply to 401(k) or 403(b) plans that do not offer an annuity as an optional payment form. But, again, even those 401(k) or 403(b) plans must require a married participant’s spouse to be the beneficiary – unless the spouse consents to another beneficiary.

Example 2: Elaine participates in a 401(k) plan that does not offer an annuity as a payment option. Elaine has designated her brother Keith as her 401(k) plan beneficiary, but her husband David did not consent to that designation. While participating in the plan and still married to David, Elaine dies. The plan must pay the death benefit to husband David. However, the death benefit does not have to be in the form of a QPSA.


By Andy Ives, CFP®, AIF®
IRA Analyst


An initial ROTH conversion was completed in 2018 for tax year 2018. A second conversion was completed in 2019 for tax year 2019. There was no ROTH IRA account prior to 2018 and the account owner is over 59 ½. The 5-year holding period will be satisfied on 1/1/2023. Does each ROTH conversion transaction have a separate 5-year clock to determine whether earnings are tax free or is it just the initial transaction? Thank you in advance for your assistance.




For those under the age of 59 ½, yes, each Roth conversion has its own 5-year clock. However, the account holder you are inquiring about is already over 59 ½. As such (and since this is his very first Roth IRA account), he only has to concern himself with the 5-year clock on the 2018 conversion. Since a person who is over 59 ½ already has full access to his traditional IRA before a conversion, he will still have full access to the account immediately after the conversion. It is the tax on the earnings that we are concerned about. On 1/1/2023, he will have satisfied the 5-year clock for tax-free earnings on the 2018 conversion. Also on 1/1/2023, he will have satisfied a second requirement – what I call the “5-year forever” Roth clock – which means the 2019 conversion clock becomes irrelevant. Going forward, his Roth IRA will provide immediate tax- and penalty-free earnings for the rest of his life, regardless of how or when new Roth money is added to it. There will be no more clocks to worry about.


Mr. Slott,

I understand that you can make up to a $100,000 withdrawal from my IRA for a qualified charity. Does the withdrawal for the charity have to be a once-per-year event, or can it be monthly, quarterly, etc., so long as the total does not exceed $100,000?




Yes, qualified charitable distributions (QCDs) are capped at $100,000 annually, per person. You must be at least age 70 ½ to do a QCD, and the payment must be directly transferred to the eligible charity. (Don’t make the mistake of withdrawing the money yourself.) QCDs can be done as often as you wish – there is no limit on the number of QCDs, only on the total amount. If you do go over the $100,000 limit, the overage will not be excluded from income and cannot be carried forward to the next year.


By Sarah Brenner, JD
IRA Analyst

Are you looking for a better investment for your IRA? Are you thinking about making the move to another IRA custodian or financial advisor? You do have this opportunity. The IRA rules are set up to allow portability. However, if you are taking required minimum distributions (RMDs) from your IRA, you can still move your money, but things are a little more complicated and you will want to be especially cautious.

One way to move your IRA funds is to do a rollover. You will take a distribution of the funds in your IRA. The way the rules work is that the first money distributed from your IRA in a year when you are required to take an RMD will automatically be considered your RMD. With a rollover, there is no ability to take the RMD later. This rule is sometimes called the “first money out rule.” The RMD cannot be rolled over. If you do deposit the RMD to another IRA, it will be considered an excess contribution and need to be corrected following the IRS correction procedures. Otherwise, an excess contribution penalty of 6% will apply each year the funds remain in the IRA. So, take your RMD and then go ahead and move your IRA funds by rolling over the rest of the distribution within 60 days. A final note about rollovers:  you can only do one 60-day IRA-to-IRA or Roth IRA-to-Roth IRA rollover in any 12 month period.

Does a rollover sound complicated? It can be and there are lots of possibilities for error. A better choice for moving IRA funds is to do a transfer. With a transfer, your IRA funds will not be distributed from your IRA. You will not receive a check payable to you. Instead, the custodian will move the money directly from your existing IRA to the new IRA. The funds will be payable to the new custodian for the benefit of your IRA. Transfers between IRAs are not limited in frequency and are not subject to the 60-day rule. More good news is that you can transfer your RMD and take it later in the year from your new IRA. You are not required to take the RMD prior to the transfer. Do not forget to remove it by the deadline (usually December 31). If you do not take your RMD from the new IRA, you will be hit with a 50% penalty. Your new custodian will not be able to remind you to take the RMD because it will have no way of knowing if you already took it with the previous custodian.

Your IRA is portable. You can move to a better investment or a different custodian. Just proceed with caution if you are taking RMDs. There are some special additional rules you must know. Consider a transfer, rather than rollover, for maximum flexibility in when you must take your RMD and always consult with a knowledgeable financial advisor if you have questions about what is the best move for you.


By Andy Ives, CFP®, AIF®
IRA Analyst

For those who inherit IRA accounts in 2020 or later, the SECURE Act permits five groups of people to stretch required minimum distribution (RMD) payments over their life expectancy. As I touched on in a recent Slott Report article (“The Stretch on a Stretcher,” Jan. 13), these five groups fall under the new term “Eligible Designated Beneficiaries,” or EDBs. Two of the five EDBs are self-explanatory:

1.) Spouses.

2.) Those not more than 10 years younger than the deceased account owner. These people do not need to be related to the deceased account owner.

The third group requires a little more detail.

3.) Minor children of the account owner. The minor child cannot be a grandchild of the account owner and qualify for the stretch. He or she cannot be the minor child of the neighbor, and cannot be a niece or nephew and qualify. The minor must be the deceased account owner’s child. Even then, the stretch is only allowed until the minor child reaches the age of majority or is still in school, up to age 26.

The last two groups of EDBs generate the most questions.

4.) Disabled. As we have written in the past, this is very high hurdle to get over. The tax code’s definition of a disabled person is incredibly limiting. Simply “retiring on disability” or collecting a disability pension does not necessarily mean you qualify as a disabled person eligible to stretch inherited IRA RMD payments.

From Tax Code Section 72(m)(7), the meaning of disabled is described as such: “For purposes of this section, an individual shall be considered to be disabled if he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long-continued and indefinite duration. An individual shall not be considered to be disabled unless he furnishes proof of the existence thereof in such form and manner as the Secretary may require.”

5.) Chronically ill. This final sub-group of EDBs generates the most confusion. Fortunately, the IRS does provide detailed guidance as to the qualifications necessary to be considered “chronically ill.” Under the SECURE Act, a chronically ill individual is a based on the definition under the tax rules for defining long-term care services under long-term care insurance policies.

From Tax Code Section 7702B(c)(2) and under the SECURE Act, to qualify as a chronically ill individual the person would have to be certified (by a licensed health care practitioner) to be unable to perform at least two activities of daily living for at least 90 days, or require “substantial supervision” due to a severe “cognitive impairment.”

The SECURE Act has drastically limited the number of people who can stretch IRA payments. Going forward, designated beneficiaries that do not fall into one of the five EDB categories listed above will be forced to empty the inherited IRA by the end of the 10th year after death.


By Ian Berger, JD
IRA Analyst


Hi Ed,

Question on the new SECURE Act: Do you know if there were any changes to the payout period if an estate is the beneficiary of an IRA. Is it still a 5-year payout? Or is it now 10?

Thanks, appreciate your help.



Dear Janet,

The SECURE Act made lots of changes to the IRA rules. But one change it did not make is to the payout rules when the estate — or any other non-individual (except for certain trusts) – is the IRA beneficiary.

As was the case before the SECURE Act, the required distribution depends on whether the owner dies before the owner’s “required beginning date.” That date is April 1 of the year after the year in which the owner attains age 72. If the owner dies before the required beginning date, the entire account must be paid out by December 31 of the fifth year following death.  If the owner dies on or after that date, annual required distributions must be made over the remaining life expectancy of the owner (had he lived) under the IRS Single Life Expectancy Table.

These accelerated payout rules are one reason why it’s usually better to designate an individual as IRA beneficiary rather than the estate.


Please help. I am confused by the new rules. My birthday is July 16, 1949. When must I start receiving required minimum distributions (RMDs)? Do I need to take it this year?

Thank you.


Don’t feel bad. Lots of folks are confused about the new SECURE Act rules.

And consider yourself lucky. Since you were born on or after July 1, 1949, you get to take advantage of the new RMD rules that delay the first RMD year to age 72.  So, you don’t have an RMD in 2020. Your first RMD will be for 2021 (the year you turn age 72). If you want, you can delay that RMD until April 1, 2022, but that would mean that you would have two taxable RMDs for 2022 – the 2021 RMD due by April 1, 2022 and the 2022 RMD due by December 31, 2022.

If you were born before July 1, 1949, you would get no benefit from the new rules. Your RMDs would need to be started or continued under the old rules.


By Ian Berger, JD
IRA Analyst

Part-time employees in companies with 401(k) plans won a big victory when the SECURE Act was signed into law on December 20, 2019.

Before the SECURE Act, 401(k) plans could exclude employees if they did not work at least 1,000 hours of service in a 12-month period or were under age 21. These rules have prevented many long-term part-time employees from the chance to save in 401(k) plans.

The SECURE Act provides relief beginning with the first plan year after December 31, 2020 (for most plans, January 1, 2021). Any employee 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 must be allowed to start making elective deferrals. However, years beginning before January 1, 2021 do not have to be counted for purposes of meeting the three-consecutive-year rule.

Example: Assume Zoe starts part-time employment with Company A on January 1, 2019, when she is age 18. Company A has a 401(k) plan with a calendar year plan year. Before the SECURE Act, Company A required employees to attain age 21 and complete at least 1,000 hours in a 12-month period before becoming eligible to make elective deferrals. Zoe’s hours with Company A are as follows:


Year                             Age                                   Hours

2019                              18                                     750

2020                              19                                     850

2021                              20                                     800

2022                              21                                     925

2023                              22                                     550

Because of the new law, Zoe must be allowed to start making elective deferrals under Company A’s plan on January 1, 2024. That’s because she will have three consecutive years (2021, 2022 and 2023) with at least 500 hours of service and will be age 21 or older by December 31, 2023. Her service in 2019 and 2020 is not taken into account.

The new rule only applies for purposes of eligibility for elective deferrals. It does not require employers to make matching contributions or other employer contributions for part-timers who become eligible via the 500-hour rule.

Of course, employers are free to apply more liberal eligibility rules for their 401(k) plan. The new 500-hour rule is only a minimum eligibility rule. Also, keep in mind that the new rule doesn’t replace the pre-SECURE Act 1,000-hour/age 21 rule if that rule allows an employee to participate earlier than under the new rule.

Example: Assume that, in the above example, Zoe was age 21 when she began employment with Company A and had 1,100 hours of service (instead of 800) in 2021. Under the pre-SECURE Act eligibility rules that are still in effect, she must be allowed to start making elective deferrals on January 1, 2022.

The SECURE Act 500-hour rule does not apply to collectively-bargained 401(k) plans.


By Sarah Brenner, JD
IRA Analyst


According to the IRS website: Beginning in 2015, you can make only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs you own (Announcement  2014-15 and Announcement 2014-32). The limit will apply by aggregating all of an individual’s IRAs. Trustee-to-trustee transfers between IRAs are not limited. Rollovers from traditional to Roth IRAs (“conversions”) are not limited.

If I am reading this correctly, we can “roll over” (hand carry checks) for multiple IRA accounts, as long as we are rolling over funds to a Roth IRA. Is that correct?

Thank you,



Hi Shirley,

The once-per-year rollover rule causes a lot of confusion. You can only do one 60-day rollover between IRAs of the same type in a 365-day period. This rule applies to your traditional and Roth IRAs in the aggregate. So, if you roll over a distribution from your traditional IRA, you cannot roll over another distribution from any of your IRAs, including your Roth IRAs, for 365 days. Conversions do not count for purposes of this rule. The best advice is not to do 60-day rollovers at all, and instead do direct transfers. This avoids all the complications of the once-per-year rollover rule.


If my son inherits my Roth IRA, I understand he now needs to withdraw the full amount over a 10 year period.

It also appears that any withdrawal by him – whether in year 1, equally over the 10 years, or all in year 10 – is tax free.

What if he decides to take nothing out the first 9 years, and then takes out the full original inherited amount in year 10?  If during those 10 years the account increased, can he keep the gains from the Roth IRA, as long as he withdraws the original amount he inherited?




Hi Dennis,

The SECURE Act has raised a lot questions on how distributions to beneficiaries will work going forward. You are correct that you son, if he is not a minor, will be subject to the 10-year rule when he inherits your Roth IRA. You are also right that the 10-year rule does not require annual required minimum distributions (RMDs). If tax-free Roth IRA funds are inherited, it is a good strategy to delay distributions as long as possible and then empty the account in the tenth year following the year of death. The rules, however, are clear. The whole account, including earnings after the Roth IRA owner’s death, and not just the original amount inherited, would need to be distributed by December 31 of the tenth year following the year of death. If this is not done, a 50% penalty would apply to any amount that is not distributed because it would be considered an RMD that was not taken.


By Andy Ives, CFP®, AIF®
IRA Analyst

As we gradually peel back the layers of this legislative onion called the SECURE Act, more and more discoveries come to light. One revelation is how qualified charitable distributions (QCDs) are potentially affected. Could a QCD become, effectively, a taxable distribution? A looming cloud could soon peer over the shoulders of otherwise generous and giving individuals.

As a reminder, QCDs can be done by IRA owners (and inherited IRA owners) who are age 70½ or older. (The SECURE Act raised the age of RMDs to 72. However, the Act did not increase the age for QCDs – 70½ is the status quo.) IRA assets are transferred directly from an IRA to an eligible charity, and the dollar amount of the QCD is excluded from the account owner’s taxable income up to a maximum of $100,000 annually. Oftentimes, QCDs are leveraged to offset all or portion of a person’s required minimum distribution.

Yes, QCDs are a great planning tool…but the next layer of this onion stinks.

The SECURE Act also eliminated the 70½ age restriction for making deductible contributions to an IRA. Starting January 1, 2020, anyone with earned income, regardless of age, can contribute to a traditional IRA. That, in and of itself, is not bad. But what happens when a person over age 70½ combines a deductible IRA contribution with a QCD? Lousy things.

For example, Richard is 76 and still works part time. Since the SECURE Act eliminated the age restriction on traditional IRA contributions, Richard decides to make a deductible contribution of $7,000 to his IRA. Richard is also a charitable person and, in the same year as his contribution, he does a QCD for $10,000. The IRS views this as double-dipping. Richard cannot combine both the $7,000 deductible contribution and the $10,000 tax-free QCD. His otherwise tax-free QCD is reduced by the contribution amount, essentially causing $7,000 of his $10,000 QCD to be taxable.

Disregard the complicated formula provided by the SECURE Act in these situations. Just know that every post-70½ deductible IRA contribution is remembered by the IRS. These annual post-70½ contributions are tallied and totaled. The aggregate follows the IRA owner, ready to spring from the shadows and cancel the tax benefits of a future QCD.

In another example, Molly is 72 and works part-time as an organist at the local church. She makes a newly permitted $5,000 deductible contribution to her traditional IRA. Molly repeats this same transaction every year until she is 80 when she officially retires. Eight annual post-70½ deductible contributions of $5,000 have gone into her IRA totaling $40,000.

Molly has never done a QCD. When she is 85, she decides it is time to give back and requests a $50,000 QCD be directed to her church. There is a rumbling in the dark. Molly’s previous deductible contributions of $40,000, preserved by the IRS and lying dormant in a carry-forward bucket, spring forward and consume an equal amount of the QCD. In the end, $40,000 of Molly’s $50,000 QCD becomes taxable, and only $10,000 is excluded from her income for the year.

Those who itemize their taxes may find a fix. But if you take the standard deduction, is there a workaround? Not within a traditional IRA there isn’t – but other options exist. Avoid this rotten post-70½ onion altogether and simply contribute to a Roth.


By Ian Berger, JD
IRA Analyst

The new SECURE Act contains three provisions that are designed to promote annuities in company savings plans. The January 8, 2020 Slott Report described the first of these three changes – new protection for companies if the insurance company selected by the plan to provide annuities later runs into financial difficulties and cannot make payments. Today, we will discuss the other two new provisions.

Congress believed that plan sponsors were reluctant to offer annuity products in savings plans not only because of potential liability, but also because of uncertainty over whether the company could later eliminate that option. The second change addresses what happens if a plan begins to offer annuities as an investment option but for whatever reason decides to drop that option. In the past, participants who had invested in annuities would be stuck with termination penalties, surrender charges or other fees when the annuity was liquidated. To make matters worse, they would be unable to receive a distribution of the annuity contract because of restrictions on in-service withdrawals.

The new law provides two ways for participants to keep their annuity investments if the annuity option is dropped from the plan: (1) making a direct trustee-to-trustee transfer to an IRA or another company plan that accepts transfers; or (2) receiving an in-kind distribution of the annuity contract. Both must occur within 90 days before the annuity option is eliminated.

This change applies to 401(k), 403(b) and 457(b) plans. Withdrawals for this reason would be considered permissible in-service withdrawals.

The new provision is effective for plan years beginning after December 31, 2019 (January 1, 2020 for most plans).

The third change requires companies to begin including annuity illustrations in the benefit statements they are required to provide to participants. Although these statements must be given out quarterly, the new illustrations are only required annually. The illustrations must show the amount of monthly payments a participant would receive if the participant’s account balance was used to buy an annuity. The assumption is that plan participants, after seeing these illustrations, will lobby their employer to begin offering annuities.

These annuity illustrations are not required until after the Department of Labor gives guidance on the new rule.


By Andy Ives, CFP®, AIF®
IRA Analyst


Hoping you might be able to offer some guidance. We have a client who has two IRA accounts.  The client is 80 years of age. He wants to convert the full amount in one of his IRA accounts to a Roth. The IRS says that distributions from IRA accounts are treated as satisfying the RMD first, so we need to take the RMD before we process the conversion. My questions are: 1.) The client has plenty of money in IRA #2 to satisfy the RMD for both IRA accounts. I presume that doesn’t matter and we still need to take the RMD before we convert? 2.) Is the RMD that must be satisfied ONLY the RMD for IRA #1 that we plan to convert to a Roth, or is the RMD that must be satisfied the aggregate of both IRA accounts that must be met before we convert IRA #1 to a Roth?

Thank you.




Nice work recognizing that RMDs can’t be converted. RMDs are considered to be the first money distributed from an IRA and are not eligible for rollover or for conversion to a Roth IRA. Your presumption is correct.

The RMD that must be satisfied is only from the specific IRA being converted. You do not have to take the RMD from the other IRA that is not being converted and can wait to take that “second” RMD later in the year.


When do the Updated Uniform Lifetime Table & Single Life Table under 401(a)(9) go into effect for 2020?




Updates to the life expectancy tables are only proposed. If they are officially adopted, they will not go into effect until January 1, 2021.


By Sarah Brenner, JD
IRA Analyst

On December 20, 2019 the Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law. This new law includes some big changes for your retirement account. Here are the top 10 things you need to know:

  1. No more age limits for traditional IRA contributions. Beginning in 2020, the new law eliminates the age limit for traditional IRA contributions (formerly 70 ½).


  1. Required minimum distributions (RMDs) can start a little later. The new law raises the age for beginning RMDs to 72 for all retirement accounts subject to RMDs. IRA owners age 70 ½ in 2020 catch a break and will not have to take their first RMD for 2020.



  1. The age for qualified charitable distributions (QCDs) remains the same. QCDs can still be done at age 70 ½ despite the new rule delaying RMDs until age 72.


  1. New help for new parents. Beginning in 2020, the SECURE Act adds a new 10% penalty exception for births or adoptions. The exception applies to both IRAs and employer plans.  It is limited to $5,000 for each birth or adoption.


  1. More opportunities for IRA contributions. The definition of “compensation” for IRA contribution purposes is expanded to include taxable fellowships and stipends for graduate or postdoctoral students. Also, foster care workers who exclude from taxable income certain “difficulty-of-care” payments from their employer can now use those funds to make IRA contributions.


  1. More annuity choices coming to your employer plan. There are several provisions of the SECURE Act designed to make it easier for employer plans to offer annuities to participants.


  1. Good bye, stretch IRA. Beginning for deaths after December 31, 2019, the stretch IRA is replaced with a 10-year rule for the vast majority of beneficiaries. For deaths in 2019 or prior years, the old rules remain in place.


  1. Hello eligible designated beneficiaries. There are five classes of “eligible designated beneficiaries” who are exempt from the 10-year post-death payout rule and can still stretch RMDs over life expectancy. These include surviving spouses, minor children (but not grandchildren), disabled individuals, the chronically ill, and beneficiaries not more than ten years younger than the IRA owner.


  1. Time to review your IRA trust. Many trusts will no longer work as planned under the new rules. If you named a trust as your IRA beneficiary, your plan needs an immediate review and probable overhaul.


  1. Good advice is more important than ever. The SECURE Act has changed the game when it comes to retirement and estate planning. A qualified financial advisor can help guide you through all the new rules and ensure you are best positioned to take advantage of the breaks while avoiding the pitfalls.


By Andy Ives, CFP®, AIF®
IRA Analyst

The stretch IRA is on a stretcher and paramedics just loaded it into an ambulance. It is on life support. Prognosis: negative. For most new beneficiaries, the stretch will not survive. The SECURE Act is the perpetrator, and it gives no quarter. The Act stood defiantly over the stretch after inflicting its damage and made no effort to run when the sirens wailed.

But all is not lost. Despite its injuries and overall dire shape, prone in a hospital bed, the stretch may still help some needy heirs.

