Market Review and Outlook

By Sarah Brenner, JD
Director of Retirement Education

Question:

Is it wise to designate a grandchild as primary beneficiary for IRA accounts?

Answer:

You can choose to name whomever you want as your IRA beneficiary. If you want your IRA funds to go to your grandchildren, that is your decision and there is nothing wrong with making that choice.

There are some things you will want to be aware of, though, before updating your beneficiary designation. The first is that the SECURE Act has eliminated the stretch for most non-spouse IRA beneficiaries. Your grandchildren will be subject to the 10-year rule unless they are disabled or chronically ill.

There are also some special concerns if your grandchildren are minors. If so, they should not be named directly on the beneficiary form since minors do not have legal authority to conduct business on an investment account. Instead, consider naming a Uniform Transfers to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA) account if the custodian will allow it, or a trust if it is a large IRA.

Question:

When mentioning contribution limits to IRAs, shouldn’t you also mention that earned income is an overriding factor?

Jim

Answer:

Hi Jim,

Tax season is the time when many people consider making contributions to IRAs. Your comment is a good reminder that an individual (or their spouse if married) must have earned income or taxable compensation to contribute to an IRA. This can be wages or income from self-employment. Without it, no IRA contribution is possible, and if your taxable compensation is less than the maximum contribution limit for the year, you will only be able to contribute up to the amount of taxable compensation that you (and your spouse if married) have.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/ira-beneficiaries-and-contribution-limits-todays-slott-report-mailbag/

By Sarah Brenner, JD
Director of Retirement Education

These days many Americans are still working long beyond what has traditionally been retirement age. This may be by choice or by necessity. If this is your situation, you may be keeping funds in your employer plan well into your seventies and maybe even later. There are some big benefits to extending a career. You can continue to contribute to your retirement account and may even be able to take advantage of rules that allow required minimum distributions (RMDs) to be delayed.

Eventually, however, the time will likely come when you will want to take some or all of the funds out of your plan. You may want to roll over those funds to an IRA. A large percentage of employer plan funds do end up in an IRA eventually. At that time, you will need to pay special attention to your RMD if you have one for the year.

Here are five things to know about your RMD when you are doing a rollover from your plan to your IRA.

1. You must take the RMD from your plan. The first thing to understand is that if you have an RMD from the plan for the year, you will need to take that RMD. It is NOT eligible for rollover to an IRA. It cannot be converted to a Roth IRA. The bottom line is that there is no way around it; you must take it.

2. The first-money-out rule applies. The next thing to know is that the
first money out of your plan is your RMD. This is called the first-money-out rule and many people run afoul of it. You cannot roll part of the funds over now to an IRA and take the RMD later from the plan. You cannot roll over your entire plan balance to your IRA and then take the RMD from the IRA later. If you do either of these, you will wind up with an excess contribution in your IRA. That can mean penalties if it is not corrected on time.

3. There is no aggregation for plan and IRA RMDs. Your plan RMD cannot be aggregated with RMDs from your IRA. This means you cannot take it from your IRA. Also, qualified charitable distributions (QCDs) are not available from plans. They are only available from IRAs, so you cannot offset the income from a plan RMD with a QCD.

4. After the rollover, you have an IRA. Once you have taken your RMD, you may roll over the remainder of your eligible plan funds. When they are deposited to your IRA, they become IRA funds and will be subject to all the IRA rules. There will be no IRA RMD due for the funds rolled over to the IRA for the year of the rollover (because you already took your RMD from the plan prior to the rollover). However, in years going forward, RMDs will be due on these funds just like any other IRA funds.

5. Moving your retirement funds can be complicated and the stakes are high. This is especially true when there is an RMD involved. Failing to follow the rules for your RMD can result in adverse tax consequences and penalties. If you have questions about your own situation, the best way to get it right and avoid costly mistakes is to consult with a financial or tax advisor who is knowledgeable in this very specialized area.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/rolling-over-your-retirement-plan-here-are-5-things-to-know-about-your-rmd/

By Andy Ives, CFP®, AIF®
IRA Analyst

When a transactional mistake is made with retirement plan or IRA assets, there is oftentimes a mechanism to correct the error. For example, if too much money is contributed to an IRA, a person can leverage the excess contribution withdrawal rules to remove the excess without penalty (assuming the excess is withdrawn prior to the October 15 correction deadline). In another example, if an IRA owner failed to take his required minimum distribution (RMD), there are procedures in place whereby the person can take the missed RMD and formally request a waiver of the missed RMD penalty from the IRS.

On the other hand, some transactional mistakes have no corrective steps. Once the deed is done, there is no going back. Such missteps can create massive tax bills and result in unintended penalties. Many of these “fatal errors” involve rollovers. Here are a few:

Non-Spouse Beneficiary Rollovers. Only a spouse beneficiary can move inherited plan or IRA dollars between custodians via 60-day rollover. Non-spouse beneficiaries can only move inherited dollars via direct transfer. If pre-tax inherited IRA or plan funds are distributed and payable to a non-spouse beneficiary, those dollars are taxable. End of story. If the recipient tries to roll over the funds, the doors at all potential receiving institutions will be closed. There is no transaction a non-spouse beneficiary can do to reverse what has been done. Any taxes due will be due. As such, it is imperative that non-spouse beneficiaries understand the rollover rules and limitations when attempting to move inherited plan or IRA funds. Failure to do so could result in a significant tax bill and eliminate any ability to spread taxable distributions over a multi-year period.