Preceding this assault, essentially two classes of beneficiaries existed. There was the all-encompassing “Beneficiary” term that comprised everyone and everything. Charities, spouses, grandkids, estates, nieces, nephews, trusts, etcetera all fell under this enormous umbrella. Additionally, there was a further subdivision dubbed “Designated Beneficiaries.” This group included living, breathing people with life expectancies – no estates and no charities. Prior to the SECURE Act, only these designated beneficiaries could stretch IRA required minimum distributions (RMDs) over their life expectancy. (Makes sense, since neither charities nor estates have a heartbeat.)

The SECURE Act further slashed the number of people allowed to stretch IRA RMD payments. A new subclass of beneficiaries was christened: “Eligible Designated Beneficiaries,” or EDBs. Beginning for deaths on or after January 1, 2020, only EDBs can maximize the stretch. This includes:


  • Surviving spouses
  • Minor children of the account owner until age of majority – but not grandchildren
  • Disabled individuals
  • Chronically ill individuals
  • Beneficiaries not more than ten years younger than the IRA owner


If a beneficiary is not on this list, they are stuck with the new SECURE Act provision requiring the inherited IRA be emptied by December 31 of the tenth year after the year of death, i.e. the 10-year rule. Of course, there are nuances and curveballs. There are outliers and there are circumstances when a person is an EDB but then is not an EDB and the 10-year payout springs forward. (Think a minor child who is no longer a minor.)

Regardless, the once powerful stretch, in its wounded state, is now severely limited. As it is, the five groups listed above (along with grandfathered heirs who inherited prior to 2020) are the only people who can stretch IRA RMDs over their life expectancy.

Did you name a trust as your IRA beneficiary prior to the SECURE Act? Better review that trust to see if it still meets your wishes. Did you name your grandchild as a beneficiary in hopes of allowing the little tyke to stretch IRA payments over the next 70 years? You may want to reconsider. In fact, every beneficiary form should be reevaluated, because the ambulance just sped away, and the feeble stretch can only help so many.


By Ian Berger, JD
IRA Analyst


I turn 70 1/2 in 2020. Since I do not have to take a required minimum distribution (RMD), how much can I do in a qualified charitable distribution (QCD) this year?



Hi Ronnie,

Even though you won’t have an RMD for 2020, that doesn’t affect your ability to take a QCD at age 70 ½. One of the benefits of taking a QCD is to have it count towards the RMD. However, QCDs can be taken in amounts in excess of the RMD (up to the $100,000 annual limit) and can even be taken in years (such as 2020 in your case) when there is no RMD. Just be sure not to initiate the QCD before you are actually 70 ½.


Hello Mr. Slott:

I just read your article regarding the new SECURE Act, Good-bye Stretch IRA.  I have one question.  With the age limit for making IRA contributions lifted for as long as you work, if you are still working at the new RMD age of 72, will you also have to begin taking the required minimum distributions while still making IRA contributions?  That’s one area that wasn’t specifically addressed in your article.

Thank you,



Hi Terry.

This is one of the strange consequences of the new SECURE Act rule that lifted the age 70 ½ limit for traditional IRA contributions. You will still be required to take RMDs on your IRAs beginning for the year you turn 72 – even if you are still making new IRA contributions. This “in-and-out” of contributions and RMDs, which has been typical of SEP and SIMPLE plans, now also applies to traditional IRAs.


By Ian Berger, JD
IRA Analyst

There are three new provisions in the recently enacted SECURE Act designed to promote annuities in company savings plans. That explains why insurance companies lobbied so hard for passage of the legislation. The three provisions are:

  • New protection for plan sponsors who want to start offering annuities.
  • New options for participants to keep their plan annuity investments if the plan stops offering annuities.
  • A new requirement that benefit statements show annuity illustrations.

Today, we’ll discuss the first of these three changes. A future Slott Report will tackle the other two.

According to the Plan Sponsor Council of America, less than 10% of 401(k) plans now offer annuities. The reason often cited for this is that companies are afraid of being sued. Plan sponsors are considered fiduciaries under ERISA and must act “prudently.” Suppose a plan fiduciary chooses an insurance company to provide 401(k) annuities and that carrier subsequently goes belly-up and can no longer make annuity payments?  In that case, the unhappy annuitants could sue the plan sponsor under ERISA.

At the same time, too few workers have enough income to last their retirement. Instead, many participants squander their savings as soon as they leave the plan (or even earlier if the plan allows in-service withdrawals). And, since most workers these days aren’t covered by traditional pension plans, they cannot rely on the retirement income those plans provide.

The new law creates a new ERISA standard that protects companies from liability if the annuity provider is unable to meet its obligations. When selecting an annuity provider, plan sponsors must conduct “an objective, thorough and analytical search” of potential annuity providers taking into account (1) the financial capability of the candidates and (2) the cost of the contracts offered.

But this standard should be easy to meet since companies only need to get written representations from insurance companies that they are in good standing with state regulators. The plan sponsor is not required to do its own investigation. The SECURE Act also says that companies are not necessarily required to select the lowest cost contract offered.

Because of this change, any problems employees have with their annuity payments will now have to be taken up with the insurance company – not the employer.

This provision was effective December 20, 2019, the date the SECURE Act was signed into law.


Sarah Brenner, JD
IRA Analyst

The SECURE Act is here! Most of new law’s provisions kicked in on January 1, 2020, overhauling many of the rules for retirement accounts that have been with us for decades. One significant change the SECURE Act brings us is the delay in the age at which RMDs must start from 70 ½ to 72.

This new rule has raised questions as to how those who reached age 70 ½ in 2019 are affected. Some had already taken 2019 RMDs. Others were waiting to take their first RMD until closer to their required beginning date of April 1, 2020. What happens now to those who reached 70 ½ in 2019? Do they still need to take an RMD for 2019? Can they then stop RMDs until they reach age 72? Would they have a new required beginning date?

The SECURE Act provides some disappointing answers to these questions to those who were hoping to get a reprieve from starting RMDs. The ability to delay RMDs that is available under the new law is only available to those who reach age 70 ½ after December 31, 2019. Those who reach age 70 ½ in 2019 are subject to the old rules. This means that they must take an RMD for 2019 and for each year thereafter. Only those who reach age 70 ½ in 2020 or later will be able to delay RMDs until April 1 of the year following the year they reach age 72.

Example: Kate celebrated her 70th birthday on January 20, 2019. She then reached age 70 ½ in July of 2019. She decided to delay taking her 2019 RMD until spring of 2020. With the passage of the SECURE Act, the rules for Kate have not changed. She still must take her 2019 RMD by April 1, 2020 and her RMD for 2020 by December 31, 2020.

Example: Gerry celebrated his 70th birthday on August 5, 2019. He will be 70 ½ in February of 2020. The SECURE Act allows Gerry to delay taking his first RMD until April 1 of the year following the year he reaches age 72. Jerry will need to take an RMD for 2021. His deadline for taking his 2021 RMD would be April 1, 2022. He would need to take his RMD for 2022 by December 31, 2022.


Sarah Brenner
IRA Analyst


With the SECURE Act, can a person who is older than 70 ½ fund a 2019 Traditional IRA?  The SECURE Act goes live on 1/1/2020, and an IRA can be funded up to 4/15/2020 for the previous year.  Any reason they cannot?


Unfortunately, the answer is no. The new rule eliminating the age limit for traditional IRA contributions is effective January 1, 2020. Prior year contributions for 2019 would be subject to the old rules, including the age limit. The bad news is that a 2019 contribution would not be allowed. The good news is that for 2020 and later years, the age limit is gone.


Good Day,

We unfortunately lost a special family member at the end of October. Her employer sponsored savings plan was to be inherited primarily by her two adult daughters. but the paperwork from Vanguard has yet to be distributed to all beneficiaries. Do you know if the SECURE Act will be enforced for those accounts established after January 1, 2020, or if it will be driven by the date of death of the original account holder?

Getting this passed this late is going to cause major work for the brokerage and investment houses over the last week of 2019.

Thanks in advance for your time and consideration.




Hi Art,

Sorry for your loss. Because your friend passed away in 2019, she is subject to the old rules and the stretch would be available to her beneficiaries. This is true regardless of when the paperwork is processed. The new SECURE Act rules limiting the stretch will only apply to beneficiaries of IRA owners who die after December 31, 2019.


Ian Berger, JD
IRA Analyst

The clock is winding down to the ball-dropping in Times Square that will usher in a new year – and a new decade. The Ed Slott and Company team wishes to thank you for supporting The Slott Report and responding to our articles with such insightful comments and questions.

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?

No matter what happens, our resolution is to continue to keep you informed with “20/20” clarity.

Best wishes for a Happy and Healthy New Year!!


By Andy Ives, CFP®, AIF®
IRA Analyst


Hi Ed,

Hope all is well.  I have a client that received the HEART benefit as her spouse passed away a few years ago.  We immediately moved those dollars into a Roth for her.  My question is, as we are doing some year-end planning, can I add to this Roth by doing a conversion, or do I need to open up a separate Roth for her?


The HEART Act allows a beneficiary of military death gratuities to contribute those funds to a Roth IRA. The Roth contribution can be made without regard to the annual contribution or income limits. The contribution must be done within one year from the date of receipt of the death benefit, and HEART Roth IRA funds do not need to be kept separate. Future contributions and/or conversions can be added to this same Roth IRA.


Can you please confirm which RMD table should be used for a client who husband was taking RMD’s and passed away 10 years ago; as the surviving spouse and within 10 years of his age and the only beneficiary; she rolled the IRA into her name. Can you please clarify what table should be used for her RMD’s?

Thank You




Since the surviving spouse did a spousal rollover, the assets are treated as if they were always in her name. As such, she would use the Uniform Lifetime Table to calculate her RMDs based on her own age and life expectancy.


By Andy Ives, CFP®, AIF®
IRA Analyst

As of the writing of this Slott Report submission, it is Monday, December 23, 2019. T-minus 8 days before the end of the year, which means IRA owners have a tight window to complete any year-end transactions. Once the calendar turns, if not finalized in time, some items will be forever lost. Here are six transactions that absolutely must be completed within the next 8 days to avoid penalty and/or a lost opportunity:

Over 70 ½ RMDs. While the first RMD for the year a person turns 70 ½ can be delayed until April 1 of the next year, all future RMDs must be taken before the end of the calendar year. There is no wiggle room. There is no “still working exception” on IRAs. Failure to take an RMD by the end-of-year deadline will result in a 50% penalty of the amount not withdrawn. Yes, there are ways to go about making your case to the IRS as to why you missed the RMD and get the penalty waived, but that extra work can be avoided by simply taking the RMD on time.

QCDs. Qualified charitable distributions must also be completed and recognized by the custodian by December 31. There is no going back. There is no such thing as a “prior year QCD.” I say “recognized by the custodian” because some people have IRA checkbook accounts. Writing a check to an eligible charitable organization before the end of the year will not meet QCD criteria. It must be cashed and debited from the IRA account before the end of the year.

Account splitting for those who passed away in 2018. IRS regulations require that IRAs inherited by more than one beneficiary must be timely split for the individual beneficiaries to use their own life expectancy to stretch RMD payouts. “Timely split” means by December 31st of the year following the year of the IRA owner’s death. Even if the original IRA owner died on the first day of 2018, the beneficiaries still have until the end of 2019 to split the account. Guess what deadline is 8 days away? Missing the deadline will force the beneficiaries to use the age of the oldest beneficiary for RMD stretch calculations.

Inherited IRA RMDs. You split the inherited account on time? Nice work, but there is another task at hand. No matter your age, if you have an inherited RMD from a person who passed away in 2018 (or earlier), current rules dictate the beneficiary’s RMD from the inherited IRA must be withdrawn by December 31, 2019. If you miss the 2019 cut-off for those who passed away in 2018 or earlier, there is a 50% penalty, just like with the over-70 ½ RMD.

Roth Conversions. Roth contributions can be made up to the tax filing deadline, NOT including extensions. However, to have a 2019 Roth IRA conversion, the funds must be distributed from the traditional IRA by year end.  But don’t be too hasty. Consider your strategy carefully. Roth conversions cannot be recharacterized. Once you convert, there is no going back, and all the tax and income ramifications of that conversion are officially yours to keep. (Roth contributions can be recharacterized. Be sure not to confuse the two.)

NUA Lump Sum Distributions. While this is more of a workplace retirement plan deadline, it is still hard and fast. To qualify for the net unrealized appreciation (NUA) tax benefit, a lump-sum distribution means that ALL the company plan funds must be distributed in one tax year. If there is any balance in the plan at the end of the year, the NUA tax break is blown. If your goal was to complete an NUA transaction in 2019, be sure the NUA stock has been delivered in-kind and all other assets have been either paid out or rolled over to an IRA.

T-minus 8 days! Tick…tick…tick.


By Ian Berger, JD
IRA Analyst


My husband has taken two different qualified distributions from his Roth IRA within the last 60 days.  We would like to “pay those back.” It looks like we can put money back into the Roth IRA as a rollover.

My question is:  Can we put the total amount of the two distributions back into the same IRA, or are we limited to “paying back” just one of those distributions




Hi Laura,

Redepositing the funds back into the Roth IRA is considered a rollover. Unfortunately, only one of your husband’s withdrawals can be rolled back into his Roth IRA. He is not permitted to combine them and then roll the combined amount back.

The rollover must be done within 60 days of receipt of the distribution that is being returned. However, you can’t do this rollover if you have done another IRA rollover within the last 12 months. (Company plan-to-IRA rollovers, IRA-to-company plan rollovers and Roth conversions don’t count for purposes of the once-per-year rule.)


I would appreciate your guidance regarding a backdoor Roth question.

My client participates in an employer 401(k) plan.  The client also has $50k in a traditional IRA which includes $20k in after-tax contributions that have been reported on Form 8606 over the years.  We are able to roll over his IRA balance to his 401(k) and would like to do so in order to complete backdoor Roth contributions in the future.  It is my understanding that he should transfer only the pre-tax funds to the 401(k) that is $30k.  This would leave $20k in after-tax contributions only in the IRA (which I presume we could convert to the Roth IRA next year).

Please confirm if this understanding is accurate.




Hi Jennifer,

Your understanding is correct. The backdoor Roth strategy allows an individual to make an “indirect” Roth IRA contribution if the person’s income is too high to make a direct Roth contribution. This is accomplished by first making a non-deductible contribution to a Traditional IRA and subsequently converting the Traditional IRA to a Roth IRA.

However, you have added another layer to this scenario. Only traditional pre-tax IRAs can be rolled over to company plans that allow IRA-to-plan rollovers. Rolling over pre-tax IRA funds into a company plan will help your client take full advantage of the backdoor Roth strategy. If no pre-tax funds remain in the IRA when the traditional IRA contribution is converted to a Roth IRA, the converted amount (except for any investment gain from date of contribution to date of conversion) is tax-free. If any pre-tax funds do remain, the conversion can still be done – but a portion of the converted amount will be considered taxable under the IRS pro-rata rule.


By Sarah Brenner, JD
IRA Analyst

With the clock ticking down on 2019, Congress is expected to enact a $1.4 trillion year-end spending bill to keep the government running. Tucked away inside this mammoth piece of legislation is the Setting Every Community Up for Retirement Enhancement (SECURE) Act. The SECURE Act is set to become effective January 1, 2020.

This new law includes significant changes to retirement accounts, including:

Age Limit Eliminated for Traditional IRA Contributions

Beginning in 2020, the new law eliminates the age limit for traditional IRA contributions (formerly 70 ½). Now, those who are still working can continue to contribute to a traditional IRA, regardless of their age.

RMD Age Raised to 72

The SECURE Act also raises the age for beginning RMDs to 72 for all retirement accounts subject to RMDs. IRA owners reaching age 70 ½ in 2020 catch a break and will not have to take their first RMD next year now that the RMD deadline has been extended to age 72.

New Exception to the 10% Penalty for Birth or Adoption

The SECURE Act adds a new 10% penalty exception for birth or adoption, but the distribution is still subject to tax. It is limited to $5,000 over a lifetime. The birth or adoption distribution amount can be repaid at any future time (re-contributed back to any retirement account).

IRA Contributions with Fellowship and Stipend Payments

Additionally, the new law allows taxable non-tuition fellowship and stipend payments to be treated as compensation to qualify for an IRA (or Roth IRA) contribution.

Employer Liability Protection for Annuities in Plans

The SECURE Act provides a safe harbor for employer liability protection for offering annuities in an employer plan. This is expected to open the door for more annuity products to be available as investment choices in employer plans.

Good Bye, Stretch IRA

Beginning for deaths after December 31, 2019, the stretch IRA will be replaced with a ten year rule for the vast majority of beneficiaries. The rule will require accounts to be emptied by the end of the tenth year following the year of death. There will be no annual RMDs. Instead, the only RMD on an inherited IRA would be the balance at the end of the 10 years after death. For deaths in 2019 or prior years, the old rules would remain in place.

There are five classes of “eligible designated beneficiaries” who are exempt from the 10-year post-death payout rule and can still stretch RMDs over life expectancy. These include surviving spouses, minor children, disabled individuals, the chronically ill, and beneficiaries not more than ten years younger than the IRA owner.

The new rules will mean a new landscape when it comes to retirement and estate planning.  How will they affect you? You may have some new opportunities to make IRA contributions or be able to access your retirement funds without penalty. You may be able to delay taking RMDs a little bit longer. You will also want to give some serious consideration to how the elimination of the stretch will impact you. Reviewing your beneficiary designation form is a good place to start.

Weekly Market Commentary

December 10th, 2019

Chadd Mason, CEO The Cabana Group

Yet Again, the Market Focuses on What Matters – Interest Rates and Earnings

After a rocky start to last week, U.S. equity markets rebounded and finished higher, led by Friday’s 1% bounce in the S&P 500. The employment number reported on Friday was exceptionally strong and is further evidence that economic growth can continue. This is frankly not surprising in that the stock rally over the past six weeks has been telegraphing the same thing.

High beta risk assets are outperforming, and interest rates appear to have bottomed. We are now right back at all-time highs in the major indices, after a brief pullback on overbought conditions. Dips are being bought at every opportunity and that is a good sign as we close out the year. Commodities, like copper, are also rallying. Copper is up nearly 5% in the last week. Copper is often called “Dr. Copper” because it is a great indication of the world’s economic health. Copper is used throughout the supply chain in manufacturing and transportation. Rising interest rates are ultimately caused by commodity inflation, which is caused by demand outstripping supply. Interest rates having bottomed is also consistent with buying in commodities.

If China can begin to catch up with the developed markets, either as a result of resolving the trade issues with the U.S. or as a result of improving general economic conditions, look for commodities of all types to move higher (along with interest rates).

December is always volatile due to light trading, end of year tax harvesting and window dressing by professional investors as they try to make their portfolios close the year as strong as possible. Even so, it appears we have a good shot of closing at all-time highs across the board. After all the worrying, complaining and talks of imminent recession this year, the market always focuses on what matters – interest rates and earnings. Price aggregates such information and predicts, but it never guesses!

At Cabana we remain moderately bullish.


This material is prepared by Cabana LLC, dba Cabana Asset Management and/or its affiliates (together “Cabana”) for informational purposes only and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed reflect the judgement of the author, are as of the date of its publication and may change as subsequent conditions vary. The information and opinions contained in this material are derived from  proprietary and nonproprietary sources deemed by Cabana to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by Cabana, its officers, employees or agents.

This material may contain ‘forward looking’ information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy. All investment strategies have the potential for profit or loss. All strategies have different degrees of risk. There is no guarantee that any specific investment or strategy will be suitable or profitable for a particular client. The information provided here is neither tax nor legal advice. Investors should speak to their tax professional for specific information regarding their tax situation. Investment involves risk including possible loss of principal.

Cabana LLC, dba Cabana Asset Management (“Cabana”), is an SEC registered investment adviser with offices in Fayetteville, AR and Plano, TX. The firm only transacts business in states where it is properly registered or is exempted from registration requirements. Registration as an investment adviser is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability. Additional information regarding Cabana, including its fees, can be found in Cabana’s Form ADV, Part 2. A copy of which is    available upon request or online at

The Financial Advisor Magazine 2018 Top 50 Fastest-Growing Firms ranking is not indicative of Cabana’s future performance and may not be   representative of actual client experiences. Cabana did not pay a fee to participate in the ranking and survey and is not affiliated with Financial Advisor magazine. RIAs were ranked based on percentage growth in year-end 2017 AUM over year-end 2016 AUM with a minimum AUM of $250 million, assets per client, and growth in percentage assets per client. Visit for more information regarding the ranking.

The Financial Advisor Magazine 2019 Top 50 Fastest-Growing Firms ranking is not indicative of Cabana’s future performance and may not be representative of actual client experiences. Cabana did not pay a fee to participate in the ranking and survey and is not affiliated with Financial Advisor Magazine. Working with a highly-rated advisor also does not ensure that a client or prospective client will experience a higher level of performance. These ratings should not be viewed as an endorsement of the advisor by any client and do not represent any specific client’s evaluation. RIAs were based on number of clients in 2018, percentage growth in total percentage assets under management from year end 2017 to 2018, and growth in percentage growth in assets per client during the same time period.  Visit for more information regarding the ranking.

Cabana claims compliance with the Global Investment Performance Standards (GIPS®). In addition to the firm’s third-party verification, six of Cabana’s core portfolios have been performance examined consistent with GIPS® standards. The Global Investment Performance Standards are a trademark of the CFA Institute. The CFA Institute has not been involved in the preparation or review of this report/advertisement. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm’s policies and procedures are designed to calculate and present performance in compliance with the GIPS® standards. Verification does not ensure the  accuracy of any specific composite presentation unless an independent performance examination has been conducted for a specific time period. Past performance is not indicative of future results. Due to various factors, including changing market conditions, the portfolios may no longer be reflective of current positions.

No client should assume that the future performance of any specific investment or strategy will be profitable or equal to past performance. All investment strategies have the potential for profit or loss. All strategies have different degrees of risk. There is no guarantee that any specific investment or strategy will be suitable or profitable for any investor. Asset allocation and diversification will not necessarily improve an investor’s returns and cannot eliminate the risk of investment losses. While loss tolerance and targeted “drawdown” are identified on the front end for each portfolio, Cabana’s algorithm does not take any one client’s situation into account. It is the responsibility of the advisor to determine what is suitable for the client. An advisor should not simply rely on the name of any portfolio to determine what is suitable. Cabana manages assets on multiple custodial platforms. Performance results for specific investors may vary based upon differences in associated costs and asset availability.


By Ian Berger, JD
IRA Analyst

Just like eating too much pumpkin pie with whipped cream isn’t good for your waistline, being a “top-heavy” retirement plan also may not be healthy.

Sponsors of certain retirement savings plans must have their plan tested each year to determine if it is “top-heavy.” The top-heavy test is designed to make sure that lower-paid employees receive at least a minimum benefit if most plan assets are held for higher-paid employees.

Section 401(k) plans are subject to top-heavy testing, unless the plan uses a “safe harbor” contribution formula. SEP-IRAs are also subject to testing, but most will automatically comply. Section 403(b) and 457 plans and SIMPLE IRAs are exempt from the top-heavy test.

A plan is considered top-heavy for a particular year if the total value of the plan accounts of “key employees” is more than 60% of the total value of all accounts. This calculation is done as of the last day of the previous year (usually December 31).

A key employee is:

  • An officer making over a certain dollar limit ($185,000 for 2020 and $180,000 for 2019);
  • A more-than-5% owner of the company; or
  • A more-than-1%-owner who also earns over $150,000 for the plan year.

Ownership is determined using family aggregation rules.

If a plan is top-heavy, the employer must usually make a contribution of at least 3% of pay for all non-key employee participants still employed on the last day of the plan year. (However, in the unlikely event that the largest contribution of pay percentage – taking into account both employer contributions and elective deferrals – for any key employee is less than 3%, only that smaller contribution percentage needs to be made for non-key employees). The minimum contribution can be subject to a vesting schedule.

Example: Company A sponsors Plan A, a 401(k) plan. As of December 31, 2019, the account balances of the key employees was $200,000, and the total account balances was $300,000. The plan is top-heavy for 2020 because the total value of the plan accounts of key employees as of December 31, 2019 was 66.67 % of the value of all accounts.

For 2020, the largest contribution of pay percentage, taking into account both employer contributions and elective deferrals, for any key employee is more than 3%. Therefore, Company A must make an employer contribution of at least 3% of pay for all participants employed on December 31, 2020 who are non-key employees.

Don’t confuse the top-heavy rules with two other nondiscrimination rules that many 401(k) plans must satisfy each year. The first of those tests, the ADP test, compares the elective deferrals made by high-paid employees to deferrals made by other employees. The second test, the ACP test, compares matching contributions and after-tax contributions for the two groups. Sponsors of 401(k) plans can use a “safe harbor” contribution formula to avoid these tests – as well as the top-heavy test.


By Andy Ives, CFP®, AIF®
IRA Analyst

The Macy’s Thanksgiving Day Parade is a river of sights and colors and sound. A snappy marching band flows to an army of volunteers clutching the ropes of a six-story inflatable SpongeBob, swaying in the wind. Flag bearers and cheerleaders give way to a giant turkey in a Pilgrim hat being towed by a pick-up truck. Singers and dancers stream past and stilt walkers in Nutcracker outfits move with gaping steps. More towering balloons and more trumpets and more characters follow while the crowd oohs and ahs.

Like a parade, each calendar year glides by – a procession of days and months and seasons. Ensnared in the hoopla, our lives march down the road. Thanksgiving allows a moment of pause, a time to reflect on our personal parades and to applaud the participants.

The Ed Slott team is thankful to work with a passionate staff who strive to educate and help. We are thankful to partner with enthusiastic advisors eager to properly steer their clients through the parade route, and we are appreciative of the support and continued interest from the public at large. Eventually we will all return to our individual parades – to RMDs and QCDs and IRAs – and we will cling to the guide ropes of our enormous wind-swept life balloons soon enough.



By Andy Ives, CFP®, AIF®
IRA Analyst

Jenny earns a salary of $1,000,000. She is single and is not an active participant in a company retirement plan. Jenny can contribute $6,000 to a traditional IRA and deduct the full amount on her taxes. Benny, also unmarried, has a modified adjusted gross income of $76,000. He participates in a 401(k) at work. Benny can make a $6,000 contribution to a traditional IRA, but he is not allowed to deduct it. What gives? A person making a million can deduct an IRA contribution, but the person with a MAGI of $76,000 cannot? Is this another example of the rich getting richer?

No, not really. The key factor driving eligibility for a deduction of a traditional IRA contribution is not salary or MAGI, but participation (or lack thereof) in a company retirement plan. When a person or their spouse is an “active participant” in a company retirement plan for any part of the plan year, his ability to deduct an IRA contribution is then contingent upon phase-out ranges. In 2019, these ranges are $64,000 – $74,000 for single or head of household, $103,000 – $123,000 for those married filing joint, and $193,000 – $203,000 for an IRA contributor who is not an active participant but is married to someone who is. (These numbers will increase in 2020 to $65,000 – $75,000, $104,000 – $124,000, and $196,000 – $206,000, respectively.)

But what are the finer details of “active participation”?

Plan Type. Active participation in a 401(k), 403(b), SEP or SIMPLE plan affects deductibility. Profit sharing, stock bonus and Keogh plans also impact deductibility, as do governmental plans established by the U.S. Government (i.e. Federal TSP) or by a state government (including county, parish, city, town, etc.). Note: Section 457 deferred compensation plans do not impact IRA deductibility.

DB vs. DC Plans. Individuals who work for a company that maintains a defined benefit plan are considered “active participants” unless the individual is specifically excluded under the plan’s eligibility provisions. For defined contribution plans [i.e. 401(k), profit sharing, money purchase plans], a person is an active participant if contributions or forfeitures are allocated to his or her account for the year.

SEPs and Discretionary Profit Sharing Plans. A person is an “active participant” when an employer contribution or forfeiture is allocated to his balance. This applies to the year in which the contribution is made.

SIMPLE and 403(b) Plans. One is an “active participant” if he makes salary deferrals.

Even if a person only participated in the above plans for a short period of time, or even if he only contributed a small amount, he is considered an “active participant” for that entire year. Whether or not the participant’s benefits are vested is irrelevant.

Who is not considered an active participant? Individuals who are eligible to make salary deferrals but decline (and do not receive other contributions or forfeitures) are not considered “active participants.” Those covered under social security or railroad retirement, individuals who receive benefits from a prior employer’s plan, and those who only receive earnings in their account are not active participants. As mentioned, those participating in 457(b) deferred compensation plans are not “active participants” nor are members of the Armed Forces Reserve units based on reserve duty, unless serving more than 90 days of active duty during the year (not including training).

Are you an active participant or not? It can be confusing, but there is a “cheat code” to confirm. Generally, active participation in an employer plan is reflected by a check mark in the “Retirement Plan” box on a person’s W-2.


By Sarah Brenner, JD
IRA Analyst

Roth IRAs first arrived over twenty years ago. A lot has changed since 1998. That was the year that Google was founded and an electronic pet called a Furby was one of the most popular Christmas gifts. However, some things haven’t changed so much. Impeachment is once again all over the news and here at the Slott Report we are still being asked many questions about how the five-year rules for Roth IRA distributions work. We probably get more questions on this topic than just about any other.

How the Rules Work

A good deal of the confusion about the Roth IRA distribution five-year rules stems from that fact that there are two separate rules that each work differently.

There is one for penalty-free distributions. It applies only if you are under 59½ years old and only to conversions. This five-year holding period will restart with every conversion you do.

The other five-year rule is used to determine if a Roth distribution of earnings is a qualified distribution and income tax-free. This five-year holding period starts when your first Roth IRA account is established. It does not restart for each Roth IRA contribution or conversion.

Why You Should NOT Care

Are you a little confused? Don’t worry about it. Think of the big picture. It is, of course, always helpful to be educated about the retirement account rules and understand what you are getting into when you take a distribution. However, if you are using your Roth IRA as intended with the goal of putting money away for future retirement, none of these complicated rules should affect you at all. If you keep your Roth IRA intact over the long term and until you reach retirement age, the rules could not be easier. All your distributions are completely tax and penalty-free! Nothing to it!

If you are thinking of converting, but are very concerned about failing to meet the Roth IRA five-year holding periods, this may be a warning sign that maybe a Roth IRA conversion is not for you.  To get the most bang for your buck with a Roth IRA, you need time. You should be in it for the long haul. Not only are the rules less complicated this way, but it is the only way you can really maximize the big tax benefit of the Roth IRA: long term accrual of tax-free earnings.


By Ian Berger, JD
IRA Analyst


I am over 71 and have 2 IRAs, one in my name, the other is inherited.

Can I take one RMD from the inherited IRA to satisfy both?

Or must I treat them separately and do 2 separate RMDs?

Thank you!



Hi Tyler,

You must treat the IRAs separately and take two separate RMDs.

If you own more than one IRA (not inherited), you can aggregate them and take the RMD from any one (or more) of them. The same is true for inherited IRAs that came from the same original IRA owner and are of the same type (e.g., Traditional vs. Roth). But you cannot aggregate IRAs that you own and IRAs that you inherit.



I am hoping that you can help me out with one question or otherwise direct me to another format to solicit the correct answer.

Mr. Smith turns 81 on December 1, 2019. To calculate his current RMD using his 12-31-18 balances, which age factor should be used: 80 or 81?

Thank you,



Hi Mark,

The RMD calculations can be tricky.

To calculate an RMD for a particular year, you always use the factor corresponding to the individual’s age as of December 31 of that year. So, in your example, you would use the age 81 factor for Mr. Smith’s 2019 RMD (which is 17.9 from the Uniform Lifetime Table).


By Sarah Brenner, JD
IRA Analyst

If you are charitably inclined and have an IRA, you might want to consider doing a Qualified Charitable Distribution (QCD) for 2019. The deadline for a 2019 QCD is fast approaching. It is December 31, 2019 and many custodians have even earlier cutoffs. Don’t miss out on this valuable tax break. Here are ten QCD rules you need to know.

1. Must be Age 70 ½

IRA owners who are age 70½ and over are eligible to do a QCD. This is more complicated than it might sound. A QCD is only allowed if the distribution is made on or after the date you actually attain age 70 ½. It is not sufficient that you will turn 70 ½ later in the year.

2. Beneficiaries Can Do QCDs

QCDs are not limited to IRA owners. An IRA beneficiary may also do a QCD. All the same rules apply, including the requirement that the beneficiary must be age 70 ½ or older at the time the QCD is done.

3. Eligible Retirement Accounts

You may take QCDs from your taxable IRAs funds. QCDs are also permitted from SEP and SIMPLE IRAs that are not ongoing. An ongoing SEP and SIMPLE plan is defined as one where an employer contribution is made for the plan year ending with or within the IRA owner’s tax year in which the charitable contributions would be made. QCDs are not available from an employer plan.

4. $100,000 Annual Limit

QCDs are capped at $100,000 per person, per year. For a married couple where each spouse has their own IRA, each spouse can contribute up to $100,000 from their own account.

5. RMD Can Be Satisfied

A QCD can satisfy your required minimum distribution (RMD) for the year. A QCD can exceed the RMD amount for the year as long as it does not exceed the $100,000 annual limit.

6. Only Taxable Amounts

QCDs apply only to taxable amounts. No basis (nondeductible IRA contributions or after-tax rollover funds) can be transferred to charity as a QCD. QCDs are an exception to the pro-rata rule which usually applies to IRA distributions.

7. Direct Transfer is a Must

If you want to do a QCD, you must make a direct IRA transfer from the IRA to the charity. If a check that is payable to a charity is sent to you for delivery to the charity, it will qualify as a direct payment.

8. Charitable Contribution Requirements

A QCD can only be made to a charity which is eligible to receive tax-deductible charitable contributions under IRS rules. The QCD rules are not available for gifts made to grant-making foundations, donor advised funds or charitable gift annuities. The contribution to the charity would have had to be entirely deductible if it were not made from an IRA. A taxpayer does not have to itemize deductions, but the gift to the charity still has to meet all of the deductibility rules.

9. Charitable Substantiation Requirements Apply

You should have documentation to substantiate the donation (something in writing from the charity showing the date and amount of the contribution).

10. Reporting on the Tax Return

The IRA custodian will not be separately reporting the QCD. There is no code or box on the 1099-R to identify the QCD. It will be up to you to let the IRS know about the contribution by including certain information on your tax return.


By Andy Ives, CFP®, AIF®
IRA Analyst

Earlier this month, a tax notification service released information declaring that “North Carolina Governor Roy Cooper signed legislation allowing an income exclusion for distributions from individual retirement accounts (IRAs) to charities by taxpayers age 70½ or older. Beginning with the 2019 tax year, North Carolina conforms to the federal income exclusion from personal income tax for a qualified charitable distribution from an individual retirement plan by a person who has attained the age of 70½.”

Were individuals living in North Carolina ineligible to do QCDs prior to the governor signing this legislation? No – QCDs were certainly allowed in North Carolina. Every IRA owner who is otherwise eligible to do a QCD can do so. What this announcement was referring to is the impact QCDs have on state taxes.

The most significant benefit of a qualified charitable distribution is realized at the federal level where QCDs are not counted toward AGI or taxable income. To report a QCD, you basically subtract from your total IRA distributions the amount you gave to charity and write “QCD” in the margin.

However, each state operates independently and taxes income differently. Not all states conform to federal law with respect to QCDs. Some states require a donor to add back the entire QCD amount and include it as income, thus allowing zero QCD deductions at the state level (i.e., New Jersey, which uses a gross income tax). At the opposite end of the spectrum, some states allow a full charitable deduction, and seven states (Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming) have no personal income tax at all. The remaining states fall somewhere in the middle.

Some states have partial exclusions for retirement income. Others exempt retirement income altogether. Here, a QCD adds no benefit at the state level since any IRA distribution is already exempt from state tax. Pennsylvania is a good illustration. It does not tax any retirement distributions. For those in the Keystone State, there is no state tax on Roth conversions or RMDs.

When determining taxes due, some states begin with the federal adjusted gross income, which means they indirectly allow QCDs. New York State falls into this category. Before the new legislation, North Carolina also started with AGI from the taxpayer’s federal return, but it forced state taxpayers to add back the QCD exclusion. The new law eliminates that adjustment and allows QCDs from the federal return in the Tar Heel State.

The state tax savings on a QCD is only a small percentage of the overall benefit. It is at the federal level where QCDs are most valuable. That’s where the big tax savings reside since federal rates are typically much higher than state tax rates. However, state tax savings can also be beneficial. Regardless of where you live, recognize that state tax rules vary widely. Donors using QCDs should consult a tax advisor to fully understand the impact on their state tax liabilities.


By Sarah Brenner, JD
IRA Analyst


Hello Ed,

I have received differing views on making a 401(k) conversion to a Roth IRA.  I’m a 64 year old retired federal employee and plan to transfer all my funds from the TSP to my traditional IRA.  From there I plan to make annual conversions to my long established Roth IRA.  Is there an issue with the five-year rule that would prevent me from being able to make withdrawals from the Roth during the next few years?  Thanks for your help.



Hi Dan,

Your plan works! You can roll over your TSP to a traditional IRA and make series of conversions to a Roth IRA without worries about taxes and penalties on any Roth distributions. How is this possible? Well, all your converted funds can be accessed tax and penalty free because you are over age 59 ½. There is no five-year holding period to be concerned about. Assuming your “long established” Roth IRA was established by a conversion or contribution more than five years ago, your earnings will also be tax and penalty free. This is because you are over age 59 ½ and your Roth IRA has satisfied the five-year holding period for qualified earnings. This five-year period never restarts.



I’ve read your articles for years.  Thank you for being a great resource to our industry!

I have a couple of questions:

  • You’ve written on the once-a-365-day-year indirect IRA rollover rule.  How is this applied?  Does the 365-day year start on the day that the distribution is paid from the distributing IRA, or on the day the funds are actually redeposited in the receiving rollover IRA?
  • If funds are distributed from an IRA, you have 60 days to indirectly roll them to another IRA to avoid making those funds taxable.  RMDs are based on prior-year-end value of an IRA.  Why couldn’t an IRA owner withdraw the funds in his IRA on December 1, then redeposit them to another IRA on January 15, making the December 31 value = $0, and negate any RMD for that year?


Thank you!



Hi Evan,

Those are both great questions and we get them all the time.

In response to your first question, the 365-day period for purposes of the once-per-year rollover rule starts with the date the distribution from the IRA is received. If that distribution is rolled over, no other distribution from any of that IRA owner’s IRA can be rolled over during that 365-day period. (IRA to plan rollovers and IRA to Roth IRA conversions are exempt from this rule.)

As far as your second question goes, the IRS is one step ahead of you. There is a special rule that requires adjustment of the December 31 balance when calculating RMDs. Any outstanding rollovers or transfers must be added back in to the balance. This prevent IRA owners from withdrawing their entire IRA balance in one year and redepositing it back in the following year to avoid RMDs.


By Ian Berger, JD
IRA Analyst

Many 401(k) plans must pass two annual nondiscrimination tests: the ADP test and the ACP test. The November 11 Slott Report discusses the ADP test. This Slott Report tackles the ACP test and the options available to 401(k) plans that fail one or both tests.

ACP test. While the ADP test takes into account pre-tax deferrals and Roth contributions, the ACP test considers after-tax contributions and employer matching contributions.

First, the plan must calculate a contribution percentage for each employee. Your contribution percentage is the sum of your after-tax contributions and employer matching contributions, divided by your pay for the year. (If you are eligible but don’t make any after-tax contributions and don’t receive any matching contributions, your ACP percentage is 0 %.)

Second, the plan must calculate an average contribution percentage for all of the non-highly compensated employees (NHCEs) and an average for all highly compensated employees (HCEs).

The ACP test works the same way as the ADP test:

  • If the NHCE average is 2% or less, the HCE average can’t exceed twice the NHCE average.
  • If the NHCE average is between 2% and 8%, the HCE average can’t exceed the NHCE average plus 2%.
  • If the NHCE average is more than 8%, the HCE average can’t exceed the NHCE average times 1.25.

Example: Company B has 3 NHCEs and 2 HCEs eligible for its 401(k) plan in 2019. Company B performs the ACP test based on the following data:

Employee           After-tax contributions + Match            Pay            Contribution Percentage

NHCE1                       $       0                                      $50,000                        0%

NHCE2                         6,000                                        60,000                    10.0

NHCE3                         7,200                                        90,000                      8.0

HCE1                            7,500                                      150,000                      5.0

HCE2                          19,000                                      190,000                    10.0

Here, the NHCE average contribution percentage is 6.0% [(0% + 10.0% + 8.0% /3]. Therefore, to pass the ACP test, the HCE average percentage can’t be more than 8.0%. Since the HCE average percentage is 7.5% [(5.0% + 10.0%)/2], the plan passes the ACP test for 2019. The plan must also pass the ADP test for 2019.

Remedies. If the plan fails the ADP or ACP test (or both), the employer must remedy the violation. Available remedies include:

  • Distributing excess contribution to HCEs;
  • Requiring HCEs to limit their deferrals and/or after-tax contributions; or
  • Making special contributions for NHCEs.

Safe harbor contributions.  Performing the ADP and ACP tests each year can be an administrative burden. Meanwhile, the available remedies aren’t ideal because they either prevent HCEs from maximizing deferrals or are too costly (or both). Fortunately, plan sponsors can avoid testing entirely by adopting one of the following “safe harbor” contribution formulas:

  • The company contributes 3% of each employee’s pay, whether or not the employee makes deferrals.
  • The company matches 100% of employee deferrals made up to 3% of pay and matches 50% of deferrals made on the next 2% of pay.
  • The company matches 100% of employee deferrals made up to 4% of pay.

All safe harbor contributions must be immediately 100% vested. This makes those contributions expensive compared to other employer contributions, which can be subject to a vesting schedule.

By Ian Berger, JD
IRA Analyst

If you participate in a 401(k) plan, you probably know about the annual limit on the amount of your deferrals (for 2019, $19,000, or $25,000 if over age 50). But if you are a high-paid employee, another limit may apply.

Welcome to the IRS nondiscrimination rules! These rules are designed to ensure that retirement plans don’t favor “highly compensated employees” (HCEs) at the expense of other employees. In the 401(k) context, the rules limit the amount of deferrals that HCEs can make, depending on the level of deferrals all other employees make. (The nondiscrimination rules don’t apply to solo 401(k) plans.)

HCE’s. You’re an HCE for a particular year if:

  • you, or certain family members, own more than 5% of the plan sponsor during that year or the prior year; or
  • for the prior year, you received pay of more than an indexed dollar limit ($120,000, if the prior year is 2018).  (Your employer may choose to limit HCEs to employees who are also in the top 20% of employees ranked by pay.)

If you’re not an HCE, you’re considered a non-highly compensated employee (NHCE).