Spousal Rollover. Spouse beneficiaries are the only beneficiaries that can move inherited dollars into their own account. This is called a “spousal rollover.” However, once this common transaction is completed, it cannot be unwound. If a surviving spouse under age 59½ does a spousal rollover, the inherited assets will follow all the normal rules applicable to a person’s own IRA – including the early distribution rules. If the young surviving spouse then takes a withdrawal from the account, a 10% early distribution penalty will apply (unless an exception exists). If a young spouse knows that she will need access to the funds, a better choice is to delay the spousal rollover for now and maintain an inherited IRA. Any withdrawals from the inherited IRA will be penalty-free, and she can always do a spousal rollover later, after she turns age 59½.

Exceeding the One-Rollover-Per-Year Rule. An IRA owner is only allowed to roll over one distribution received within any 12-month period (for IRA-to-IRA or Roth-IRA-to-Roth-IRA rollovers). If more than one rollover is done, that mistake cannot be fixed. The illegal rollover is deemed to be an excess contribution in the receiving IRA and must be removed. Any pre-tax dollars included in the failed rollover will be taxable. Note that the one-rollover-per-year rule also applies to spousal rollovers if done via 60-day rollover. To sidestep the one-rollover-per-year rule, do direct transfers.

In Part 2 (to be published on March 11), we will discuss more fatal errors that cannot be fixed.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/fatal-error-mistakes-that-cannot-be-fixed-part-1/

By Andy Ives, CFP®, AIF®
IRA Analyst

QUESTION:

What’s your opinion of the value of Trump Accounts? Worth it for kids? Should the child do a Roth conversion at age 18? Or is it better just to do a Uniform Transfers to Minors Act (UTMA) account? Or perhaps a mix of both since the IRA/Roth is retirement-only money and the UTMA would be able to be used before retirement?

ANSWER:

There is no right answer as every person is different and has different objectives. However, you cannot argue with the mathematics of compounding interest. Trump Accounts are saddled with several restrictions, but the long-term saving possibilities cannot be denied. Assume annual $5,000 contributions go into a Trump Account for a child until they reach age 18. Those dollars are required to be invested in a vehicle that tracks the S&P 500 index (or any other index comprised of stocks in primarily U.S. companies). As such, it is not unreasonable to imagine the account being worth north of $150,000 by age 18. Trump Accounts then begin following the standard IRA rules and can be converted to a Roth IRA. With a conservative (by historical standards) 6% average annual return, the account could be worth over $1.7 million, tax-free, by the time the child is age 60.

QUESTION:

I’m age 75 and started to take my required minimum distribution (RMD) from my IRA at age 73. I want to know if I don’t need my RMD money, can I just dump it into my Roth IRA account? I can survive on my pension and Social Security that I receive monthly. Please help!

Thank you,

Barbara

ANSWER:

Barbara,

RMDs are not allowed to be converted, so those dollars cannot be dumped into your Roth IRA. However, after your RMD for the year is satisfied, you could then do a Roth conversion at any time during the rest of the year for whatever amount you wish. While this strategy will generate more taxable income now, it will also reduce future RMDs and result in tax-free earnings on the dollars you convert; short-term pain for potential long-term gain.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/trump-accounts-and-required-minimum-distributions-todays-slott-report-mailbag/

By Ian Berger, JD
IRA Analyst

With contributions to Trump Accounts expected to begin in just a few months, there are some new developments to report.

As a reminder, Trump Accounts are tax-deferred savings accounts for children. They were established by Congress last July as part of the One Big Beautiful Bill Act (OBBBA). Several different kinds of contributions can be made to Trump Accounts:

• A one-time $1,000 contribution from the federal government for children born between 2025 and 2028.
• Individual contributions by parents, grandparents or others on behalf of a child. For 2026, these contributions are limited to $5,000 and are available even for children who don’t qualify for the federal government contribution.
• Employer contributions for children of employees (or for teenage employees). The 2026 annual limit is $2,500, and these contributions count against the $5,000 individual contribution limit.
• Contributions by tax-exempt organizations and governments. These contributions have no annual dollar limit and don’t count against the $5,000 limit.
• Note that none of these contributions can be made before July 4, 2026, and the last three are only for children in the years before they reach age 18.

Trump Accounts are (non-Roth) traditional IRAs. However, until the year the child turns age 18, several special rules apply. For example, the accounts cannot be withdrawn for any reason. In addition, the funds must be invested in a low-cost mutual fund or ETF that tracks the S&P 500 index or another similar index that consists primarily of the stock of U.S. companies.

Here are the new developments:

• On December 2, 2025, the IRS issued Notice 2025-68, which answered some questions about how Trump Accounts will work. Among other things, the IRS said that a Trump Account can be established by filing Form 4547, either by itself or with the 2025 federal income tax return. The IRS has recently created a website, forms.trumpaccounts.gov, that allows Form 4547 to also be completed online. Parents or grandparents can also use Form 4547 to accept the $1,000 federal government contribution for qualifying children.