ADP test. There are two 401(k) nondiscrimination tests: the ADP test and the ACP test. Both must be passed annually.

For the ADP test, the plan must first calculate a deferral percentage for each employee. Your deferral percentage is the amount of pre-tax and Roth deferrals (but not age 50 catch-up contributions) you make, divided by your pay for the year. (If you are eligible but don’t defer, your deferral percentage is 0 %.)

Then, the plan must calculate an average deferral percentage for all of the NHCEs and an average for all of the HCEs.

The ADP test works this way:

  • If the NHCE average is 2% or less, the HCE average can’t exceed twice the NHCE average.
  • If the NHCE average is between 2% and 8%, the HCE average can’t exceed the NHCE average plus 2%.
  • If the NHCE average is more than 8%, the HCE average can’t exceed the NHCE average times 1.25.

Example: Company A has 4 NHCEs and 2 HCEs eligible for its 401(k) plan in 2019. Company A performs the ADP test based on the following data:
Employee                           Elective deferrals                      Pay              Deferral Percentage

NHCE1                                    $       0                              $40,000                        0%

NHCE2                                      3,000                                60,000                      5.0

NHCE3                                      4,800                                80,000                      6.0

NHCE4                                      9,000                              100,000                      9.0

HCE1                                       14,000                              140,000                     10.0

HCE2                                       19,000                              158,333                     12.0

In this example, the NHCE average deferral percentage is 5.0% [(0% + 5.0% + 6.0% + 9.0%)/4]. Therefore, to pass the ADP test, the HCE average percentage can’t be more than 7.0%. Since the HCE average percentage is 11.0% [(10.0% + 12.0%)/2], the plan fails the ADP test for 2019.

The November 13 Slott Report will discuss the other nondiscrimination test – the ACP test – as well as ways a plan sponsor can remedy an ADP or ACP test failure.


By Andy Ives, CFP®, AIF®
IRA Analyst


Hi Ed,

My question:

Is there any way to do a charitable distribution from my IRA before I reach RMD age? I am recently retired and 65 years old.




Marty – The number-one requirement to be able to do a Qualified Charitable Distribution (QCD) is that the IRA account owner must be 70 ½ years old. We are not talking about the year in which you turn 70 ½, we are talking about actually being 70 ½. In fact, even on inherited IRAs, where the deceased account owner may have already reached 70 ½, it does not change the fact that the current account owner of the inherited IRA must also be 70 ½ before they can do a QCD. Indeed, you could take a taxable withdrawal from your IRA and subsequently donate the funds to charity, but it would not be a “QCD.”



Can I make a QCD from my employer-sponsored plans 403b, 457 and federal thrift plans or only from my IRA plans?

Thanks for your help.


QCDs can only be taken from IRA accounts. QCDs are also not available from active SEP or SIMPLE plans, but are allowed from inactive SEP and SIMPLEs. (The IRS defines an inactive SEP or SIMPLE as one that is not receiving a contribution for the year of the QCD.) If you have access to your workplace dollars, you are permitted to roll over all or a portion of those monies to an IRA and then take the QCD from the IRA. But be careful! If you are looking to offset the work plan RMD with a QCD, it can’t be done. RMDs cannot be rolled over. The plan RMD would need to be taken first. Then, anything above and beyond the plan RMD amount could be rolled over to an IRA where a QCD could then be done.


By Andy Ives, CFP®, AIF®
IRA Analyst

Hypersensitivity to caffeine – this is my affliction. So much so that I limit myself to one energy drink per week. It must be opened before noon and should be nursed for a minimum of 90 minutes. Any violation could result in me trying to paint my house with one hand while simultaneously trimming the hedges with the other. In fact, it was on a business trip several years ago when I first identified my biological caffeine reaction. Energy drinks were relatively new to the market and I consumed “a few.” Without ever going to sleep, I distinctly remember aggressively ironing a shirt in my hotel room at 4:30 AM, wild-eyed, wondering, “What is the big deal with these energy drinks? I don’t feel any effects. Now, what else needs ironing?”

Everything in moderation. ‘Tis the key to a happy and balanced life, they say. This also holds true in the retirement world. Here are a handful of items one must monitor closely and consume with great care:

60-Day Rollovers. We are permitted one 60-day rollover per 365 days. The one-per-year rollover rule applies to IRA-to-IRA and Roth IRA-to-Roth IRA rollovers. Rollovers not subject to the restriction include plan-to-IRA, IRA-to-plan, and Roth conversions. If a person violates the one-per-year rule, they will be stuck with a distribution and will have to deal with any taxes and/or penalties due. Direct transfers are better. Offload the caffeine side effects to the custodian.

Roth Conversions. Some people can drink coffee all day and sleep like a baby. Some people can convert $1,000,000 from a traditional IRA to a Roth in a single year and pay the taxes without blinking. For the rest of us, Roth conversions should be consumed in moderation. Be sure to understand the ramifications of a conversion prior to the transaction, because there is no way to reverse it later. What “stealth” taxes might a conversion create? Would a partial conversion be the way to go? It is not illegal to chug a gallon of Roth conversions in one sitting. However, sipping on conversions over a few years may well be a better choice.

Self-Directed Investments. Can I buy a beachfront condominium in Ft. Lauderdale with my IRA assets? Of course. Can I rent it out over the years and try to turn a profit when I sell it? Absolutely. Can my parents stay at the Ft. Lauderdale condo, even if they pay me rent? Nope. Prohibited transaction. Self-dealing. My entire IRA is now disqualified and deemed distributed. Now imagine if I had a dozen rental properties in my IRA along with an LLC that owned a local business. Without extreme oversight, the chance of me running afoul of the prohibited transaction rules has jumped exponentially. Nibble on IRA self-directed investments.

Peanut M&Ms. What if I bought a 2-pound bag of…oops, wrong article. Moderation here may well be impossible.

401(k) Plan Loans. Some 401(k) plans do not allow loans. Other allow multiple. The maximum amount you can borrow is $50,000 or 50% of your vested account balance, whichever is less. The loan typically must be repaid within five years. If you have two or three outstanding 401(k) loans, and your paycheck keeps getting dinged with automatic deductions to cover the repayments, it becomes a vicious circle fraught with potential defaults. Tread lightly. 401(k) plan loans should not be devoured like Peanut M&Ms.

Avoid being the over-caffeinated person in a hotel room aggressively ironing a shirt in the wee hours. Monitor your intake. Show restraint. Moderation is imperative.


By Sarah Brenner, JD
IRA Analyst

IRAs are for saving for retirement. However, as these accounts have grown over the years, many IRA owners still have significant funds in their IRA at their death. This means that estate planning for IRAs is essential. Effective estate planning for your IRA starts with your beneficiary designation form. Whoever is listed on that form will be considered the beneficiary of your IRA. You must give serious thought to who that should be. The outcomes will be very different depending on your choice.

Name your spouse. This is a very popular option and why not? For many people a spouse is the logical IRA beneficiary and this can be a good move from a tax and estate planning perspective. Spouse IRA beneficiaries have options that nonspouse beneficiaries do not have. A spouse can do a spousal rollover to her own IRA. They may also be able to delay required minimum distributions (RMDs) from an inherited IRA in some cases.

There is no federal requirement that a spouse be named as an IRA beneficiary the way there is for some company plans. However, in community property states you may be required to name your spouse as your IRA beneficiary unless a spousal waiver is obtained.

List your other family. This is another common choice and a good one. By naming a younger family member directly on the beneficiary form, you can maximize the stretch for RMDs after your death. Siblings are also a frequent choice for an IRA beneficiary and if named directly on the beneficiary designation form could take advantage of the stretch.

List a friend or neighbor. There is no requirement that a beneficiary be a blood relative. It is not uncommon to see friends, neighbors, or long-time partners who never happened to marry as IRA beneficiaries. All of these beneficiaries may qualify for the stretch if named on the beneficiary designation form.

Go with a trust. If you have a larger IRA or have concerns about controlling your money after your death, you might want to go with a trust. A trust can be especially valuable in cases where there are young children or those with special needs. If drafted properly to comply with the rules, it is still possible to get a stretch payout to a trust beneficiary when it comes to RMDs. However, trusts are complicated and expensive and should not be named as a beneficiary of an IRA unless there is a really strong reason.

Give to charity. A traditional IRA is a great asset to leave to charity. Why? Most traditional IRA funds are taxable and the charity can avoid those taxes. However, since a Roth IRA is generally not going to be taxable, it is a less favorable option to go to a charity.

Leave it to your estate. This is almost always a bad choice! This is because an estate is not a designated beneficiary under the RMD rules. So, if you name your estate on your beneficiary designation form, the maximum stretch of RMDs will be lost. Many times the estate becomes the beneficiary by default. This is because many IRA documents list the estate as the default beneficiary. If no beneficiary is named or if the only listed beneficiary predeceases the IRA owner, the estate will then become the beneficiary. Don’t let this happen to you. Be sure your beneficiary designation form is complete and up to date.


By Ian Berger, JD
IRA Analyst


I am 72 years old and converting my traditional IRA to a Roth IRA a little at a time each year. Do I need to concern myself with a 5-year rule for earnings if I were to withdraw ALL my Roth IRA at once?

If I do have to address that issue, is there a way to track earnings for newly converted funds?




Hi Marc,

Whether you need to be concerned about the 5-year rule depends on when your first Roth contribution was made or your first conversion was done. The 5-year clock for tax-free Roth earnings starts ticking on January 1 of the year of your first Roth contribution or conversion. (That rule applies even if you made a contribution many years ago and have since emptied and closed your account.) This clock does not restart with each Roth conversion. So, as long as you delay your Roth IRA withdrawals until after the end of the initial 5-year period, earnings will be tax-free.

However, if your Roth 5-year clock just started recently, possibly with your first conversion, you’ll need to wait before the earnings can come out tax-free – even though you are over age 59 ½. IRS Form 8606 is filed with each conversion and will report the taxable amount. If you do need to withdraw your entire Roth IRA before the close of the 5-year window, Form 8606 will show your basis.


Can you clarify eligibility surrounding the annual additions limit contribution, also referred to as the Internal Revenue Code (IRC) 415(c) limit? For 2019, the maximum annual addition limit contribution is $56k.

My questions are two-fold:

1. Is the 415(c) limit applicable only for a solo 401(k)? Or, is it available to an employee who – in addition to their regular elective deferral of salary – makes an additional contribution?

2. If it is available to an employee, then how does one initiate making an annual additions limit contribution?

Thank you,



Hi Don,

1. The 415(c) annual additions limit applies to all 401(k) plans [as well as 403(b) plans] – not just solo 401(k) plans. This limit ($56,000, or $62,000 if you’re age 50 or older) restricts the amount of total contributions that can be made to any plan in any year. Total contributions include elective deferrals (pre-tax and Roth), employer contributions and after-tax employee contributions. The 415(c) limit is different than the elective deferral limit. That limit (for 2019, $19,000, or $25,000 if age 50 or older) restricts the amount of elective deferrals you are allowed to make in any calendar year.

So, if your plan offers after-tax employee contributions, you make those contributions even if you have maxed out on your elective deferrals – as long as the total elective deferrals, after-tax contributions and company contributions doesn’t exceed the $56,000 (or $62,000) limit.

2. A plan is not required to offer after-tax employee contributions. You’ll need to check with the plan administrator to see if your plan does. If your plan doesn’t offer after-tax contributions, the plan could always be amended to allow them. You would elect to make 401(k) after-tax contributions the same way you make elective deferrals.


By Ian Berger, JD
IRA Analyst

If you’re thinking about leaving your job, you may want to inquire about your company retirement plan’s vesting schedule. If you are close to becoming vested in a retirement benefit, it may pay to stick it out until you have enough service to become vested. Otherwise, you may lose out on a valuable benefit.

Being fully vested in your benefit means that you have earned a benefit that cannot be taken away from you. If you are partially vested, you will receive only a portion of your benefit. If you are 0% vested, you will receive no benefit at all. The unvested portion of your benefit will be forfeited in the case of a partially-vested or 0%-vested benefit.

Defined contribution plans.

  • Employee contributions (pre-tax deferrals, Roth contributions and after-tax contributions), and earnings on those contributions, are immediately 100% vested.
  • Employer contributions, and associated earnings, are vested depending on the type of plan. Employer contributions made to SEP and SIMPLE IRA’s are immediately 100% vested. Employer contributions to 401(k) or 403(b) plans (including matching contributions) can be immediately 100% vested or subject to a vesting schedule.
  • If your plan uses a vesting schedule, you will be credited with a year of vesting service under the plan’s rules (generally, if you work at least 1,000 hours in a 12-month period). A vesting schedule can be either “cliff vesting” or “graded vesting,” as follows:


Years of Service                    Cliff Vesting                       Graded Vesting


1                                         0%                                        0%

2                                         0                                          20

3                                      100                                         40

4                                      100                                         60

5                                      100                                         80

6                                      100                                       100

Example: Suppose Anna participates in a 401(k) plan with a graded vesting schedule for employer contributions. She leaves her employer after four years of service and with $15,000 in her elective deferral sub-account and $4,000 in her employer contribution sub-account. She will receive a total distribution of $17,400, which represents her full elective deferral sub-account ($15,000) and 60% of her employer contribution sub-account ($2,400). The unvested portion of her employer contribution sub-account ($1,600) will be forfeited.

Defined benefit plans. Most defined benefit plans use a 5-year cliff vesting schedule under which benefits become 100% vested after five years of service.

Full vesting required. Benefits must become 100% vested, regardless of your years of service, when you reach the plan’s “normal retirement age” (typically age 65) or when the plan terminates. Many plans also provide for 100% vesting if you die or become disabled.

IRAs. Vesting rules don’t apply to IRAs. You are always entitled to receive the full value of your IRA.


By Andy Ives, CFP®, AIF®
IRA Analyst

Buckle your seatbelt and hang on to your hat. This ride could get bumpy. We are about to embark on a conversation that might give some readers vertigo or whiplash or all of the above.

An article I wrote about the two 5-year clocks for Roth IRA conversions and earnings remains a popular education piece (“Roth IRA: 2 Clocks,” May 13, 2019). However, based on a steady stream of questions and continued confusion, I am compelled to expand on the topic. This new article is NOT about the 5-year clock that allows penalty-free distributions from Roth conversions for those under 59 ½. That 5-year clock will restart for each conversion that is done for anyone under 59 ½. Here we discuss something I have begun referring to as… [insert dramatic music here] …the “Roth 5-Year Forever Clock.”

In an extreme example of the 5-Year Forever Clock, James is 43 years old. He opens his very first Roth IRA with a $5,000 contribution. Two years later, when James is 45, the account is worth $6,000 and James is in financial straits. He withdraws the entire $6,000 and closes the account. Since a Roth IRA owner always has access to his Roth contributions tax- and penalty free, the first $5,000 comes out clean with no strings attached. If no eligible exception applies, the $1,000 in earnings are taxable to James and he will owe a 10% penalty of $100.

For the next 15 years James has no open Roth IRA account. However, when he is 60, James decides to start saving again. He opens a new Roth IRA and contributes $7,000 ($6,000 plus $1,000 over-50 catch-up.) At the same time, James converts $100,000 from his pre-tax 401(k) into his Roth IRA and pays the taxes due. (His work plan did not have a designated Roth account option.). James now has $107,000 in his Roth IRA. One year later, when James is 61, the account is worth $120,000. At that point, 61-year-old James withdraws the entire $120,000 from the Roth and closes the account.

Is there a penalty? Are any taxes due? Has James met the holding requirements? Enter the Roth 5-Year Forever Clock.

The full $120,000 is tax- and penalty free to James upon withdrawal. The $7,000 contribution, the $100,000 conversion, and the $13,000 in earnings all come out clean as a whistle. But how is this possible? Wasn’t the current Roth IRA only open for one year? Heck, the original Roth IRA opened way back when James was 43 was only in existence for two years.

James’ withdrawal of the $120,000 is a qualified distribution of earnings because A.) James is over 59 ½, and B.) His Roth IRA 5-Year Forever Clock started 18 years earlier – on January 1 of the year he opened his first Roth IRA when he was 43 years old. It matters not that the account was closed after two years. What matters is that a Roth IRA was originally established more than five years ago.

This is the 5-year Roth clock that deals with the fundamental purpose of opening a Roth IRA – tax-free earnings. The holding period starts when the first Roth IRA account is established via either a contribution or conversion and does NOT re-start for each subsequent Roth IRA contribution or conversion. The holding period begins on January 1 of the tax year for which the first dollar of Roth IRA money is contributed or converted, even if that first contribution was only $1. Once you hit 59 ½ AND after five years, you have met the qualifications. Your Roth IRA is now an open door to tax-free earnings and penalty-free withdrawals.


By Sarah Brenner, JD
IRA Analyst


I have a question about an IRA split between my husband and me. I got half of his retirement IRA and I was wondering if I am responsible for the taxes if I was to withdraw the funds. Also, if I didn’t want all the funds in the account before I opened it, could I tell the custodian to give me a portion and put the rest in? If I could, would I be charged a penalty of 10%?

Thank you


Handling an IRA in a divorce can be complicated. If you are awarded part of you ex-spouse’s IRA, the correct way to proceed is to directly transfer the IRA funds to an IRA in your name. This is a non-taxable transaction. If you then take distributions from this IRA, those distributions will be taxable to you. They will also be subject to the 10% early distribution penalty if you are under age 59 ½.


I just made my SEP contribution for the 2018 tax year. Can I convert these funds? If so, can I do it immediately or is there a waiting period?



Hi Justin,

SEP IRA funds are available for conversion to a Roth IRA. There is no waiting period, so you can go ahead and convert those funds as soon as you want.


By Sarah Brenner, JD
IRA Analyst

Many individuals find themselves stepping away from a job for reasons such as raising children or being a caregiver to aging parents. When this happens retirement savings can take a hit. That does not necessarily need to be case. You may be able to continue to save with an IRA.

If you are married you may be able to make a contribution to your IRA based on your spouse’s taxable compensation for the year. These IRA contributions are called “spousal IRA contributions.” Here are seven things to know about spousal contributions:

  1. You make your IRA contribution using your spouse’s compensation. Your spouse can still contribute to an IRA, too. In fact, if your spouse has $14,000 in taxable compensation for the year, you can both contribute $6,000 to your IRAs for 2019, plus an additional $1,000 each if you are both over the age-50 catch-up limit.
  2. Keep in mind that other IRA contribution rules still apply. You must not be 70 ½ or older in 2019 if you are contributing to a traditional IRA, and you and your spouse must have income below certain limits to make a Roth IRA contribution.
  3. You may make spousal IRA contributions in some years and regular IRA contributions in others. For example, if you have left your job to care for an aging parent you may make a spousal contribution for 2019. If you go back to work next year in 2020 and have taxable compensation, you could then make a regular contribution for 2020. Your 2019 spousal IRA contribution and your 2020 regular IRA contribution may both be made to the same IRA. There is no need to keep regular and spousal contributions in separate IRAs.
  4. You do not have to inform the IRA custodian that you are making a spousal contribution instead of a regular contribution because there is no special reporting required by the IRS.
  5. You are not required to contribute to the same type of IRA as your spouse. For example, you may choose to contribute to a traditional IRA and your spouse may contribute to a Roth IRA. You are also not required to make your contributions at the same time or with the same IRA custodian.
  6. To make a spousal contribution for 2019, you must be legally married on December 31, 2019. If you are divorced or legally separated as of that date, you are not eligible even if you may have been married earlier in the year.
  7. You must also file a joint federal income tax return for 2019.


By Ian Berger, JD
IRA Analyst

Contrary to urban legend, ERISA does not stand for “Every Ridiculous Idea Since Adam.” Instead, it is an acronym for the Employee Retirement Income Security Act of 1974. ERISA is a federal law that regulates employer-sponsored retirement plans and health plans. (ERISA does not cover IRAs because they are not sponsored by an employer.)

For retirement plans, ERISA imposes certain requirements on the sponsoring employer and other plan officials. These requirements include:

  • Filing annual reports with the IRS;
  • Providing certain communications to plan participants, including a plan summary (called a “summary plan description”);
  • Complying with certain standards for eligibility, vesting and plan funding;
  • Managing the plan and investing plan assets solely in the interest of plan participants; and
  • Maintaining a procedure for plan participants to file claims and appeals of denied claims.

When Congress enacted ERISA, it carved out certain plans from coverage. However, many non-ERISA plans must still follow some or all of the ERISA rules (or similar rules) if required under the tax code or state law.

So, which plans are covered?

  • Most private sector retirement plans, including most 401(k) plans and pension plans.
  • Many section 403(b) plans sponsored by private tax-exempt employers.

These plans are not covered:

  • Plans with no employees other than the owner and the owner’s spouse (like a solo 401(k) plan).
  • Section 403(b) plans sponsored by private tax-exempt employers – if the employer does not make contributions to the plan and the employer’s only involvement with the plan is administering employee elective deferrals.
  • Plans sponsored by governmental or church employers. These include the Thrift Savings Plan, which is a 401(k)-type plan for federal government employees and the military. Also not covered are 403(b) plans for public school or church employees and section 457(b) plans.
  • Non-qualified plans.

SEP-IRAs and SIMPLE-IRAs are technically covered by ERISA, but are exempt from most ERISA rules.

If you’re in an ERISA plan, you generally have more protection than if you’re in a non-ERISA plan. This is especially true when it comes to protection against creditors.

Plans covered by ERISA must completely shield plan assets from your creditors – whether or not you have declared bankruptcy. If you’re in a non-ERISA plan, you have unlimited protection if you’ve declared bankruptcy. But if you haven’t declared bankruptcy, your level of protection depends on the law of the state where you live. Some states provide protection comparable to federal law protection, while others provide weaker protection.

ERISA-covered plans must also provide certain protection to spouses of plan participants.



By Andy Ives, CFP®, AIF®
IRA Analyst



I was wondering, will incorrect information on a Beneficiary Designation form cause it to be invalid?  I see forms with a wrong or missing date of birth, or ones listing more than one beneficiary, each assigned 100%.





An error on a beneficiary form could certainly invalidate it. However, it is ultimately up to the custodian to determine if a beneficiary form is acceptable or not as it depends on the magnitude of the error. Of course, the last thing anyone wants to deal with during this time is questions about who the beneficiaries are on an account. Even if the custodian does accept a form with apparent mistakes, there could still be a legal battle if someone felt disinherited. If you see a form with errors, the best course of action is to have a new form completed properly, dated and signed.


Hi Ed,

Following you for a while and read your books. I am 57, married, still working and receive a government pension. My Federal adjusted gross income last year was over $200k. Is it too late to move IRA to a Roth based on phaseout? Do I have any options? I plan to work another 10 years.

Thank you for taking my question.




As for direct contributions to a Roth, you are near the top of the 2019 phase-out limit of $193,000 – $203,000 for those married filing joint. Even though you are only 57 and are still working, a Roth IRA contribution is probably off the table.

However, it sounds like you are asking about converting from a traditional IRA to a Roth. It does not matter how old you are, how much money you make, what your AGI is, if you participate in a workplace plan or if you are even working or not. Anyone with a traditional IRA can convert all or a portion of their IRA to a Roth. But remember, converted dollars are treated as ordinary income. With an AGI of over $200,000, you still have some room within the 24% tax bracket assuming you file joint with your spouse. Before jumping into a Roth conversion, be sure to discuss the ramifications with your tax advisor.


By Andy Ives, CFP®, AIF®
IRA Analyst

My wife teaches elementary school kids. Been at it for years. Long enough to have former students visit her classroom as adults. She was put on this Earth to teach. Tough job, though. Even at this early age, and oftentimes through no fault of their own, students headed down a rugged path to a hard life are already identifiable. Broken families, financial problems, emotional and developmental issues, learning difficulties. Kids desperate for help. A good teacher will push and pull and inspire and challenge and guide every student to the finish line.

In my mind, a child’s education is a large wooden crate, constantly being filled with knowledge and experiences. This box needs to be carried from kindergarten through college, but no child can carry their box alone. Teachers lean in and assist. The box may rake and scratch across the floor, but it will move. Additional helping hands are needed. Parents. Siblings. Guardians. Friends. All are vital as “it takes a village” to carry a child’s education box.

I work at the other end of life’s spectrum. The elementary school student has become a retiree and now has a different box to carry, a new box to fill, and the ultimate finish line is in sight. A person can certainly try to “go it alone,” but the retirement box is unwieldy. There are splinters and nails to avoid. Enlisting help is recommended. Financial advisors help carry the retirement box. Tax advisors help carry the box. Planners help, and the Ed Slott team helps carry the box.

For example, an advisor called recently to discuss his 85-year-old client. He had unsold real estate in a self-directed IRA and little cash in another. RMD liquidity worries kept him up at night. His dear wife had just passed. What are his options? The advisor and I talked it through. Did his client’s wife have an IRA of her own? A spousal rollover can create liquidity, and he can aggregate RMDs. However, he was still saddled with the undesirable property sitting unsold for a decade.

Can’t buy the property himself with non-qualified money. That would be a prohibited transaction as he, the IRA owner, is a disqualified person. Can’t sell it to his son. That would also be a prohibited transaction as his son, a lineal descendent, is a disqualified person. Can’t withdraw the property in-kind and roll over “replacement cash” to avoid the tax hit. The “same-property rule” stipulates the same property withdrawn is the same property that must be rolled over. Cash moves as cash. Stock as stock. Unsold building as unsold building.

He could apply for an “Individual Prohibited Transaction Exemption” through the Department of Labor, but this is a relatively involved process and probably not worth the time and effort based on the value of the asset.

The 85-year-old is surrounded by good people helping to carry his retirement box. A strategy is formulated. The advisor will recommend withdrawing the property in-kind next year. This will easily satisfy his client’s RMD. Future IRA RMD liquidity concerns are now off the table. Despite the large withdrawal, the tax planner will ensure he remains in his normal bracket, and the estate planner will make certain the property is transferred to next of kin if still unsold post-death.

We all have a finish line, and life is heavy. Be a good teacher. Lend a hand. Move the needle. Push the rock. Help carry the box.


By Sarah Brenner, JD
IRA Analyst

There are always questions that come up as to the correct way to handle the required minimum distribution (RMD) for the year of death of the IRA owner. Here are three things you need to know about the year of death RMD.

1. The RMD for the year of death will only need to be taken if the IRA owner died after his required beginning date. The required beginning date for IRAs is April 1 of the year following the year the IRA owner reaches age 70 ½. If the IRA owner dies before this date, there is no RMD required for the year of death. This is true even if the IRA owner is already age 70 ½ and even though he has already taken part of the RMD.

Example: Jack celebrates his 70th birthday in January of 2019. He reaches age 70 1/2 in July 2019. He takes half of his 2019 RMD.  He dies in December 2019. No further RMD distributions need to be taken after Jack’s death because he died before his required beginning date (April 1, 2020).

2. The RMD for the year of death will be calculated as if the IRA owner had lived. If the IRA owner dies after her required beginning date, the year of death RMD must be taken. It will be calculated as if the IRA owner was still alive. In most cases, this means it will be calculated using the Uniform Lifetime Table. In the years that follow the year of death, the beneficiary will then use the Single Life Expectancy Table.

Example: Audrey, age 75, dies in 2019. The year of death RMD that must be taken from her IRA will be calculated using the factor that corresponds to age 75 on the Uniform Lifetime Table (22.9).

3. The beneficiary must take the year of death RMD. This is an area of great confusion! 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.

Example: Carl, age 85, dies in 2019 without taking his 2019 RMD. His son, Jaden, is his beneficiary. Jaden, as the beneficiary of Carl’s IRA, must take the 2019 RMD that Carl did not take prior to his death. The RMD should not be paid to Carl’s estate.


By Ian Berger, JD
IRA Analyst


I turn 70 ½ this year and my last day of work was September 30, 2019.  Am I required to take an RMD from my work profit sharing 401(k) plan by April of 2020 and, if so, is the RMD calculated on the 12/31/18 account balance?  My employer will roll my profit sharing 401(k) into my IRA on January 2, 2020.

Thank you for your help.


This is a question that trips up a lot of people.

Since you are separating from service and turning age 70 ½ in 2019, you must take your first RMD for 2019. That RMD is based on your December 31, 2018 account balance. Since this is your first RMD, it can normally be delayed until April 1, 2020. Even if you delay your first RMD until 2020, you also must take an RMD for 2020 based on your December 31, 2019 balance. So, if you delay your 2019 RMD until 2020, you will have two taxable RMDs to take during calendar year 2020.

You mentioned that a rollover will occur in early January 2020. Be careful! As mentioned, you could normally delay the 2019 RMD until April 1, 2020, and the 2020 RMD would normally not be due until December 31, 2020. However, since you are rolling over your 401(k) funds in January 2020, you must first take both your 2019 RMD (if you haven’t already taken it) and your 2020 RMD before doing the rollover. RMDs are not eligible to be rolled over. Once you take the RMDs, you can roll over the remaining funds tax-free.



My husband and I are hearing conflicting stories about whether he will be able to withdraw from his retirement plan without penalty when he turns 50 this August. After reading your article we are still confused.  He retired after 30 years of service at age 48.

Can you please clarify this for us?

Thank you for your time!



Hi Dana,

Unfortunately, if no other exception applies, your husband would be subject to the 10% early distribution penalty if he takes a distribution at age 50.

There is an exception to the 10% penalty for employees who receive a company plan distribution after separating from service in the year they turn age 55 or later. For local, state and federal public safety workers, the exception applies for employees who receive a company plan distribution after separating from service in the year they turn age 50 or later.

If your husband was a governmental public safety employee, the age 50 exception doesn’t apply because he retired before the year he turned age 50. If that is the case, it won’t matter if he waits until age 50 to take his distribution.

If your husband wasn’t a governmental public safety employee, the age 55 exception doesn’t apply either since he retired before the year he turned age 55.


By Andy Ives, CFP®, AIF®
IRA Analyst



ret·​ro·​ac·​tive | extending in scope or effect to a prior time or to conditions that existed or originated in the past; especially: made effective as of a date prior to enactment, promulgation, or imposition.

I like that word, and it’s fun to say. Retro-active. Plus, it is powerful. Making something retroactive gives one the ability to reach back in time and change things for better or worse. “Retroactive to January 1 of this year, all employees earned a weekly $100 bonus.” Or, “Retroactive to last Monday, the speed limit on Main Street is reduced to 25 mph from 35 mph. Any driver who exceeded 35 mph from then forward will receive a speeding ticket in the mail.”

“Retroactive” is a superpower that occasionally rears its head in the retirement world and can turn back the hands of time:

Spousal Rollovers and RMDs

Clark died in November and left his IRA to his loving wife Ellen. Ellen, age 75, elected to do a spousal rollover with Clark’s IRA money, and the transaction was finalized the following March. When a spousal rollover is completed, the decedent’s IRA is moved into the surviving spouse’s IRA, and the assets are treated as if they belonged to the surviving spouse all along. But now Ellen needs to calculate her RMD for this year. Clark’s IRA did not roll into Ellen’s until March, so her December 31 prior-year balance will not reflect the spousal rollover. What to do? The spousal rollover is deemed to have been done retroactively so as to include Clark’s balance in Ellen’s IRA for RMD calculation purposes.

72(t) Payments

John started a 72(t) substantially equal periodic payment plan from his IRA when he was 57. Rules dictate the plan must run for five years or until John is 59 ½, whichever is later. John is now 60 and decides to stray from the schedule by withdrawing more than required. Any deviation or modification of the 72(t) will trigger a retroactive penalty whereby all distributions prior to age 59 ½ will now be subject to the 10% early distribution penalty.

Revocation-on-Divorce Statutes

The Sveen v. Melin and Blalock v. Sutphin court cases both involved revocation-on-divorce statutes in their respective states of Minnesota and Alabama. These statutes essentially remove an ex-spouse as beneficiary of an account after divorce, even if the beneficiary form has not been updated. While both the Minnesota and Alabama statutes were passed after the accounts in question were opened, the Courts ruled that retroactive application of the laws would not impair any pre-existing contracts.

Prohibited IRA Transactions

Prohibited IRA transactions are nothing to trifle with. They are the granddaddy of IRA errors. If you engage in a prohibited transaction, the entire IRA is disqualified retroactive to the first day of the year and is treated as being fully distributed on January 1. Not only is the distribution likely to be fully taxable, but it can be further subjected to the 10% premature withdrawal penalty.

“Retroactive.” There should be a Marvel comic book hero or villain with that name.


By Sarah Brenner, JD
IRA Analyst


I attended the two-day event in Washington DC.

Is there any news on the attempts in Congress to change the stretch-out?



Hi Jim,

It sounds like you are asking about the status of the Setting Every Community Up For Retirement Enhancement Act of 2019 (SECURE Act). This proposed legislation would do away with the stretch IRA for most beneficiaries and replace it with a ten-year payout period.

The SECURE Act overwhelmingly passed the House this spring. It is currently being held up in the Senate. There were some reports that it would be passed by the Senate last month, but that turned out not to be the case.

We are watching this bill carefully to see if Senators can all come to agreement on it or if it will be brought to the Senate floor. Currently, the holding pattern continues, but there are some who believe action could be taken later this year. Stay tuned.



I’m an advisor with a newsletter subscription and I had a question.  I have a client who was a beneficiary on her father’s IRA with another custodian and she received a portion of his IRA (it’s possible it was in a company plan before it was moved into an IRA) and we submitted paperwork to transfer the account to a beneficiary here at Ameriprise.  The custodian produced a 1099-R. She received a letter from the IRS in July and sent them information to show the transfer, but the IRS sent her another letter last week saying she owes tax on the distribution.  Just curious if you had any insight on this type of situation?

Thank you.



Hi Mike,

When IRA funds are moved from one custodian to another, there can often be confusion. Your client was a nonspouse beneficiary because she inherited an IRA from her father. As a nonspouse beneficiary, she cannot have the funds distributed to her from the inherited IRA and then do a 60-day rollover. If she took a distribution payable to her, that is the end of the road. It is taxable and not available for rollover.

While nonspouse beneficiaries cannot roll over funds from an inherited IRA, they are permitted to do direct trustee-to-trustee transfers to another inherited IRA. If this was what happened here, the custodian should not have issued Form 1099-R. The IRS is seeing this form and seeing a taxable distribution. If this was really a direct transfer to another inherited IRA, the custodian issued the Form 1099-R in error and should correct the reporting.


By Sarah Brenner, JD
IRA Analyst

October is upon us. This means fall is in full swing. Along with football, pumpkin-spice everything and stocking up on candy for trick-or-treat come four important October 15 deadlines you will not want to miss!

1. Did you contribute too much to your traditional or Roth IRA for 2018? Maybe you were 70 ½ or over in 2018 and made a contribution to a traditional IRA. Or, maybe your income ended up being higher than you expected and it turned out you were ineligible for the Roth IRA contribution you made. If you made an excess contribution to your traditional or Roth IRA for 2018, you will want to fix that mistake by withdrawing the contribution, plus net income or loss attributable. Your deadline for getting this done and avoiding the 6% excess contribution penalty is October 15, 2019.

2. While Tax Reform did away with recharacterization of Roth IRA conversions, recharacterization of tax year contributions remains an option. Have you changed your mind about which type of IRA to which you wanted to make your 2018 contribution? Maybe you contributed to a Roth and now you think a traditional IRA is a better fit, or vice versa. October 15, 2019 is your last chance to recharacterize that contribution to the other type of IRA.

3. While your income does not affect your ability to make a traditional IRA contribution, it may affect your ability to deduct it if you, or your spouse, are a participant in an employer plan. If you later discovered that your 2018 traditional IRA contribution was not deductible, October 15, 2019 is the deadline to correct this problem. If you miss the deadline, the contribution must remain in the IRA as a nondeductible IRA contribution.

4. Employers who are interested in establishing and funding a SEP IRA for 2018 may have a little more time to get this done. The deadline for making a SEP contribution is the business’s tax-filing deadline, including extensions. For some businesses that date is October 15, 2019.


By Ian Berger, JD
IRA Analyst

Knowing your limits is important when you’re sitting in a bar and realize that you have to drive home. It’s also important to know the dollar limits that apply when you participate in more than one company retirement savings plan or you change jobs during the year.

Deferral limit. There are actually two limits at play. One is a limit on the amount of elective deferrals you are allowed to make in any calendar year. With one exception, the deferral limit is based on the total deferrals to all of your plans. So, this limit is usually a per person limit. The limit is indexed periodically and for 2019 is generally $19,000, or $25,000 if you’re age 50 or older as of the end of the calendar year.

Example: Amy, 42 years old, participates in Company A’s 401(k) plan and makes $12,000 in 401(k) deferrals before quitting in August to work for Company B. The most she can contribute to Company B’s 401(k) plan for the remainder of 2019 is $7,000.

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

Exceeding the deferral limit can be double trouble – 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, you should monitor your deferrals closely and contact your plan administrator ASAP to have any excess amounts, plus earnings, distributed to you. That must happen by the following April 15 to avoid double taxation.

Annual additions limit.  The second limit is the “annual additions” limit. This regulates the amount of total “annual additions” (elective deferrals, employer contributions and forfeitures) that can be contributed to any plan in any year. The annual additions limit applies to contributions made to all plans maintained by one company or by two or more companies considered related under the tax rules. But if you are in two plans sponsored by unrelated companies, a separate limit applies to each plan. This limit is also indexed and for 2019 is $56,000, or $62,000 if you’re age 50 or older.

Example: Ron, age 63, participates in two workplace plans (Plan A and Plan B) sponsored by two related companies. In 2019, he makes $25,000 of 401(k) deferrals to Plan A and receives a $9,000 matching contribution. If an employer contribution is made to Plan B participants for 2019, the contribution made to Ron would be limited to $28,000 ($62,000 -$34,000).

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


By Andy Ives, CFP®, AIF®
IRA Analyst


I am still working at age 71 and don’t really need the required minimum distributions (RMDs) from my rollover IRA. The IRA was funded largely with distributions from a tax-qualified pension plan and a tax-qualified 401(k) plan. Some deductible contributions were made many years ago as well. I would like to transfer some of the IRA into my current employer’s 401(k) so as to reduce RMDs until I terminate my employment with my current employer.  I am not a 5% owner of the company, so I don’t currently have to take RMDs from the 401(k). Does the fact that the IRA has “commingled money” in it (although it’s all taxable–no basis in the account) preclude the plan sponsor from accepting a trustee to trustee transfer? I realize the Plan does not have to accept the transfer, but would it be permissible if the sponsor approved? Thanks.




The fact that your IRA is an amalgam of rollover dollars and contributions does not preclude it from being rolled over or transferred into your current employer plan. There used to be rules forbidding “commingled” IRA funds from being rolled over to a plan, but those rules are long gone.

When rolling over funds from an IRA to a 401(k) to minimize your RMD, there are a few items to consider, including: Does your current employer plan accept rollovers? Does your current employer plan have the still-working exception? Do you have basis (after-tax money) in your IRA?

Only pre-tax dollars can be rolled into a 401(k). If your current plan accepts rollovers and has the still-working exception (neither are required), you will be able to delay RMDs on your plan money until April 1 of the year after you retire. You will also be able to minimize the RMD on any dollars left behind in the IRA. Regardless of how the funds move, just be sure to take your IRA RMD prior to rolling or transferring any money into the plan.


If a person is still working and contributing to a 403b, are they still required to take an RMD? Seem to be getting conflicting answers. Thank you.




While the still-working exception does apply to 403(b) plans, it is not a required plan design feature. Just like not every plan allows loans or has a designated Roth account, not every plan will have a still-working exception. That is probably why you have been receiving conflicting answers. The best way to resolve the situation is to ask the sponsor of the 403(b) if it has the still working exception. If it does, then a person who is still working can delay their plan RMD until April 1 of the year after the year they retire. Be aware, the still working exception only applies to the plan where the person is currently employed, and the exception does not apply to IRAs.


By Andy Ives, CFP®, AIF®
IRA Analyst

My son is 14. I make every effort to expose him to a wide array of cultural elements. A variety of music. Plays. History. Food. Movies from the 80’s and 90’s are a significant slice of the “Understanding Social References” pie chart. Ferris Bueller’s Day Off, Breakfast Club, Shawshank Redemption, Terminator, Sixteen Candles. Currently queued up on the DVR is Top Gun. Goose and Maverick pushing the limits in their F-14 Tomcat fighter jet. Iceman. Jester. “Never leave your wingman.” Kenny Loggins singing “Highway to the Danger Zone.”

If a person wants to recklessly fly through the jet wash of the 60-day rollover window and use their IRA funds for some risky pursuit, they better stick close to their advisor wingman. Peril lurks. Engines could flameout. Taxes and early withdrawal penalties may apply. Proper advice, guidance and support is paramount. Timing is everything. There is no ejector seat or parachute to save a botched rollover. A steady stream of private letter rulings (PLRs) indicate that the public continues to dance with danger when it comes to IRA rollovers.

PLR 201548026. A man going through a divorce was sure his soon-to-be ex-wife was about to file legal action against him and take his IRA funds. In an effort to hide his retirement dollars, he took a distribution from his IRA, but forgot to deposit the money back into the IRA before the 60-day rollover window expired. No IRS relief. Crash and burn.

PLR 201332016. Money is withdrawn from an IRA. The sale of a home is imminent. Cash from the sale will be used to replace the withdrawn IRA assets before the 60-day rollover window closes. Danger! Warning lights flashing! The house doesn’t sell quick enough. Window closed. Engine flame out! Taxes due on the withdrawal. No ejector seat.

PLR 201506016. A gentleman surrounds himself with a team of financial and real estate “experts.” He withdraws cash from his IRA with the intent on buying an investment property and redepositing the asset into his IRA. Bad advice. Not only would this transaction have been disallowed, but the team forgets to put the property back into the IRA before the 60-day window expires. Jet wash! Plane goes into a flat spin! Taxes due, and assets no longer qualified.

But not all risky rollovers end in disaster. You can fly below the hard deck or inverted over a MiG-28 and live to tell about it. In a fabricated example – Snake Eye Susie withdraws $10,000 from her IRA to cover the buy-in at the World Series of Poker Tournament in Vegas. She wins $50,000 and rolls the original $10,000 back into her IRA before the 60-day window closes. Snake Eye flies her jet into the sunset, two swirls of exhaust spiraling behind.

Churn-n-Burn Charlie withdraws $100,000 from his IRA and deposits the cash into his non-qualified brokerage account. He uses the money to increase his margin rate and subsequently buys as much stock as possible based on a tip from his uncle Pump-n-Dump Pauly. After a month, with his stock worth $1,000,000, Charlie sells out, and rolls $100,000 back into his IRA. He will account for the $900,000 profit in his non-qualified brokerage account during tax season. Charlie buzzes the IRS’s ivory tower with a flyby.