• Recently, some estate tax attorneys have said that individuals making Trump Account contributions will need to file Form 709 (the gift tax return) with the IRS. This will create an additional headache for parents or grandparents unless Congress or the IRS eases this requirement.

• For federal incometax purposes, all Trump Account contributions (except for individual contributions) are considered pre-tax IRA contributions. This means that taxation of the contributions and their earnings can be deferred until distribution. Individual contributions are considered after-tax IRA contributions, so only their earnings are taxed – but again not until distribution.

For state income tax purposes, most states appear to be following the federal tax treatment. California is an exception. That state has announced that it won’t recognize Trump Accounts as IRA contributions, but instead will treat them as taxable accounts. This means that, in California, employer contributions and tax-exempt organization contributions will be taxed in the year they are made. Only the $1,000 federal government contribution is considered a pre-tax contribution in California (like under federal tax law). In addition, earnings on all types of Trump Accounts contributions will be taxed annually.

The bottom line: California residents who have Trump Accounts will have them taxed one way for federal income tax purposes and another way for state tax purposes.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/new-trump-account-developments/

By Sarah Brenner, JD
Director of Retirement Education

The tax season is upon us. This is the time when many people consider contributing to a retirement account. You may be interested in the Roth IRA, which offers the promise of tax-free withdrawals in retirement if you follow certain rules. If you are deciding whether a 2025 Roth IRA contribution is the right move for you, here are 5 tips to keep in mind:

1. Know the deadline. The deadline for making a prior year contribution to a Roth IRA for 2025 is April 15, 2026. If you have an extension to file your taxes, that does not give you more time. Sooner is better than later. Don’t wait until the last minute, because you never know what may happen. Be sure to let the IRA custodian know the year for which you are contributing.

Interesting fact: Who do you not have to tell about your Roth IRA contribution? That would be the IRS. There is no requirement that you report a Roth IRA contribution on your 2025 federal tax return. It is good practice, however, for you or your tax preparer to keep track of your Roth IRA contributions.

2. Understand your limits. If you were under age 50 in 2025, the maximum contribution that you may make to a Roth IRA for 2025 is $7,000. For those who reached age 50 in 2025, the maximum contribution limit is $8,000. The annual limit is aggregated for traditional and Roth IRAs. For example, you could contribute $5,000 to your Roth IRA and $2,000 to your traditional IRA. You may not contribute $7,000 to your traditional IRA and $7,000 to your Roth IRA for 2025.

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

4. Don’t count yourself out too soon. You are never too old to contribute to a Roth IRA. Do you already contribute to a retirement plan at work? That is not a problem. Your participation in your company plan does not affect your eligibility to make a Roth IRA contribution.

5. Consider the Back Door. Your income must be under certain limits to make a Roth IRA contribution. If your 2025 modified adjusted gross income (MAGI) exceeds $150,000 if you are single, or $236,000 if you are married filing jointly, your ability to contribute to a 2025 Roth IRA begins to be phased out.

If your income is too high, you might consider a back-door Roth IRA. You simply contribute to a traditional IRA, which has no income limits (but don’t forget the taxable compensation or earned income requirement), and convert. Sounds intriguing? Check with a knowledgeable tax or financial advisor to see if this is a good strategy for you. If you have pre-tax funds in any IRA, the pro-rata rule will apply to your Roth conversion and make part of your conversion taxable.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/5-tips-for-making-your-2025-roth-ira-contribution/

By Andy Ives, CFP®, AIF®
IRA Analyst

A member of Ed Slott’s Elite Advisor Group℠ emailed us recently with a question about a minor child as beneficiary of her father’s IRA. The question was brief, and I think the expectation was that our reply would be of similar length. But our job is not to answer in the fewest words possible. Our responsibility is to fill in the blanks and make sure that member advisors are armed with all the pertinent details. Here is that communication. (Note: Some details have been changed for privacy.)

QUESTION:

Dad died leaving a $200,000 IRA to his daughter. He was not yet taking required minimum distributions (RMDs). Dad died in 2023. Daughter turned age 15 that year. When does her 10-year window begin?

OUR RESPONSE:

Here are the details in bullet points to keep it all straight:

• Dad died in 2023 prior to his required beginning date (RBD), so no lifetime required RMDs for Dad.
• Daughter is an eligible designated beneficiary (EDB) because she is a minor child of the IRA owner.
• As an EDB, and with death prior to the RBD, Daughter has a choice:
  • 10-year rule with NO annual RMDs. The 10-year period would start in 2024 and end in 2033 when the entire account would need to be emptied.OR…
  • Stretch RMDs starting in 2024 when Daughter was age 16 (at her birthday that year). The single life expectancy for a 16-year-old is 69.0. That would be Daughter’s starting factor in 2024, and she would subtract 1.0 from that number each year (i.e., 68.0 in 2025, 67.0 in 2026). Daughter would take RMDs each year until and including the year she turns age 21 (2029). At that point, the 10-year period kicks in (the year she reaches age 22). Daughter continues with the same RMD factor she was using, minus 1.0, for years 1–9. The account must be emptied by the end of the year (2039) in which Daughter turns age 31.