If you feel the need for speed and want to play chicken with your retirement dollars, that is on you. Be forewarned. The IRS has no mercy if you miss the 60-day rollover window without cause. They will rain down taxes and penalties. In addition, a person is allowed only one IRA-to-IRA rollover per 365 days, so don’t make a habit of it. As mentioned, proper guidance from a competent and experienced financial advisor is vital.

The 60-day rollover: highway to the danger zone. Do not leave your wingman!


By Sarah Brenner, JD
IRA Analyst

Retirement accounts are supposed to be for saving for retirement. If you tap your retirement savings before reaching age 59 ½, you run the risk of being hit with the 10% early distribution penalty. However, there are exceptions to this penalty. Some apply just to IRAs and some apply just to employer plans. However, the following six exceptions apply to BOTH distributions from IRAs and employer plans.

1. Death

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

2. Disability

If a distribution is taken from a retirement account, the 10% penalty will not apply if you are disabled. The standard for disability for this purpose is a strict one and it is difficult to meet. You must be unable to engage in any gainful activity because of a physical or mental condition. The condition must be expected to last a long and indefinite period of time or be expected to result in death. In other words, the disability must be total and permanent. The disability must be present at the time the distribution is taken. You should proceed with caution because the standard for proving disability is so high. Consider using other non-retirement assets to fund needs first. Also, be sure that you have documentation from medical professionals to back up the claim of disability.

3. 72(t) Payments

You may set up a series of payments from a retirement account and avoid the early distribution penalty. These payments are sometimes called 72(t) or substantially equal periodic payments. These payments are only available from an employer plan after separation from service. To qualify, the payments must be calculated in a very specific way and must be taken at least annually. If there is a modification of the payments before the client reaches age 59 ½ or before five year have passed, the client will be hit with the 10% penalty (plus interest) on all distributions already taken prior to age 59 ½ under the payment plan. Possible modifications include taking an extra distribution or not taking enough. Any change to the balance, other than gains or losses, may be a modification as well. Because the rules are strict and the penalties are severe, you will want to be sure that you are committed to this method of payments and willing to comply with all rules for what may be a long period of time.

4. Reservist Distributions

If you serve in the military reserves, there is an exception to the early distribution penalty that may be helpful. A reservist who is called to active duty for more than 179 days or for an indefinite period of time may take penalty-free distributions from their retirement account.  The distribution must be made no earlier than the date the reservist was called to active duty and no later than the end of the active duty period.

5. Deductible Medical Expenses

Distributions are not subject to the 10% penalty if the distribution does not exceed your deductible medical expenses for the year. This is the case even if you don’t itemize deductions. The distribution must occur during the same year in which you pay the expense. Generally, medical expenses must exceed 10% of your adjusted gross income. Good record keeping is a must.

6. Tax Levies

Funds paid due to a tax levy by the IRS are not subject to the early distribution penalty. This only applies when the retirement account is actually levied by the IRS. The exception would not apply if you take an early distribution to pay taxes owed but there is no levy.



By Ian Berger, JD
IRA Analyst


Here is the situation. The mother is deceased and the father is in jail. He has two minor kids that need the money out of his traditional IRA. Could all of the money be taken out and considered a hardship distribution to avoid the 10% penalty on the entire account?


Unfortunately, no. There is no such thing as a “hardship distribution” with IRA accounts.

A 10% early withdrawal penalty generally applies to IRA withdrawals taken before age 59 ½. But the tax code includes several exceptions to the 10% penalty for withdrawals taken for certain specific reasons. For example, taking a withdrawal to cover the costs of higher education expenses, first time home buying, and health insurance if you are unemployed all qualify for the penalty exception.

However, there is no exception to the 10% penalty for general hardship withdrawals. So, if the father is under age 59 ½, IRA withdrawals are subject to tax and the 10% early withdrawal penalty.


I have a client who is age 43. He started to make Roth IRA contributions in 2015, but he has put in more than he was supposed to. Is there any product he can move it to without penalty? He has about $38,000 in his account.



Hi Judi,

There is no product that excess IRA contributions can be moved to. Excess contributions are subject to penalty unless they are removed by October 15 of the year after the year the excess contribution was made. Excess contributions can be fixed by withdrawing the excess amount plus “net income attributable” (NIA). NIA is the amount of gain or loss, from date of contribution to date of withdrawal, which is attributable to the excess contribution.

If an excess contribution, plus NIA, is not withdrawn by the following October 15, there is a 6% annual penalty for each year the excess contribution remains in the account.

If your client made an excess contribution for 2018, he should immediately ask the IRA custodian to calculate the NIA. If the 2018 excess contribution, plus NIA, can be withdrawn by October 15, 2019, he would avoid the 6% penalty for that contribution.

If your client made an excess contribution for 2019, he has until October 15, 2020 to withdraw the excess contribution, plus NIA, without penalty.

Any excess contribution withdrawn by the applicable October 15 deadline is not taxable income, but the NIA is taxable income (for the year of the excess contribution) and would be subject to the 10% early distribution penalty (since your client is under age 59 ½). Withdrawn amounts are not eligible for rollover.

Your client should immediately withdraw excess contributions made in years prior to 2018 to stop the 6% annual penalty. (There is no requirement to withdraw NIA associated with those pre-2018 contributions.)  Withdrawn excess contributions for earlier years are also subject to tax and the 10% early distribution penalty, and they may not be rolled over.

Finally, your client must file IRS Form 5329 to pay the 6% annual penalty. Form 5329 can be filed with your client’s tax return or it can be filed separately.


By Ian Berger, JD
IRA Analyst

Like cassette tapes and slide rules, defined benefit (DB) plans are becoming relics of the past. It’s estimated that 88% of private sector employees with a company plan in 1975 were covered by a DB plan. Today, that number is less than 20%.

One reason is the advent of 401(k) plans and other defined contribution plans. Another reason is the decline of the unionized workforce, since DB plans have traditionally been collectively-bargained. Most importantly, DB plans have become increasingly expensive. Congress has tightened the plan funding rules, which has led to higher employer contribution requirements. Also, plan sponsors must employ an actuary and pay premiums to the Pension Benefit Guaranty Corporation (PBGC), a quasi-governmental agency that insures DB plan benefits up to a certain level.

But many companies still sponsor DB plans. Here is a primer on how they work:

DB plan participants receive a benefit based on the plan’s formula. A typical DB plan formula consists of:

  • A multiplier, which can be any percentage that the plan sponsor wants to use.
  • The average of highest consecutive annual salary over a certain period of employment.
  • Years of service with the plan sponsor.

Example:  Let’s assume your DB plan provides an annual benefit of 1.0% x average three-year highest consecutive salary x years of service. Let’s say your highest three consecutive years of salary are $95,000, $100,000 and $105,000, and you retire with 25 years of service. Your annual benefit would be 1.0% x $100,000 x 25, or $25,000.

Most DB plans do not allow (or require) employee contributions. The benefit is typically fully funded by the plan sponsor.

The benefit determined under the plan formula is expressed as a periodic payment in the plan’s “normal form.” For ERISA-covered DB plans, the normal form for married participants is an annuity that pays a benefit over the participant’s lifetime and, if the spouse outlives the participant, pays the spouse 50% of that benefit over the spouse’s lifetime. For single participants, it is an annuity over the participant’s lifetime only. DB plans typically offer other forms of annuity payments, but most do not offer lump sum distributions. This means that most DB plan distributions cannot be rolled over.

DB benefits are payable when a participant reaches the plan’s normal retirement age (NRA). NRA is typically age 65. Most DB plans also pay a reduced benefit for participants who leave employment before NRA, as long as the termination date is after the plan’s “early retirement date” (e.g., after age 55 with at least five years of service). Participants who leave before their early retirement date can receive a deferred benefit if they are vested. DB plans cannot allow in-service distributions, hardship withdrawals or loans.


By Andy Ives, CFP®, AIF®
IRA Analyst

People stumble over themselves all the time. Bad advice is provided, misinformation gets freely disseminated, and sometimes normally smart individuals do less-than-smart things. Stories of good folks fouling up their required minimum distribution are rife. After all, the RMD rules contain a veritable minefield of traps and potential tripping hazards. Based on nothing more than personal experience, anecdotal evidence and conversations with industry insiders, here is a Top 10 list of RMD Goofs, Gaffes and Blunders:

10. Rolling over an RMD. RMDs are not eligible to be rolled over. This happens most frequently when company plan assets are rolled over to an IRA. If the RMD is not taken first, you now have an excess contribution in the IRA that needs to be corrected.

9. Spouses combining RMDs. One spouse cannot take an RMD for another spouse even if they file a joint tax return and report the correct overall RMD income. There is no such thing as a “joint IRA.”

8. Not taking liquidity into account for RMDs. You say you only have an LLC and tangible real estate in your self-directed IRA? The IRS does not care. Better sell something off to generate the liquidity necessary to meet your RMD requirements.

7. Taking credit for withdrawing an excess in a previous year. Not allowed. Just because you took double your RMD last year does not get you off the RMD hook for this year.

6. Thinking the still-working exception applies to IRAs. It emphatically does not, nor does it apply to plans at companies at which you no longer work. It also does not apply if you own more than 5% of your company (counting family ownership).

5. Making traditional IRA contributions after RMDs have begun. Once you reach the year in which you turn 70 ½, traditional IRA contributions must stop. (However, you can contribute to a Roth IRA if you have earned income. Roth IRAs have no age restrictions, only income restrictions.)

4. Thinking your annual QCD is limited by the RMD amount. Not true. You can offset your entire RMD (assuming it is not more than $100,000) with a QCD and earmark additional IRA dollars for a QCD up to $100,000 annually. (You can always take more than the RMD, but not less.)

3. Not understanding the RMD aggregation rules. Yes, similarly titled IRAs can be aggregated for RMD purposes. However, you cannot satisfy an RMD from one type of retirement account by withdrawing from a different type of retirement account [for example, IRA vs. 401(k)].

2. Not taking an RMD at all. Missing an RMD is a significant mistake and will result is a 50% penalty on any part of the RMD not withdrawn. But not knowing you can have the 50% penalty waived is almost just as egregious.

And the #1 most popular RMD goof, gaffe and blunder…

1. RMD calculation errors. Using the wrong balance, wrong life expectancy and/or wrong age can be disastrous. Use the December 31 balance of the year before the distribution year. Also, remember that the life expectancy numbers are factors, not percentages. Finally, seek professional guidance when trying to figure out whether to use age 70 or 71 for the first RMD. Understanding the required beginning date is admittedly confusing, but will straighten itself out in future years.


By Sarah Brenner, JD
IRA Analyst



I’ve been a follower of Ed’s expertise for over 10 years. The information has always been helpful and clearly explained.

At this time, I’m looking to help a client minimize her taxes. She recently inherited an IRA from her father. She has taken the “Stretch IRA” option and is now receiving her required distributions.

Can she utilize a Qualified Charitable Distribution to her church (verified 501c3) to reduce her tax liability and still maintain the stretch IRA?


Yes. Qualified Charitable Distributions (QCDs) are available to beneficiaries. A beneficiary can satisfy her required minimum distribution (RMD) by doing a QCD from an inherited IRA. However, the rules for QCDs that apply to IRA owners also apply to beneficiaries. This includes the rule that the beneficiary must be age 70 ½. If the client is not yet 70 1/2, she cannot do a QCD from the inherited IRA.


I started annual contributions to separate Roth IRA accounts for my wife and me at least 15 years ago.   Then, three years ago I began annual Roth conversions from an IRA account.

Do the original Roth IRA accounts that were opened 15 years ago satisfy the “5 year rule” for the Roth conversions from the last 3 years or does each conversion have a separate holding period?



Hi Scott,

This can be a confusing area of the rules. This is because there are two separate five-year rules for Roth IRA distributions.

The first five-year rule is for qualified tax-free distributions of earnings. This rule begins with your first tax-year contribution or conversion to a Roth IRA. It never restarts with subsequent conversions. Your first contributions that you made 15 years ago would start this five- year period and your subsequent conversions would not restart it.

The second five-year rule is for penalty-free distributions of converted funds if you are under age 59 ½. If you are under 59 ½ you must wait five years before you can access your converted funds penalty-free. This five-year period restarts with each conversion. This rule is not a concern if you are over age 59 ½.


By Sarah Brenner, JD
IRA Analyst

Are you questioning that IRA contribution you made for 2018? Maybe you made a Roth IRA contribution and then discovered your income was too high. Maybe you made a traditional IRA contribution but you were ineligible due to your age. You may have made a traditional contribution and just changed your mind. You’d rather contribute to a Roth IRA or maybe not contribute at all. There is good news if you act quickly. You can fix these issues by correcting your 2018 IRA contribution by the upcoming October 15, 2019 deadline.

October 15, 2019 Deadline

When it comes to the timing for correcting a contribution, the key deadline is October 15 of the year following the year for which the excess contribution is made. The statutory deadline is actually the tax-filing deadline including extensions. However, the IRS has said that the applicable deadline for taxpayers who file a timely return is six months after the due date for filing the tax return, excluding extensions (October 15 of the year following the year for which the contribution was made).

Why is this date so important? A 6% penalty applies to excess contributions. This penalty is not a one-and-done thing. It will apply every year that an excess contribution remains in the IRA. The only way to avoid the 6% penalty when an excess contribution occurs is to correct it by the October 15 deadline. Also, if you are just changing your mind about a contribution that you are actually eligible to make, your ability to correct the IRA contribution will end with the October 15 deadline.


When you correct an IRA contribution before the deadline, you have two choices when it comes to fixes. You can recharacterize the contribution or withdraw it. With either option, the slate is wiped clean and the contribution is treated as though it was never made to the IRA where the excess occurred.

Net Income Attributable

With both choices, the net income attributable (NIA) must accompany the contribution either when it is recharacterized or when it is withdrawn. The NIA can be a loss if the IRA has lost value. The calculation of the NIA is based on the entire value of the IRA during the time the contribution was in the IRA. The NIA is calculated using a special IRS-approved formula. Many times, the IRA custodian will do the calculation. A worksheet with the formula can also be found in IRS Publication 590-A.

Going with a Withdrawal

One option for correcting an IRA contribution is by withdrawal. Be sure to tell the IRA custodian that the distribution is a return of an excess contribution. With this method of correction, the contribution and the NIA are distributed. The contribution is not taxable. However, the earnings would be taxable in the year in which the contribution was made. They would also be subject to the 10% penalty if you are under age 59 ½ and an exception does not apply. The IRA custodian will use special reporting on Form 1099-R to reflect that this is a corrective distribution before the deadline.

Going with Recharacterization

Recharacterization is often overlooked as a strategy to fix contributions. Recharacterization is a way to move an unwanted tax-year contribution from a traditional IRA to a Roth IRA, or vice versa. If a contribution is recharacterized it will move from one type of IRA to another in a reportable nontaxable transfer. The contribution will be treated as though it had been originally made to the IRA to which it is recharacterized. Recharacterization is a very useful tool. However, it does have its limits. A contribution cannot be recharacterized from one tax year to another.

Seek Professional Advice

Correcting IRA contributions can be complicated. To be sure that no mistakes are made, this is a good time to seek the advice of a professional tax or financial advisor.


By Ian Berger, JD
IRA Analyst

If you run a small company, you may be reluctant to offer a retirement plan to your employees because of the cost of plan administration and compliance. If so, you’re not alone: approximately 38 million American workers lack access to a company savings plan.

Recently-issued Department of Labor rules may provide some relief.  The rules are designed to make it easier for unrelated companies to provide a retirement savings plan by joining an “association retirement plan” (ARP).

Current rules. Under current rules, unrelated companies who want to participate in a jointly sponsored retirement plan are required to join a “multiple employer plan.” However, a multiple employer plan can only be sponsored by an association of companies who share a common nexus. This means participating businesses must have a certain connection, such as being members of a trade association. The current multiple employer plan rules have had only limited success in helping small employers establish joint retirement plans.

New rules. The new DOL rules follow issuance of an Executive Order by President Trump in August, 2018, which ordered the Department of Labor to consider proposing regulations that would expand access to MEPs.

The new rules allow companies to join an ARP as long as they satisfy one of the following conditions:

  • The companies operate in a common geographic area – even if they operate in different trades or industries; or
  • The companies operate in the same trade or industry – regardless of where they are located.

An ARP can be offered by a business association, such as a Chamber of Commerce, or by a “professional employer organization.” A professional employer organization is a company that contractually provides certain human resources functions for its member clients.

For a small company, the advantage of joining an ARP is that the ARP sponsor – not the participating company – would be responsible for complying with ERISA administrative rules and would be subject to the ERISA fiduciary rules.

An ARP can only sponsor a defined contribution plan such as a 401(k) plan – not a defined benefit pension plan.

The new rules are effective September 30, 2019.

More relief on the way?  The proposed SECURE Act, a piece of legislation that includes several retirement-related provisions, would go beyond the new DOL rules to allow totally unrelated companies with no common nexus to also establish ARPs. The SECURE Act passed the House of Representative by a wide margin, but is currently stalled in the Senate.

The SECURE Act (again – proposed) would also provide relief from the current “one bad apple rule,” which penalizes all participating companies in an ARP if one company violates certain IRS rules. The IRS itself recently proposed relief from the “one bad apple rule,” but that proposal is a long way from being finalized.


By Andy Ives, CFP®, AIF®
IRA Analyst


Could you please direct me to information that tells me how any conversions I make from my regular IRA to a Roth will be taxed.  My belief was that the amount of any conversion will be taxed at whatever my tax bracket is for the year in which I make the conversion. Is that correct? Therefore, all other things being equal, it is preferable to make the conversion in years where my tax bracket is lower.

Thanks for your help.




You are 100% correct. Any conversion from a traditional to a Roth IRA will be taxed at your tax bracket for the year in which you make the conversion. (One is not allowed to make a “prior year conversion.”) As for your second comment – also yes. It is preferable to make conversions in years where your tax bracket is lower. However, be aware that the taxable amount converted will be added to your ordinary income for the year and could bump you into a higher bracket. One does not need to have earned income to convert, and there are no age or income restrictions. Just remember that all conversions are final – there is no going back.



I have a client who passed away and her IRA annuity named her trust as beneficiary.  The annuity company says there is no stretch option available and only the lump sum is available.  I have had other clients die whose non annuity IRAs listed their trust as beneficiary and we were able to use the oldest beneficiary’s life expectancy to make stretch payments.  Does the fact that the IRA is invested in an annuity trigger different IRS treatment?  Can an annuity company choose not to allow favorable IRS stretch treatment?

Looking forward to a response.  Thanks so much!




The tax code allows the stretch option for trusts that meet certain requirements. However, IRA custodians are not required to offer beneficiaries all the options that are available under the law. Ultimately, it is up to the custodian to allow or disallow beneficiary stretch treatments. Most providers do allow a stretch payout to a trust. However, there are some who still do not. It sounds like this annuity company is one of the few who does not. Be sure to review the custodial documents to determine what they do and do not allow. If the stretch (or some other feature) is important to a client and their current custodian does not offer it, moving the account to a custodian that does may be a possibility.


By Andy Ives, CFP®, AIF®
IRA Analyst

As I write, Hurricane Dorian is pummeling the Bahamas, churning the ocean and producing catastrophic damage. Godspeed, Freeport. Forecasts suggest the storm will sweep north and brush the east coast of Florida, which is where I live. Hurricanes are nothing to trifle with. I have survived them before and know how to prepare. Should the storm bobble west and deliver its winds farther inland, we stand ready to evacuate. Some family members up the coast have already departed. In the interim, we will monitor the news, assess liabilities, implement strategies and act accordingly. That is our plan.

Fortunately, satellite images, science and the previous experience of storm experts all helps create a solid projection as to where the storm will head. Undoubtedly this information will save lives and minimize loss.

While I literally live in the cone of concern for Hurricane Dorian, we all figuratively live in a financial “cone of uncertainty.” What will the stock market do today? How do I prepare for retirement? What investment tools and resources are at my disposal? What is my plan? Admittedly, this is a thinly veiled comparison – preparing for an on-coming hurricane vs. retirement. Nevertheless, considering the juxtaposition of Dorian, my physical location and writing responsibilities, it feels appropriate.

Based on their expertise and life experiences, financial advisors can forecast a path for clients to follow. By leveraging preparedness tools like IRAs, Roth conversions, annuities, life insurance, certain investment strategies and the like, one can buffer themselves against the high winds of taxes and the storm surge of inflation. It is wise to check and re-check beneficiary forms. Make sure your flashlight has batteries. Understand the benefits and consequences of naming a trust as your IRA beneficiary. Familiarize yourself with the local evacuation zones.

Those who fail to prepare are the ones who typically need rescuing. Avoiding the retirement hurricane conversation does not make it go away. It is swirling on all of our doorsteps and will knock until it blows the windows in. Don’t be the person without a radio whose lawn chairs are summersaulting down the road like aluminum tumbleweed. An IRA prohibited transaction is an untethered boat. Excess contributions are unsecured trash cans. Missed RMDs are untrimmed branches raking against the house. Some of these items can be tied down, gathered up and fixed after the fact. Some are fatal errors, like doing more than one 60-day rollover in a year, or the owner of a beneficiary IRA trying to roll over his account.

Of course, not all financial dangers can be predicted, and some erupt unexpectedly with little warning. Rogue waves. Investment waterspouts. However, it is more practical and safer to get your home in order prior to impact. Consult with experts. Assess liabilities and deficiencies. Proactively implement strategies. Board up the windows if needed. Minimize loss. Prepare not only for the storms you see coming, but have shelter and shutters at the ready for the ones you don’t.

Squalls out on the gulf stream. Best of luck to all of us in the path.