• If Daughter has not taken any RMDs in 2024 or 2025, and if she wants to leverage the EDB stretch + 10-year rule, then we have missed RMDs for 2024 and 2025. No worries. We follow the missed RMD penalty waiver request process.
• The process is: take the missed RMD, complete Form 5329, send the form and a letter to the IRS explaining what happened, that it has been corrected, and to please waive the missed RMD penalty. The IRS has shown that it is agreeable to work with proactive taxpayers.
• If Daughter wants to stick with just the 10-year rule and no EDB stretch, then no RMDs have been missed, and no penalty waiver request is needed.
• If Daughter goes with this 10-year/no RMD option, I suggest not waiting until the end of year 10 (2033) to deplete the account, because she could face an elevated “balloon” tax bill. A gradual drawdown over the next few years, being mindful of tax brackets, could be wise.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/real-life-scenario-minor-as-edb-beneficiary/

By Andy Ives, CFP®, AIF®
IRA Analyst

A member of Ed Slott’s Elite Advisor Group℠ emailed us recently with a question about a minor child as beneficiary of her father’s IRA. The question was brief, and I think the expectation was that our reply would be of similar length. But our job is not to answer in the fewest words possible. Our responsibility is to fill in the blanks and make sure that member advisors are armed with all the pertinent details. Here is that communication. (Note: Some details have been changed for privacy.)

QUESTION:

Dad died leaving a $200,000 IRA to his daughter. He was not yet taking required minimum distributions (RMDs). Dad died in 2023. Daughter turned age 15 that year. When does her 10-year window begin?

OUR RESPONSE:

Here are the details in bullet points to keep it all straight:

• Dad died in 2023 prior to his required beginning date (RBD), so no lifetime required RMDs for Dad.
• Daughter is an eligible designated beneficiary (EDB) because she is a minor child of the IRA owner.
• As an EDB, and with death prior to the RBD, Daughter has a choice:
  • 10-year rule with NO annual RMDs. The 10-year period would start in 2024 and end in 2033 when the entire account would need to be emptied.OR…
  • Stretch RMDs starting in 2024 when Daughter was age 16 (at her birthday that year). The single life expectancy for a 16-year-old is 69.0. That would be Daughter’s starting factor in 2024, and she would subtract 1.0 from that number each year (i.e., 68.0 in 2025, 67.0 in 2026). Daughter would take RMDs each year until and including the year she turns age 21 (2029). At that point, the 10-year period kicks in (the year she reaches age 22). Daughter continues with the same RMD factor she was using, minus 1.0, for years 1–9. The account must be emptied by the end of the year (2039) in which Daughter turns age 31.

• If Daughter has not taken any RMDs in 2024 or 2025, and if she wants to leverage the EDB stretch + 10-year rule, then we have missed RMDs for 2024 and 2025. No worries. We follow the missed RMD penalty waiver request process.
• The process is: take the missed RMD, complete Form 5329, send the form and a letter to the IRS explaining what happened, that it has been corrected, and to please waive the missed RMD penalty. The IRS has shown that it is agreeable to work with proactive taxpayers.
• If Daughter wants to stick with just the 10-year rule and no EDB stretch, then no RMDs have been missed, and no penalty waiver request is needed.
• If Daughter goes with this 10-year/no RMD option, I suggest not waiting until the end of year 10 (2033) to deplete the account, because she could face an elevated “balloon” tax bill. A gradual drawdown over the next few years, being mindful of tax brackets, could be wise.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/real-life-scenario-minor-as-edb-beneficiary/

By Ian Berger, JD
IRA Analyst

In the January 5 edition of the Slott Report, we mentioned that the federal Thrift Savings Plan (for government workers and the military) started offering in-plan Roth conversions on January 28. This article will provide more information about in-plan Roth conversions generally – how they work, their availability, their tax consequences, and who can most benefit from them.

What is an in-plan Roth conversion? It’s a transfer of funds from your non-Roth 401(k) buckets (e.g., pre-tax elective deferrals, non-Roth after-tax contributions and employer matches) to a Roth account within the same plan. Besides active employees, in-plan conversions can be made by former spouses and surviving spouse beneficiaries with a plan account. Conversions cannot be done by non-spouse 401(k) beneficiaries.

In-plan Roth conversions are available to employees in 401(k), 403(b) and governmental 457(b) plans that permit them. (For the sake of simplicity, references in this article to “401(k) plans” mean 401(k), 403(b) and governmental 457(b) plans.)

In-plan Roth conversions are optional for plans. According to a recent report by the Plan Sponsor Council of America, 56% of surveyed plans allow in-plan conversions at any age, while 6% allow them only at age 59½ or older. So, be sure to check with your plan administrator or company HR to see if in-plan Roth conversions are allowed. By contrast, Roth IRA conversions are always available to traditional IRA owners. Roth IRA conversions are also available to inherited 401(k) beneficiaries, but not to inherited IRA beneficiaries.

When you convert funds in pre-tax 401(k) buckets, the conversion is fully taxable to you in the year you do the conversion. However, when you convert funds in a separate after-tax bucket, only part of the conversion is taxable. The conversion is taxable in the same proportion that after-tax earnings in your after-tax bucket bear to the total balance in that bucket. Note that Roth IRA conversions of after-tax amounts are taxed differently. All of your IRAs, including SEP and SIMPLE accounts, are considered in determining the taxable portion of the conversion.

It’s important to remember that once you do an in-plan Roth conversion, it cannot be undone. This means you must have the funds available to pay that year’s tax bill. You also may need to start making quarterly estimated payments to the IRS (or increase existing estimated taxes). Be sure to check with your financial advisor or CPA.

If you’re under 59½, working for a company with a 401(k) plan and want to boost your Roth savings, an in-plan Roth conversion may be an especially good idea. That’s because you normally can’t get access to your pre-tax plan savings in order to do a Roth IRA conversion while you are still employed. But if the plan allows, you can get those funds into a Roth 401(k) account through an in-plan conversion.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/how-in-plan-roth-conversions-work/

By Sarah Brenner, JD
Director of Retirement Education

If you are age 73 or older in 2026, you will need to take a required minimum distribution (RMD) from your IRA. Usually, an RMD is calculated using the IRS Uniform Lifetime Table. However, if you are married to a spouse who is more than 10 years younger, and your spouse is the sole primary beneficiary of your IRA, there is a special rule that applies. You may calculate your RMD using the IRS Joint Life Expectancy Table instead.

What is the benefit? The RMD will be smaller. This can be an advantage for IRA owners who do not need the money and want to minimize taxable income.

Remember that your spouse must be your sole primary beneficiary for the entire year to use this special rule. If you have named multiple beneficiaries on your IRA, then you must use the Uniform Lifetime Table. Contingent beneficiaries are not considered when determining if your spouse is your sole beneficiary.

This opportunity to take a smaller RMD is often missed. Many IRA custodians default to the Uniform Lifetime Table when providing IRS RMD statements (which are required) to IRA owners. The RMD statement, therefore, may not give you the correct RMD amount if your spouse is your sole beneficiary and is more than 10 years younger than you.

If this is your situation, you may need to manually calculate and request the lower amount. You can find the Joint Life Expectancy Table in IRS Publication 590-B. To calculate the RMD, use the factor that corresponds to the ages that you and your spouse reach on your birthdays in 2026. Then divide that factor into your December 31, 2025, IRA balance. Example: Robert, age 76, is married to Maria, age 60. She is his sole IRA beneficiary. Because Maria is more than 10 years younger and the sole beneficiary, Robert can use the Joint Life Expectancy Table to determine the factor to calculate his RMD for 2026. If Robert and Maria look at the intersection of age 76 and age 60 on this table, the life expectancy factor is 28.2. For comparison purposes, the Uniform Lifetime Table’s factor for age 76 is 23.7, which would result in a larger RMD.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/dont-miss-this-rule-that-allows-smaller-rmds/

By Andy Ives, CFP®, AIF®
IRA Analyst

Each year, in different cities, the Ed Slott team hosts several advisor training events for financial professionals serious about learning. These 2-day programs start with our cannonballing into the retirement account pool, and we do not come up for air – we only swim deeper. The hope is that participants come with at least a basic understanding of what an IRA is, what the benefits are, and how retirement accounts generally operate. However, with so many rules to follow, with the SECURE Act and subsequent regulations, with all the different types of beneficiaries, payout options, rollover rules, and other nuances, it is no surprise that some of the foundational IRA guidelines can be misunderstood. Here are three basic IRA rules that all IRA owners and financial professionals must be aware of:

1. IRA Contributions: Cash Only. The misunderstanding of this rule came across our desk just recently. An advisor was trying to make Roth IRA contributions in the form of stock and mutual funds. His idea was to transfer enough shares of stock and/or mutual funds from his client’s non-qualified brokerage account into a Roth IRA to meet the annual Roth IRA contribution limits ($7,000 plus $1,000 age-50-and-older catch-up in 2025; $7,500 plus $1,100 in 2026). His thought was that the existing earnings on the shares could be transferred into a tax-free account, or the custodian would report the existing earnings as taxable prior to the transfer into the Roth IRA. Neither assumption was accurate. Traditional and Roth IRA contributions must be made in the form of cash. Can you imagine the anarchy and price manipulation if people were allowed to transfer items other than cash into an IRA as a contribution?

2. Same Property Rule. This rule dictates that if a person intends to do a 60-day rollover from one IRA to another, the same property distributed must be rolled over. If you withdraw stock, you must roll over the same stock (although not necessarily the same shares). If you withdraw cash, you must roll over cash. For clarification, we like to say if you withdraw blueberries, you must roll over blueberries. In PLR 201506016, an IRA owner tried to withdraw cash, buy an investment property, and then roll that real estate back into his IRA within 60 days. This ordeal was monitored by the IRA owner’s team of professionals that included a CPA, lawyer, financial advisor, and realtor. Nobody knew the rules. Nobody dissuaded the IRA owner from pursuing this transaction. Ultimately, the rollover attempt was denied by the IRS due to the Same Property Rule. (Note that there is one exception to the Same Property Rule. A person could withdraw stock from a work plan like a 401(k), sell the shares, and roll over the cash proceeds.)