By Sarah Brenner, JD
IRA Analyst

The calendar is turning to September and Starbucks is once again selling pumpkin spice lattes. It’s back to school time! We can all agree that education is expensive. If you have children, you know that you cannot afford to miss out on any possible option out there that may help you save. One savings tool that is frequently overlooked is the Coverdell Education Savings Account (ESA).


You may establish an ESA with the custodian of your choice and the paperwork you complete is very similar to the paperwork necessary to establish an IRA. Contributions are made to the account to help save for education expenses of a designated beneficiary. The designated beneficiary is a child under the age of 18. Contributions may be made for designated beneficiaries older than 18 if they have special needs.

When you establish the ESA, you will need to name a responsible individual. The responsible individual controls the ESA, including investment choices and when distributions are taken. Many custodians will allow you, as the contributor, to name yourself as the responsible individual.

The maximum contribution amount is $2,000 per year for each designated beneficiary, but you may contribute that amount to ESAs for multiple beneficiaries. For example, if you have three grandchildren, you could contribute $2,000 each year to each of their ESAs.

There is no earned income or taxable compensation requirement to contribute to an ESA. There are no age limits either. However, there are income limits. If your income is above them, you might consider giving the funds to the child or another person with income under the limits and having them make the contribution to avoid those limits.

The contribution deadline is generally the tax-filing deadline, April 15.Your ESA contribution is not deductible but the earnings will be tax-free if the funds are used to pay for qualified education expenses. If you are already funding a qualified tuition plan or 529 plan, you can fund an ESA as well. ESA funds are even eligible to be rolled over to qualified tuition plans.


Qualified distributions from an ESA are tax-free. The definition of qualified education expenses is very broad for ESA purposes. Qualified education expenses include college tuition, room and board as well as required books and supplies. The student can be a full time or part time student. Vocational school or community college expenses are included as well. A student’s computer and internet expenses are also qualified education expenses.

An important benefit of an ESA is that qualified tax-free distributions may be taken for primary and secondary school expenses. You are not limited to expenses after high school graduation. Eligible expenses include tuition, fees, tutoring and special needs services and expenses incurred in connection with enrollment of the designated beneficiary at a public or private school.

If an ESA distribution is not used for education expenses, the earnings portion will be taxable to the designated beneficiary and may be subject to a 10% penalty unless an exception applies. Funds may be rolled over from an ESA to an ESA for a member of the designated beneficiary’s family who is under age 30.


By Ian Berger, JD
IRA Analyst


Hello, I have an IRA from my deceased father. The beneficiary is my mother, but she passed on before my father. The IRA custodian is saying this doesn’t go through the estate but directly to me. I thought all IRA’s that don’t have a living beneficiary go through the estate.

Can you help me understand this?


Sorry about your loss.

If your father chose a contingent beneficiary (to receive the funds in case your mother died before he did), then his IRA would go to that contingent beneficiary. If your father did not pick a contingent beneficiary, then the terms of the IRA custodial agreement will dictate who inherits the IRA by default.

Every custodial agreement is different. Some default to a surviving spouse and, if there is no surviving spouse, then to the child (or children). That sounds like what your father’s custodial agreement says. Other agreements default to the estate.

You (or a financial advisor) should check the custodial agreement to make sure the custodian has given you the correct answer.

If you are not planning to spend the IRA funds right away, you may be better off tax-wise having the funds go directly to you. This is because the custodial agreement may allow you to stretch payments over your life expectancy. That’s something else for you (or an advisor) to check.


Can an ex-spouse who gains ownership of a participant’s 401(k) account through a QDRO award make use of NUA treatment on employer stock in the account, assuming the distribution of the awarded account occurs after the ex-spouse reaches age 59-1/2?  In other words, is the NUA treatment specific to the stock, rather than to the original participant who may have purchased the stock during his career?




Hi Doug,

Good question. An ex-spouse who has been awarded part of a 401(k) participant’s account through a QDRO can use the NUA tax break as long as the NUA rules are satisfied.

The ex-spouse must wait to take a distribution until the participant (not the ex-spouse) reaches age 59 ½, separates from service or dies. Once that happens, the ex-spouse must take a distribution of her entire account all in one calendar year. That year can be the year of the triggering event or a subsequent year.

If those rules are met, the ex-spouse can take a distribution and use NUA even if the participant does not take a distribution at the same time.


By Ian Berger, JD
IRA Analyst

Who says getting old is all bad? Once you reach a certain age, Congress rewards your longevity by letting you contribute an extra amount to your IRA or workplace savings plan – with no strings attached. It’s a great way to boost your nest egg and get an immediate tax break if making pre-tax deferrals (or a tax break down the road if making Roth contributions).

Age 50 catch-up for IRAs. If you’re age 50 or older by the end of a year, you can contribute an additional $1,000 to a traditional or Roth IRA for that year. For 2019, this means you can make a total IRA contribution of up to $7,000 – as long as you are otherwise eligible for the IRA.

Age 50 catch-up for workplace plans. Most age 50 or older workplace plan participants can defer an additional amount beyond the regular annual limit ($19,000 for 2019) to the plan. The catch-up contribution limit, which is indexed periodically, is $6,000 for 2019. So, you can make total deferrals of up to $25,000 for 2019.

Despite their name, age 50 catch-up contributions are available even if you’ve contributed the maximum amount in all prior years. And, you can use the age 50 catch-up for workplace plans even if you also use the age 50 catch-up for IRAs.

Additional catch-up for 403(b) plan participants. A 403(b) plan may allow participants with at least 15 years of service to make up to an additional $3,000 of annual catch-up contributions. There is no age requirement for this catch-up, and it can be used on top of the age 50 catch-up. However, there is a lifetime limit of $15,000.

Catch-up for 457(b) plans. A 457(b) plan can be sponsored by either a governmental employer or a tax-exempt employer. If you’re age 50 or older, you can defer up to an additional $6,000 only if you’re in a governmental plan.

However, both types of 457(b) plan may allow you to defer an even higher catch-up amount in the last three years before your retirement. For those three years, your catch-up amount could be as high as the normal deferral limit. For example, you may be able to defer as much as $38,000 ($19,000 + $19,000 catch-up) in 2019 – a real windfall.

Two caveats: First, the three-year catch-up for 457(b) plans is a true “catch-up,” meaning that it’s limited to unused deferrals from prior years. If you have been deferring the maximum amount in all prior years of employment, this catch-up isn’t available. Second, you can’t use both the three-year catch up and the age 50 catch-up in the same year.

So, while enjoying your hot dogs and burgers at your Labor Day cookout this weekend, by all means don’t forget the “catch-up.” You’ll “relish” the additional savings opportunity.


By Andy Ives, CFP®, AIF®
IRA Analyst

Every year thousands of traditional IRA account owners turn 70 ½ years old. In addition, each year thousands of younger non-spouse beneficiaries inherit traditional and Roth IRA accounts. What do these two groups of people have in common? They all must begin taking RMDs. Here’s the kicker – what’s the chance that every single one of these thousands of people fresh to the world of required minimum distributions A.) realizes they need to take an RMD; B.) knows the deadline for taking the RMD; and C.) actually takes it?

I say the chance is 0%. In fact, I would be willing to bet my house and my son’s grandparent’s house and my car that someone in the world will fail to take their RMD before the end of this year. And we are not even talking about the hundreds of thousands of people over 70 ½ who are already deep into their RMD years. It’s as certain as the sunrise in the morning and as leaves falling in autumn. Death, taxes and missed RMDs.

The penalty for missing a required minimum distribution? Nothing to sneeze at. Fifty-percent. Five-Oh. One half of whatever the RMD that was supposed to be withdrawn. For example, an 83-year-old with $250,000 remaining in his IRA has a life expectancy of 16.3 years according to the Uniform Lifetime Table. $250,000 divided by 16.3 equals a $15,338 RMD. Miss the December 31 deadline and he is staring at a penalty of $7,669.

The 50% missed RMD penalty is one of the harshest punishments in the tax code. But do not fret! Here are 5 steps to (hopefully) save the day:

1. Withdraw the missed RMD as soon as possible. There is no chance of relief from the penalty until this is done.

2. Report the mistake to the IRS on Form 5329. Form 5329 can be filed along with the annual tax return for the year the RMD is finally distributed. It can also be filed as a stand-alone return.

3. Complete the form as follows:

  • On line 52, report the RMD that should have been distributed.
  • On line 53, report the amount that was distributed before the deadline. This will be “0” if nothing was withdrawn by the deadline.
  • In parentheses on line 54, write “RC” (for reasonable cause) and list the amount you want waived. If you are requesting a full waiver of the missed RMD, the total amount will be listed on the dotted lines next to RC and within parentheses [e.g. “RC ($7,669)”]. If you are requesting a full waiver, enter “0” on line 54.
  • On line 55, report the penalty that is due. Again, if you are requesting a full waiver, you should enter “0.”
  • Attach a brief letter to the return explaining how the mistake occurred, what you did to fix it, and how you are making sure it doesn’t happen again.

4. Do not pay the penalty! Wait for IRS approval or denial. If denied, the IRS will send a notice requesting payment.

5. If multiple RMDs have been missed, file a separate 5329 for each year.

The penalty for a missed RMD is harsh, so be sure to withdraw your required amount annually. If you fail to take the distribution, there is no guarantee the IRS will waive the penalty. However, by following these steps you will at least be on the path to potential forgiveness.


By Sarah Brenner, JD
IRA Analyst


We found a discussion on your website’s discussion board in 2011 regarding 60-day rollovers straddling two calendar years. We are trying to confirm that a rollover would still be valid even if the Form 1099-R and 5498 may be issued in two different years.


This is a question that comes up frequently. As long as all the rollover requirements are met there is no problem with a rollover that straddles two tax years. For example, you may have funds distributed late in the year that are not rolled over until the next year. If this is your situation, you will report the rollover transaction on your tax return for the year of the distribution.


Dear Mr. Slott,

I am retired and celebrated my 70th birthday late in June this year.  I want to roll my 401(k) plan into an IRA within the same financial institution.  The financial institution tells me I am required to take my first RMD out before the transfer, despite the fact I do not turn 70 1/2 until late December.  It was my intention to make the transfer to the IRA later this year.  Meanwhile I have an IRA at a bank invested in a CD that comes due in October this year.  I want to do an institution to institution transfer (different financial institution than the 401(k) transfer) after the CD comes due.  The bank tells me I can do so without having to take my first RMD out before the transfer.  In both cases I intend to take my first RMDs in December of this year.  The bank’s reasoning is since it is my first RMD, I am not required to take my first RMD until April 1, 2020.

Which institution is correct or are both correct?

Thank you for your help,



Hi John,

This is an interesting question. Both are actually correct. Because your 70th birthday was in June, you will be 70 ½ in 2019. That means you must take RMDs from both your 401(k) plan and your IRA for 2019.

There is a rule that says the first money distributed out of your retirement account in a year is your RMD if you have one for that year. This is why the administrator of the 401(k) is saying that you must take your RMD before directly rolling over the funds to an IRA.

IRAs work a little differently. A direct transfer from one IRA to another is NOT considered a distribution the way a direct rollover from a plan to an IRA is. This means the first money out rule does not apply. You can transfer your entire IRA, including your RMD, and take the RMD this December or any time before April 1, 2020.


By Sarah Brenner, JD
IRA Analyst

IRAs have now been around for decades. This means these accounts are now being inherited by beneficiaries and even, increasingly, by successor beneficiaries. Here are 3 things you must know if you are a successor beneficiary who inherits an inherited IRA:

  1. You can continue the stretch. One of the first questions you may have when you inherit an inherited IRA may be about when distributions are required. You may wonder if you can continue the stretch or maybe even extend the stretch over your own life expectancy. The bad news is that as a successor beneficiary you cannot use your own life expectancy to calculate required minimum distributions (RMDs). The good news, however, is that you can step into the shoes of the original beneficiary and continue on with the stretch that would have been available to him had he lived. This may allow for more years of tax-advantaged growth!
  1. You can’t do a spousal rollover. This is a tricky one. Even if you inherit an inherited IRA from a spouse, you cannot do a spousal rollover. Let’s say that your spouse inherits an IRA from his Uncle Jim. Your spouse names you as the successor beneficiary on this inherited IRA. If your spouse should pass away you can continue the stretch on the inherited IRA but you cannot do a spousal rollover. Why? That is because the original account owner was Uncle Jim and he was not your spouse.
  1. You should name a successor beneficiary. When you inherit an inherited IRA as a successor beneficiary, there is one thing you should do right away: that is name your own successor beneficiary. That way, in the event of your death, the stretch could continue. Your successor beneficiary could continue to take RMDs using the original beneficiary’s calculation. By naming a successor beneficiary you enable the maximum stretch to continue into the next generation.


By Ian Berger, JD
IRA Analyst

You may know that you participate in a DC retirement plan. But what exactly does that mean? (Hint: It doesn’t mean that your plan is sponsored by the District of Columbia.)

“DC” actually stands for “defined contribution” plan. Defined contribution plans are a type of company retirement plan and are distinguished from DB (“defined benefit”) plans/

Types of DC plans. The most popular types of DC plans are 401(k) plans, 403(b) plans and 457(b) plans. Each of these types allows employees to make salary deferrals and may also allow employer contributions.

  • 401(k) plans are for employees of private sector companies. Thrift savings plans (TSPs) are similar to 401(k) plans and are for employees of the federal government and for the military.
  • 403(b) plans (also known as tax-sheltered annuity or TSA plans) are for employees of public schools, tax-exempt employers (e.g., hospitals) and churches.
  • 457(b) plans (also known as deferred compensation plans) are for employees of state and local governments. 457(b) plans are also available for certain management employees of tax-exempt employers.

Traditionally, DC plans only provided for employer contributions. Employer contribution-only plans include profit sharing plans, money purchase pension plans, stock bonus plans and employee stock option plans (ESOPs).

  • Profit sharing plans allow companies the flexibility to make whatever level of contribution (including no contribution) they wish to make each year.  (Despite the name, contributions don’t need to come out of company profits.) 401(k) plans sometimes include a profit sharing plan contribution.
  • Money purchase pension plans require the company to make a fixed amount of contribution each year.
  • Stock bonus plans are a type of profit sharing plan in which contributions are made in the form of company stock.
  • ESOPs are a type of stock bonus plan that provide special tax benefits to the company and plan participants.

Individual accounts. The main characteristic of a DC plan is that each participant has an individual account. Salary deferrals and employer contributions, along with investment earnings, are allocated to each account. Most DC plan sponsors offer a number of investments options (usually mutual funds) for participants to choose from.

Distributions. Many DC plans allow hardship withdrawals, loans or in-service distributions after age 59 ½. Payouts are also available upon severance from employment, disability and death. DC plans always offer payouts in the form of a lump sum distribution. Some plans also offer installments and/or annuity payment options.

Contribution limits. The tax code includes limits on DC contributions. Annual DC contributions (salary deferrals + employer contributions) to all accounts in plans maintained by one employer (and any related employer) can’t exceed a certain amount (for 2019, $56,000 or $62,000 if age 50 or older). In addition, annual salary deferrals to all plans can’t exceed a dollar limit (for 2019, $19,000 or $25,000 if age 50 or older).


By Ian Berger, JD
IRA Analyst

You may know that you participate in a DC retirement plan. But what exactly does that mean? (Hint: It doesn’t mean that your plan is sponsored by the District of Columbia.)

“DC” actually stands for “defined contribution” plan. Defined contribution plans are a type of company retirement plan and are distinguished from DB (“defined benefit”) plans/

Types of DC plans. The most popular types of DC plans are 401(k) plans, 403(b) plans and 457(b) plans. Each of these types allows employees to make salary deferrals and may also allow employer contributions.

  • 401(k) plans are for employees of private sector companies. Thrift savings plans (TSPs) are similar to 401(k) plans and are for employees of the federal government and for the military.
  • 403(b) plans (also known as tax-sheltered annuity or TSA plans) are for employees of public schools, tax-exempt employers (e.g., hospitals) and churches.
  • 457(b) plans (also known as deferred compensation plans) are for employees of state and local governments. 457(b) plans are also available for certain management employees of tax-exempt employers.

Traditionally, DC plans only provided for employer contributions. Employer contribution-only plans include profit sharing plans, money purchase pension plans, stock bonus plans and employee stock option plans (ESOPs).

  • Profit sharing plans allow companies the flexibility to make whatever level of contribution (including no contribution) they wish to make each year.  (Despite the name, contributions don’t need to come out of company profits.) 401(k) plans sometimes include a profit sharing plan contribution.
  • Money purchase pension plans require the company to make a fixed amount of contribution each year.
  • Stock bonus plans are a type of profit sharing plan in which contributions are made in the form of company stock.
  • ESOPs are a type of stock bonus plan that provide special tax benefits to the company and plan participants.

Individual accounts. The main characteristic of a DC plan is that each participant has an individual account. Salary deferrals and employer contributions, along with investment earnings, are allocated to each account. Most DC plan sponsors offer a number of investments options (usually mutual funds) for participants to choose from.

Distributions. Many DC plans allow hardship withdrawals, loans or in-service distributions after age 59 ½. Payouts are also available upon severance from employment, disability and death. DC plans always offer payouts in the form of a lump sum distribution. Some plans also offer installments and/or annuity payment options.

Contribution limits. The tax code includes limits on DC contributions. Annual DC contributions (salary deferrals + employer contributions) to all accounts in plans maintained by one employer (and any related employer) can’t exceed a certain amount (for 2019, $56,000 or $62,000 if age 50 or older). In addition, annual salary deferrals to all plans can’t exceed a dollar limit (for 2019, $19,000 or $25,000 if age 50 or older).


By Andy Ives, CFP®, AIF®
IRA Analyst


Hello, I have heard Ed speak at several different Wells Fargo events and he spoke one time about clients who over contribute to their 401(k). I believe there was a strategy where they can move the excess to an IRA. Can you tell me where to find more info on this strategy?


There is no strategy to move an excess 401(k) contribution to an IRA. To avoid being taxed twice, excess plus earnings attributable must be removed by April 15th of the year after the year the excess was contributed. There is no way to “fix” it with a rollover or some other transfer as the excess is ineligible to be rolled over. The combined allowable amount contributed to a 401(k) by employer and employee is $56,000 in 2019 ($62,000 over age 50), and that cap cannot be breached. [There’s also a separate limit on 401(k) elective deferrals.] However, maybe you were referring to another strategy we discuss – the Mega Back-Door Roth. The Mega Back-Door Roth strategy allows a person to contribute after-tax (non-Roth) dollars to their 401(k), assuming the plan allows it, and then to immediately rollover/convert those dollars to a Roth IRA. A person using the Mega Back-Door Roth strategy is still bound by the maximum contribution limits to a 401(k), but it does allow them to move money into a Roth IRA that exceeds the annual Roth IRA contribution limits ($6,000, plus $1,000 over-50 catch up in 2019). Be aware – the 401(k) plan must allow for after-tax contributions and for in-service distributions. Not all do.



My client’s mother died after her RBD in 2016. Her IRA had no designated beneficiary. My client was named personal representative of the estate and went through the probate process. He is the sole heir of the estate. The broker/dealer that held his mother’s IRA refused to retitle her IRA into an estate-owned beneficiary IRA and also refused to move his mother’s IRA into a beneficiary IRA for my client. They told him the only thing they could do is cash out the IRA and move the holdings in-kind to an estate-owned brokerage account. Is it legal to deny a probate-determined heir the stretch IRA?

They’ve already cashed out the IRA and moved the holdings in-kind to the brokerage account. This just happened recently. If what they did was illegal, can this be reversed? Do we have to get FINRA and/or state securities regulators involved?

Thank you.




It is not illegal for a custodian to require a beneficiary to take a lump sum distribution, but it is rare. Most allow a stretch IRA to be established. The custodial document will outline what their policies are. To avoid situations like this, it is recommended that clients and advisors understand what their custodian will and will not allow. At this point there is no going back as the lump sum distribution has already been made. However, if the custodian had allowed a stretch, based on the fact that that the client’s mother died after her required beginning date and there was no designated beneficiary, the rules are clear. A stretch IRA is permitted over the remaining non-recalculated single life expectancy of the mother (had she survived).


By Andy Ives, CFP®, AIF®
IRA Analyst

Just as IRA and 401(k) plans have different levels of bankruptcy protection, so too do other possessions. Whether these assets are qualified or not, there are ways to shield oneself from creditors. Case in point – in order to shelter certain monies, a couple in Wisconsin sold their 1974 Plymouth and some real estate. They subsequently purchased a non-qualified annuity with the proceeds. Their creditors did everything in their power to disqualify the annuity to gain access to the funds, but were unsuccessful. The Court ruled that the couple had successfully used “exemption planning” to remove the assets from their bankruptcy estate.

“Exemption planning” is a perfectly legal way to prepare for bankruptcy. It is the practice of organizing one’s financial affairs in order to maximize exemptions (i.e. protect the most amount of property in bankruptcy). Converting nonexempt property into exempt assets can be part of exemption planning. However, if you engage in excessive exemption planning, it can be considered bankruptcy fraud and result in criminal prosecution.

Bankruptcy is governed by federal law. A list of exemptions that debtors can use to exempt property from their estate is outlined in the Bankruptcy Code. These exemptions allow debtors to exclude certain property up to a specific dollar amount in value. Some exemptions are for an unlimited amount, and some have maximum value caps.