3. One-Rollover-Per-Year Rule. Speaking of 60-day rollovers, a person is allowed only one IRA-to-IRA or Roth-IRA-to-Roth-IRA rollover per year. By “per year,” we mean every rolling 12 months, not a calendar year. Where people get sideways with the One-Rollover-Per-Year rule is failing to understand where the rule does NOT apply. It does not apply to Roth conversions. It does not apply to IRA-to-plan rollovers (i.e., “reverse rollovers”), and it does not apply to plan-to-IRA rollovers. This means a 401(k) owner could chop up a plan and make multiple plan-to-IRA rollovers during the year (assuming the plan allows for multiple rollover transactions).

Our Las Vegas 2-Day training event this February is sold out. If you want to dive into the IRA and retirement account rules pool, you can come see us in Brooklyn, New York, July 9-10, 2026. As one of our current Ed Slott members likes to say, “You can’t learn less.”

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/three-basic-ira-rules-that-must-be-understood/

By Andy Ives, CFP®, AIF®
IRA Analyst

QUESTION:

I am age 75 and have just one IRA. I normally do multiple qualified charitable distributions (QCDs) during the year. I also make one or more partial Roth conversions during the year. Please confirm or correct my understanding on the following:

1. All QCDs, in order to be non-taxable, must be taken prior to finishing my required minimum distributions (RMDs) for the year.

2. RMDs must be completed prior to making any partial Roth conversions.

Thanks!

John

ANSWER:

John,

Regarding question 1, your assumption is incorrect. Yes, QCDs are often used to offset RMD income. However, as long as a person is eligible for a QCD and all the standard QCD rules are followed, then you can do QCDs even after you have taken your entire RMD. The QCD will be an additional distribution over and above what you already withdrew for your RMD, but it can still be done. As for question 2, you are correct. All IRA RMDs (even those from other IRAs) must be satisfied before a person can convert all or a portion of any IRA to a Roth IRA.

QUESTION:

I inherited a Roth IRA from a sister who was one year younger than me. If I choose to stretch distributions over my life expectancy, which chart do I use, and whose age do I use for the first RMD?

ANSWER:

If your sister passed away in 2020 or later, then under the SECURE Act rules, you qualify as an eligible designated beneficiary (EDB) because you are “not more than 10 years younger than the decedent.” As an EDB, you can take full stretch RMDs. The first RMD is based on your age (at your birthday) in the year after the year of your sister’s death. Use the Single Life Table to identify your starting factor, and then subtract 1.0 from that initial factor in each successive year. (You do not get to go back to the table each year and look up a new factor.)

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/required-minimum-distributions-and-inherited-roth-iras-todays-slott-report-mailbag/

By Ian Berger, JD
IRA Analyst

With all the tax changes made by the 2025 One Big Beautiful Bill Act (OBBBA), it’s no surprise that the IRS has made significant changes to the 2025 Form 1040 and supporting schedules and forms. Near the beginning of each year’s 1040 instructions, the IRS includes a section titled “What’s New” that summarizes the tax changes in effect for that year and how they are reflected on the 1040. The “What’s New” section in the 2025 instructions contains 25 items.

One of those items says the following: “Write-in information. Beginning in 2025, most of the words, codes, and/or dollar amounts that are used to explain an item of income or deduction, and that you previously had to enter next to a specific line, now have a dedicated checkbox or entry space.”

This change affects the reporting of IRA and retirement plan distributions on lines 4 and 5 respectively of Form 1040. Line 4a is used to report IRA distributions, while line 4b reports the portion of those distributions that is taxable. Similarly, line 5a is used to report plan distributions, while line 5b reports the taxable portion.

If the taxable portion of an IRA or plan distribution (as reported on lines 4b and 5b, respectively) is smaller than the amount of the IRA or plan distribution (as reported on lines 4a and 5a), the IRS wants to know why. In prior years, you (or your tax software) were required to explain the difference by entering a code word next to line 4b or 5b.

For example, if all or part of an IRA or plan distribution was rolled over, “Rollover” had to be entered next to line 4b or 5b. If you did a qualified charitable distribution (QCD) from your IRA, you had to enter “QCD” next to line 4b. A QCD is a tax-free direct transfer from an IRA to a qualified charity when you are age 70½ or older. If you made a health savings account funding distribution (HFD), you were required to enter “HFD” next to line 4b. An HFD is a one-time tax-free direct transfer of IRA funds to your HSA. Finally, if you are a retired public safety officer and you used part of your retirement plan distribution to make tax-free health insurance or long-term care insurance premium payments, “PSO” had to be entered next to line 5b.

For the 2025 Form 1040, the IRS has added new lines 4c and 5c, which mostly contain boxes to be checked instead of having to write in a code on the form. Line 4c includes a box for “Rollover” (Box 1), another for “QCD” (Box 2), and a blank box (Box 3). The 1040 instructions indicate that Box 3 should be checked and “HFD” should be entered next to Box 3 if you made an HFD. Box 3 should also be checked and a word or code should be entered next to Box 3 if another IRS instruction requires it.

Line 5c includes a box for “Rollover” (Box 1), another for “PSO” (Box 2), and a blank box (Box 3). Box 3 should be checked and a word or code should be entered next to Box 3 if another IRS instruction requires it.

What if more than one item applies? The IRS instructions say to check a box for each item and include a statement showing the amount of each item (for example, “Line 4b – $1,000 Rollover and $500 HFD.”).

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/youll-need-to-report-certain-ira-and-retirement-plan-distributions-differently-on-this-years-form-1040/

By Sarah Brenner, JD
Director of Retirement Education

Everyone has heard the horror stories of how unneeded and unwanted trusts disrupted what should have been a smooth transition of wealth. However, it is important to recognize that estate planning for IRAs is nuanced. Trusts are not all bad and should not be overlooked or dismissed unilaterally. There are times when naming a trust as the beneficiary of an IRA definitely should be considered and may be, in fact, necessary for the best outcome.

One situation where a trust should be considered is when the IRA owner’s minor children are involved. If you want to leave your IRA to an adult, you simply name that person on the IRA beneficiary form. Unfortunately, when it comes to minors, it is not that easy. When a minor inherits retirement dollars, the child is not legally able to make financial decisions. A trust is a good strategy to address this problem.

SECURE Act Impact

The SECURE Act changed the rules for beneficiaries of inherited IRAs, including minors. Now most non-spouse beneficiaries are subject to the 10-year rule. However, there is a special rule for some minors. ONLY minor children of the IRA owner are considered to be eligible designated beneficiaries (EDBs) and can take required minimum distributions (RMDs) based on their single life expectancy until age 21. At that time, the 10-year rule would apply. Annual RMDs would be required to continue during years 1-9 of the 10-year period, and the account would need to be emptied by the end of the tenth year.

Trust for a Minor

The rules for RMDs from inherited IRAs paid to trust beneficiaries can be complex, but it is possible to still get the stretch, like when a trust for a minor child of the IRA owner is named as an IRA beneficiary.

The SECURE Act and its regulations maintain the “see-through trust” rules that existed under prior law. If a trust for a minor child of the IRA owner meets these requirements and the child is the beneficiary of a conduit trust, then RMDs can be stretched over the child’s life until age 21, when the 10-year rule will apply.

Example: Rick died in 2020. The beneficiary of his IRA was a qualified conduit trust established for the benefit of his minor daughter, Ava, age 12 at the time. Until Ava reaches age 21, RMDs from the trust-held inherited IRA paid to the trust can be stretched over Ava’s single life expectancy.

Once Ava reaches age 21, the 10-year rule will apply. By the end of the 10 years, all of the remaining trust-held inherited IRA funds will be paid to the trust. In addition, under the regulations, RMDs must continue (from the inherited IRA to the trust and from the trust to Ava) for years 1-9 of the 10-year term. Since RMDs had already begun based on Ava’s single life, they cannot be stopped during the subsequent 10-year term.

Takeaway

Estate planning with IRAs is complicated and everyone’s situation is different. Naming an unnecessary trust as an IRA beneficiary often brings unneeded complication and no benefit. However, if you are naming your minor children as your IRA beneficiary, a trust may, in fact, be necessary. Be sure to consult with a knowledgeable financial advisor or estate planning attorney to see if naming a trust as IRA beneficiary would be a good strategy for you.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/naming-a-trust-for-a-minor-as-ira-beneficiary/

By Ian Berger, JD
IRA Analyst

Question:

If I have had my Roth IRA for 20 years and I do a conversion from my traditional IRA, is the five-year rule in effect for each conversion? I’m under the impression that once I held my Roth for more than five years I don’t have to be concerned about the five-year rule.

Note that I am over age 70.

Dan

Answer:

Hi Dan,

You’re in good shape. The amount you convert will always be available for withdrawal tax-free. In your case, the converted amount will also be immediately available penalty-free since you’re at least age 59½. (The five-year rule on penalty-free distributions of conversions doesn’t apply once you turn age 59½.) You can also withdraw earnings on the converted amount without tax or penalty at any time. That’s because you’re at least age 59½ and have held a Roth IRA for at least five years. (In other words, you’ve satisfied the five-year rule on tax-free distributions of earnings.)

Question:

Hello!

I will be age 73 on February 9, 2026. I am still working and have a current 401(k) account. I don’t intend to retire but plan to work for a couple of years, until I turn age 75.

I also have a traditional IRA account. To avoid taking required minimum distributions (RMDs) from the IRA account, I am considering rolling over that account to my 401(k) account. Please let me know if I could do that to avoid RMDs.

Jaywanth

Answer:

Hi Jaywanth,

Sorry, but that won’t work. Since you are turning age 73 this year, 2026 is your first RMD year for your IRA. This means you must first take the 2026 RMD before doing a rollover to your 401(k). That’s because the first dollars distributed out of your IRA in 2026 are considered RMDs, and RMDs can’t be rolled over. (Whether you could still roll over the remaining part of your IRA to the 401(k) depends on whether your 401(k) plan allows rollovers into the plan.)

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/roth-ira-distribution-rules-and-rollovers-of-required-minimum-distributions-todays-slott-report-mailbag/

By Andy Ives, CFP®, AIF®
IRA Analyst

Excess IRA contributions occur for many reasons, like making a contribution without eligible compensation, accidentally exceeding the Roth IRA phase-out limits, rolling over a required minimum distribution (RMD), etc. Excess contributions to 401(k) plans can also occur. A plan participant might contribute to one plan, quit, get a new job, and then inadvertently exceed the combined annual deferral limits to plan #2 at the new job. Regardless of why an excess happened in either an IRA or a 401(k), the correction methods between the two are drastically different.