A number of states have opted out of the federal exemption list and created their own. Debtors domiciled in the states that opted out are required to use their state’s exemption list. However, 19 states and the District of Columbia currently allow debtors to choose between the federal exemption list or their own state’s list. In the states below, a debtor must select one or the other – they cannot pick and choose from both state and federal exemption amounts.

Alaska, Arkansas, Connecticut, District of Columbia, Hawaii, Kentucky, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New Mexico, New York, Oregon, Pennsylvania, Rhode Island, Texas, Vermont, Washington and Wisconsin.

The Wisconsin couple from the court case mentioned above was smart. They elected to claim exemptions under state law to protect their assets. One particular exemption available in Wisconsin is annuity contracts. The ability to exempt an annuity from bankruptcy creditors varies widely from state to state. An annuity that qualifies in one state can fail to be eligible in another. While a few states provide exemptions for virtually all annuities, others do not provide any protection. Also, the timing of the creation of the annuity can affect the availability of the bankruptcy exemption. Some states will only protect annuities purchased more than six months before the bankruptcy case filing.

While bankruptcy can be a difficult situation, it is imperative to make wise decisions about how to handle it. Know what protections are available in your state, and research what the federal government covers. When it comes to bankruptcy – those who fail to plan are simply planning to fail.


By Sarah Brenner, JD
IRA Analyst

The Setting Every Community Up For Retirement Enhancement (SECURE) Act recently passed the House of Representatives by a large margin. It is currently stalled in the Senate. This bill includes a multitude of provisions that would reshape retirement savings if passed. Buried deep within the proposed legislation is a provision that would do away with the stretch IRA for most beneficiaries. We have received many questions on this provision. Here are a few of the most common:

1. Question: Would the provisions in the SECURE Act eliminating the stretch apply to Roth IRAs as well as Traditional IRAs?

Answer: Yes, the SECURE Act would eliminate the stretch for both inherited Traditional IRAs and Roth IRAs.

2. Question: Would the SECURE Act eliminate the stretch IRA for existing inherited IRAs?

Answer: No. If the IRA owner is already deceased and there is an existing inherited IRA, the SECURE Act would not eliminate the stretch. Existing inherited IRAs would be grandfathered.

3. Question: Why does Congress want to eliminate the popular stretch IRA provision?

Answer: While it’s hard to completely understand Congress’s motives here, one thing is clear. Congress sees the elimination of the stretch IRA as a revenue raiser. To lawmakers, including this provision in the bill offsets the costs of other provisions.

4. Question: When would the provisions eliminating the stretch be effective?

Answer: The bill as currently written would make these provisions effective for inherited IRAs when the IRA owner dies after December 31, 2019.

5. Question: What would replace the stretch option for IRA beneficiaries?

Answer: Most non-spouse beneficiaries would be required to distribute the inherited IRA by the end of the tenth year following the year of death. This ten-year rule would work similarly to the way the current five-year rule works. During the ten-year period there is flexibility. No yearly distributions are required but the account must be emptied by the end of the tenth year.

6. Question: Would spouse beneficiaries still be allowed to do a spousal rollover under the SECURE Act?

Answer: Yes. Spouse beneficiaries could still do a spousal rollover to an IRA in their own name.

7. Question: Will the SECURE Act become law?

Answer: No one knows for sure! There is a lot of support for many of the provisions in the SECURE Act and it did pass the House by a large margin. However, it still has to get through the Senate and be signed by the President. That can be long road. Stay tuned to the Slott Report! We will be watching this proposed legislation carefully over the upcoming months and will keep our readers up-to-date with any late breaking news.


By Ian Berger, JD
IRA Analyst


As I understand it, a contribution would be income tax free when sent directly from an IRA to a 501(c)(3) organization.  It is not clear to me if the distributions still will affect my MAGI that in turn will affect Medicare Part B IRMAA premiums.



Hi Jennifer,

If your IRA distribution satisfies the conditions for a qualified charitable distribution (“QCD”), the distribution will not be taxable to you. That, by itself, won’t lower your modified adjusted gross income (“MAGI”). However, if the QCD is used to satisfy the required minimum distribution (“RMD”) from your IRA, that will reduce your MAGI. That’s because RMDs are taxable if they are not satisfied through QCDs. As you noted, reducing your MAGI could lower your Medicare Part B premiums.

QCDs are only available to IRA owners or beneficiaries who are age 70 ½ or older. The donation must be transferred directly from your IRA to the charity, and nothing of value can be received in return. The annual QCD limit is $100,000 per person.

If you have already taken an RMD for 2019 that was not a QCD (and therefore was taxable), you can still make a non-taxable QCD this year (up to the limit). However, you can’t use a QCD to offset the previously taken RMD – that must remain as taxable income. That’s why we recommend making QCDs early in the year — at the same time you take your RMD — to avoid missing the opportunity to reduce your MAGI.


Taxpayer, age 72, is going to work for a company with a 401(k) plan. He will not be an owner of the company. He has an IRA from which he has begun taking RMDs.

He is told that he can roll his IRA into the 401(k). He is also told that if he does so, he will not be required to take additional RMDs as long as he continues working. Is that right?


Yes, and it’s because the rules for taking required minimum distributions (“RMDs”) are different between IRAs and 401(k) plans (or other company retirement plans).

For traditional IRA owners, RMDs must begin in the year the owner reaches age 70 ½. But for 401(k) participants, RMDs do not begin until the later of the year the participant reaches age 70 ½ or the year the participant retires. (In both cases, the first RMD is not due until the following April 1.) This is called the “still-working” exception.

So, once this taxpayer rolls his IRA into the 401(k) plan, he won’t have any more RMDs to take from his IRA, and he can delay receiving RMDs from his 401(k) plan until he retires.

Keep in mind that before the taxpayer does this rollover, he must first take out his IRA RMD for the year of rollover. That RMD cannot be rolled over to the 401(k) plan.

The taxpayer (or the taxpayer’s advisor) should check the 401(k) plan document to make sure the plan allows rollovers into the plan and allows participants to delay RMDs past age 70 ½ (i.e., the “still-working” exception). A 401(k) plan is not required to allow either.

Finally, the “still-working” exception doesn’t work for someone considered to own more than 5% of the company sponsoring the plan. You’ve indicated that isn’t the case here.


By Ian Berger, JD
IRA Analyst

Participating in a company plan, like a 401(k) or 403(b) plan, is a great way to save for retirement. But to make sure that employees don’t use those plans as checking accounts, Congress has imposed limits on when you can withdraw your funds. Generally, you can’t receive a distribution until severance from employment, disability or death. Most plans also allow payouts after age 59 ½ – even if you’re still working – and allow you to borrow against part of your account while still employed.

Beyond that, your plan may (but isn’t required to) let you pull out your funds to take care of a financial hardship. Here’s a quick summary of how hardship withdrawals work:

Tax consequences. Hardship withdrawals aren’t free. Unless your withdrawal comes from Roth contributions, you’ll be hit with income taxes. And, if you’re under age 59 ½, you’ll also likely be hit with an early distribution penalty equal to 10% of your withdrawal. You can’t roll over your hardship withdrawal to an IRA or back into the plan.

Hardship reasons. A 401(k) or 403(b) withdrawal is available only for an “immediate and heavy financial need.” (The rules are stricter for withdrawals from 457(b) plans for government workers.) Most plans use the following list of “safe harbor” events that automatically qualify:

  • Medical expenses for you, or your spouse, dependents or plan beneficiary.
  • Costs related to purchasing your primary residence (but not mortgage payments).
  • Tuition, fees and room and board expenses for the next 12 months of postsecondary education for you, or your spouse, children, dependents or plan beneficiary.
  • Payments necessary to prevent eviction from your principal residence or to prevent foreclosure on a mortgage on a principal residence.
  • Funeral expenses for you, or your spouse, children, dependents or plan beneficiary.
  • Certain expenses to repair damage to your principal residence.

Limits on withdrawals. Besides showing that your withdrawal is for one of the above-listed expenses, you also must certify you’re requesting no more than the amount needed to pay for the expense. In addition, you’ll need to verify that there are no “regular” distribution options available to you, such as an in-service payout after age 59 ½. Finally, you must represent to the plan that you don’t have enough cash or other liquid assets to cover the expense.

Several of the hardship withdrawal rules were loosened in the Bipartisan Budget Act of 2018:

Suspension of deferrals. Before the 2018 act, you couldn’t get a hardship withdrawal unless the plan suspended you from making elective deferrals for at least 6 months. The 2018 act eliminated the suspension rule.

Plan loans. Previously, you needed to take a plan loan (if available) before withdrawing funds for a hardship. That requirement has now been relaxed.

Funds available for withdrawal. The 2018 act expanded the sources of funds available for a hardship withdrawal. Now, 401(k) plans can make earnings on elective deferrals available for withdrawal. In addition, withdrawals can come from several other employer contribution sources. (These changes do not apply to most 403(b) plans.)


By Andy Ives, CFP®, AIF®
IRA Analyst

Many company retirement plans – like a 401(k) – offer company stock as an investment option. Under special tax rules, a plan participant can withdraw the stock and pay regular (ordinary) income tax on it, but only on the original cost and not on the market value, i.e., what the shares are worth on the date of the distribution. The difference (the appreciation) is called the net unrealized appreciation (NUA). NUA is the increase in the value of the employer stock from the time it was acquired to the date of the distribution to the plan participant.

The plan participant can elect to defer the tax on the NUA until he sells the stock. When he does sell, he will only pay tax at his current long-term capital gains rate – even if the stock is held for less than one year. To qualify for the tax deferral on NUA, the distribution must be a lump-sum distribution. This means the entire plan must be emptied in one calendar year, including all non-company stock within the plan. The distribution must also occur after any one of four triggering events: reaching age 59½; separation from service (not for self-employed); disability (only for the self-employed); or death.

At age 70 ½, a plan participant has hit the 59 ½ trigger event and may have also hit the separation from service event. Assuming one of these is still available and was not lost due to poor planning, NUA for the RMD is still alive. NUA stock can be used to satisfy a required minimum distribution (RMD), but the ordering and timing of the transactions are critical to success.

Typically, when an NUA transaction is done, all non-NUA stock and other assets are first rolled over to an IRA. Then the NUA shares are journaled to a “regular” (non-qualified) brokerage account. However, if an RMD is involved, this will create a problem. Why? RMDs can’t be rolled over. Here’s a workaround:

Step 1 – If a client needs to take an RMD, the first-dollars-out rule dictates that the first withdrawal counts toward the RMD. The first step would be to journal/transfer the appropriate amount of NUA shares out to a non-qualified brokerage account to cover the RMD. (RMDs are not subject to the 20% withholding rule because they cannot be rolled over, so this is of no concern.)

Step 2 – Next is a direct rollover/transfer of all non-NUA stock investments to an IRA. Any cash, mutual funds or other investments in the plan must be removed. As long as they are properly relocated to an IRA, the movement of non-NUA cash and investments will not be a taxable event.

Step 3 – With nothing left in the account except the NUA stock, and with no cash or other assets remaining to force a 20% withholding, the last of the NUA stock would be journaled to the regular non-qualified brokerage account. Be careful! Any NUA stock moved into an IRA will NOT qualify for the special tax break.

By following these steps, the RMD can be fully satisfied with NUA stock first, and the NUA lump sum distribution process can follow. Another benefit is that the full value of the NUA stock will count toward the RMD, not just the basis. (Just be sure these transactions are all done in one calendar year!)


By Sarah Brenner, JD
IRA Analyst


Hi Ed,

I have heard conflicting reports. Would the proposed SECURE Act affect Roth IRAs? Or, is the elimination of the stretch on for Traditional IRAs?

Many thanks!



Hi Chad,

There does seem to be a lot of confusion out there on this issue. Yes, the SECURE Act, if passed, would affect inherited Roth IRAs as well as inherited Traditional IRAs. The stretch would be eliminated for most beneficiaries and replaced with a 10 year rule. Remember, this is only proposed and still has yet to be passed into law.


I read your article on IRA distributions for education and also have been to a few of your limited seminars.

I have a question, my client took a distribution in 2018 from his IRA. They also had qualified educational expenses which they paid in 2018 which include tuition, and meal plan and rent charges (room and board).

My question is, the school charged the expense for the spring /winter 2018 tuition in Dec of 2017 along with room and board charges, however, we paid for the expense in early 2018.

Would those costs qualify to be exempt from the early distribution penalty?

Also in your article it does not mention room and board as qualified expenses. I think you can use them per my reading of the publications? (your article is from 2015)

Thanks for your help,



Hi Jeff,

When it comes to the exception to the 10% early distribution penalty for higher education expenses, timing is everything. The expense must be paid in the same year that the distribution is taken from the IRA. In this situation, it sounds like the distribution from the IRA was taken in 2018 and the education expense was paid in 2018. This would work for purposes of the exception.

You are right that room and board is also a qualified education expense.

Copyright © 2019, Ed Slott and Company, LLC Reprinted from The Slott Report, August 3rd, 2019, with permission, Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article.


By Sarah Brenner, JD
IRA Analyst

You may wonder about naming your trust as your IRA beneficiary. For some that may be the way to go, but you should be careful. Trusts are not for everyone. There are trade-offs and consequences. Trusts as IRA beneficiaries create unique problems and tax complications.

Naming a Trust

Many IRA owners will name a living person as beneficiary of their IRA. Often that person is a spouse or child. You could simply name that person on the IRA beneficiary designation form. If you want to name your trust instead of naming a person as a beneficiary on your IRA, you would name your trust on the beneficiary designation form. The trust’s beneficiary could be a child, grandchild or another person that you want to receive the IRA. There are an infinite number of ways a trust can be drafted to best meet your needs.

Naming a trust as an IRA beneficiary is more complicated than naming a beneficiary directly on the beneficiary designation form. It costs both time and money. You will need to consult an attorney to draft the trust which is likely to come with a hefty price tag. Be sure to seek out an attorney with knowledge of both retirement plans and trusts.

Control is Key

The main reason to go with a trust as your IRA beneficiary is control. A trust allows control from the grave over IRA funds. In some situations, there are smart reasons to seek control. For example, if the intended beneficiaries are children or a disabled person, a trust provides a way for you to control the IRA funds for their benefit long after your death.

Minor as Beneficiary

A common reason for naming a trust as an IRA beneficiary is to provide for a child. Minors are not able to make tax elections like IRA distribution decisions or direct investment choices.

Other Beneficiaries

There are other beneficiaries who also may need the control that a trust provides. A trust may be advisable if an IRA beneficiary is someone who may need help with managing the IRA funds and taking required distributions, even if the beneficiary is an adult. The trust could be used to protect the beneficiary from creditor problems, as many states do not provide creditor protection for IRA beneficiaries.

Second Marriages

A trust can be a good choice in second marriages where you want to control the ultimate disposition of your IRA.  You may want to leave your spouse the annual IRA income, but after your spouse’s death you may want to make sure that the IRA goes to your children.

Estate Planning

If you have a larger estate, a trust may be needed as part of the overall estate plan. A trust can be used to avoid federal estate tax or inclusion in the beneficiary’s estate. With increased exemption levels and portability, only a small percentage of all estates will be affected by the federal estate tax. However, for those that are, trusts are a necessary tool. A trust may also be a good strategy if you are concerned about state estate tax. Many states have decoupled from the federal estate tax system and have kept lower exemption amounts and do not allow portability.

Reasons Not to Name a Trust

There are some strong reasons not to name a trust as an IRA beneficiary. The main reason not to name a trust is simplicity. By not naming a trust you can avoid restrictions on beneficiaries and trust complications. Another reason not to name a trust is to avoid high trust income tax rates.

Another downside to naming a trust as an IRA beneficiary is the loss of a spouse beneficiary’s ability to do a spousal rollover. This is an option available to a spouse named outright as the IRA beneficiary but not to one who inherits through a trust. There have been many private letter rulings (PLRs) over the years where a trust was named as the beneficiary and spouses have gone to the IRS to request the ability to do a spousal rollover. While the IRS has generally allowed such requests when the spouse has complete control over the trust and its distributions, relief comes with a big price tag.

The Take Away

Don’t name a trust as your IRA beneficiary unless you know what you are doing and it’s the only solution. Be sure that there is good reason to take on the extra expense and complications that will come along with the trust. “My attorney told me to!” is not enough.

Copyright © 2019, Ed Slott and Company, LLC Reprinted from The Slott Report, July 31st, 2019, with permission, Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article.


By Ian Berger, JD
IRA Analyst

Sometimes it pays to go solo.

For self-employed individuals looking to maximize their nest egg, a solo 401(k) plan — also known as an “individual 401(k)” or a “uni-k” — may be a better choice than a SIMPLE or SEP IRA.

Who Can Have a Solo 401(k)? Business owners can open up a solo 401(k) as long as they have no employees (other than a spouse). Solo plans are typically used by sole proprietors, but they are also available to owners of an incorporated business. If you’re self-employed and also earn salary as a regular employee of another business, you can still have a solo 401(k). But only your self-employment income can be taken into account in the solo plan.

How They Work. A solo 401(k) works mostly like a traditional 401(k). You contribute on a pre-tax basis, or if the plan allows, you can choose Roth contributions. Like a traditional 401(k), a solo plan can allow hardship withdrawals and/or loans. Distributions are allowed only after a triggering event (like separation from service, death or disability), but after a triggering event can be rolled over to an IRA.

The Big Advantage. The real advantage of a solo 401(k) stems from the fact that the IRS considers a business owner with a solo plan to be both an employee and an employer. This allows the owner to make elective deferrals (or Roth contributions) and deductible employer contributions.

Contribution Limits. There are separate limits on each kind of contribution. Employee contributions are limited to 100% of what the IRS calls “earned income”, but no more than $19,000 for 2019 ($25,000 if age 50 or older). Employer contribution limits are more complicated, but effectively work out to 20% of net self-employment income.

There’s an overall annual limit on combined contributions, but that limit is very generous: $56,000 (or $62,000 if age 50 or older). Keep in mind that the elective deferral/Roth contribution limit is per person (not per plan). So, if you contribute to a solo 401(k) and a traditional 401(k), or to two or more solo plans, employee contributions to all plans are aggregated.

Administration. Solo 401(k) plans have traditionally been costly to open up, but with their increased popularity, administrative costs have come way down. Solo plans are exempt from IRS testing rules, and you don’t have to file a Form 5500 annual report with the IRS until assets exceed $250,000.

Solo 401(k) vs. SIMPLE or SEP IRA. A solo 401(k) may allow you to sock away more retirement savings than a SIMPLE or SEP IRA does. But comparisons between plans can be complicated, so you’ll definitely want to work with a financial planner or accountant – and not go solo – before starting up a solo 401(k).

Copyright © 2019, Ed Slott and Company, LLC Reprinted from The Slott Report, July 29th, 2019, with permission., Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article.


By Andy Ives, CFP®, AIF®
IRA Analyst

By the look of everyone’s Facebook and Instagram photos, it appears we are all flying Gulfstream jets around the world, relaxing on far-away beaches and lighting Cuban cigars with twisted-up $100-dollar bills. Is the economy really doing that well for everyone? Are we all participating in these boom times? Of course not. Living paycheck to paycheck is commonplace. In fact, many people try to access whatever retirement nest egg they do have to cover expenses and emergencies happening right now. Foreclosure notices are issued. Student loans pile up. A child gets sick and health coverage only goes so far. Emergency funds are required immediately.

Financial desperation has many faces. Oftentimes, people play a dangerous game of chicken by dipping into IRAs. The common thought is to use those retirement dollars within the 60-day rollover window to thwart whatever financial demon blocks their path. If the money is redeposited in time, taxes and possible penalties can be avoided.

How can those rollover dollars, that “money in motion,” be used during the once-per-12-months, 60-day rollover period? Pretty much any way (within the law) the owner chooses. If an IRA owner elects to empty their account and bet it all on black at a roulette table in Las Vegas, hoping to pocket the winnings and roll the withdrawn dollars back into their account before the 60-day rollover window closes, they can do that. If they want to buy Bitcoin in their non-qualified brokerage account or triple-short the market with an exotic ETF, they can do that, too. None of these activities are prohibited. If the money is rolled back into an appropriate retirement account within 60 days, no questions are asked.

Only the amount distributed can be rolled over. A client who gets lucky at the casino is limited to rolling back only the amount that was distributed from the IRA. For example, Zoey takes a distribution of $40,000 from her IRA. She uses the funds as her entry fee into a poker tournament and for travel expenses. The cards are kind and she wins back everything, plus $20,000. Zoey can only roll over the $40,000 that was originally distributed from her IRA.

A recent true-life court case revealed the extent some folks will go when faced with financial ruin. (Richard L. Jones, Debtor, United States Bankruptcy Court, Southern District of Illinois, No. 18-31532, April 15, 2019.) Mr. Jones withdrew $50,000 from his IRA and bought lottery tickets in an attempt to stave off bankruptcy. Alas, his tickets were losers and he could only roll $20,000 back into his IRA. He owed taxes and penalties on the $30,000 he couldn’t return. A single-color bet on a roulette table in Vegas suddenly sounds like a much better tactic. The odds would have been in Mr. Jones’ favor vs. a lottery ticket. “A dollar and a dream” is by no means a legitimate retirement strategy.

Playing chicken with retirement assets is a dangerous game. Using retirement dollars within the 60-day rollover window for legal personal gain is neither fraud nor a prohibited transaction. Risky, but not against the rules. As mentioned, desperation has many faces, and countless people are willing to take that risk. If you are not lighting your cigars with twisted $100’s, if you find yourself in dire financial straits, be smart about it. Identify the odds. Know the rules. Stack the deck in your favor. And remember, what happens in the 60-days, stays in the 60-days.