The penalty for an excess IRA contribution is 6% of the excess if it is not timely corrected. With a “timely” correction, the excess is typically removed from the IRA, along with the earnings, i.e., the “net income attributable” or “NIA,” by October 15 of the year after the year of the excess (October 15, 2026 for a 2025 excess). Corrections made after the October deadline do not require the removal of the NIA.

Another IRA correction method allowed prior to the October 15 deadline is recharacterization. While recharacterization of Roth IRA contributions is no longer allowed, recharacterization of IRA contributions is still permitted. A traditional IRA contribution can be recharacterized to a Roth IRA or vice versa. This can be a valuable tool for the right person. An IRA contribution can be recharacterized for any reason at all as long as it can be a valid contribution to the other type of IRA. An excess IRA contribution could also be “carried forward” to a later year, but the 6% penalty would still apply in the year of the excess. Ultimately, the 6% penalty applies for each year the excess remains in the IRA as of December 31, and that penalty is paid via Form 5329.

With a 401(k), the corrective process is completely different. There is no recharacterization option, and the 6% penalty (applicable to IRAs) has no bearing. The deadline for correction is April 15 of the year after the year of the excess contribution. If the excess 401(k) contribution (plus earnings) is not removed from the plan by the deadline, those dollars remain in the plan. The fallout is double taxation. The excess 401(k) contribution must be reported as taxable income for the year of the excess contribution, and those dollars are taxed again upon distribution from the plan.

Example: Daniel, age 47, works for ABC Co. and participates in their 401(k) plan. For 2025, Daniel defers a total of $15,000 from his salary into the ABC Co. plan. In June of 2025, Daniel quits his job at ABC Co. for a better opportunity with XYZ, Inc. One of the perks offered by XYZ, Inc. is immediate eligibility for the
XYZ, Inc. 401(k). Daniel starts salary deferrals and, over the remainder of 2025, defers $12,000 into the XYZ, Inc. 401(k). For 2025, Daniel has deferred a combined total of $27,000 into the ABC Co. and XYZ, Inc. 401(k) plans. This puts him $3,500 over the 2025 salary-deferral limit of $23,500. If the $3,500 excess (plus earnings) is not removed from one of the plans by April 15, 2026, then those dollars remain in the 401(k). Daniel will be taxed on the $3,500 of income in 2025, and the excess (plus earnings) will again be taxed upon withdrawal in the future.

IRAs and 401(k) plans have many similarities. However, the correction methods for fixing an excess contribution are not one of them.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/a-different-fix-excess-ira-vs-401k-plan-contributions/

By Ian Berger, JD
IRA Analyst

Thinking about leaving your job? Make sure you understand the vesting schedule that applies to your retirement plan. It may pay to stick it out a little longer to become more “vested” in your plan. Otherwise, you may lose out on valuable benefits.

What does it mean to be “vested”? Vesting tells you how much of your plan benefit you actually own and cannot be taken away from you:

• If you’re fully vested, you’re entitled to 100% of your benefit.
• If you’re partially vested, you only get a portion of your benefit.
• If you’re 0% vested, you receive no benefit at all.

In the case of a partially-vested or 0%-vested benefit, the unvested portion of your benefit will be forfeited and used by your employer to make future company contributions or pay administrative expenses.

You receive vesting credit based on your service with your employer. Most plans award you with a year of vesting service for each 12-month period that you work at least 1,000 hours. Other plans measure vesting service based on the total period of your employment from date of hire to date of separation. (Special rules may apply if you were previously a part-time employee.) Check the plan’s written summary or speak with the plan administrator or HR for more details.

In a defined contribution plan like a 401(k), 403(b) or 457(b), your own contributions (whether pre-tax deferrals, Roth contributions, or non-Roth after-tax contributions) and associated earnings are immediately 100% vested. However, employer matching contributions (or other employer contributions) and associated earnings may either be immediately 100% vested or subject to a vesting schedule.

If your plan uses a vesting schedule, it must be either “cliff vesting” or “graded vesting.” If cliff vesting is used, the schedule must be at least as favorable as the following:

Years of Service                                            Cliff Vesting

1                                                                   0%

2                                                                    0

3 +                                                             100

If graded vesting is used, the schedule must be at least as favorable as the following:

Years of Service                                          Graded Vesting

1                                                                   0%

2                                                                  20

3                                                                  40

4                                                                  60

5                                                                  80

6 +                                                             100

Example: Selina participates in a 401(k) plan with a 6-year graded vesting schedule for employer matching contributions. She leaves her job after three years of service with $40,000 in her pre-tax deferral account and $8,000 in her match account. Selina can directly roll over $43,200. That represents 100% of her deferral account ($40,000) and 40% of her match account ($3,200). The unvested part of her match account ($4,800) will be forfeited.

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

By law, your benefit under any company plan must become 100% vested, regardless of 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.

Your IRAs, including SEP or SIMPLE IRAs, are not subject to vesting rules. You can receive the full value of your IRA accounts at all times.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/how-the-vesting-rules-work-for-company-retirement-plans/

By Sarah Brenner, JD
Director of Retirement Education

Question:

Hello!

I have been a big fan for a long time. I have a question regarding a Roth IRA I inherited from my younger brother last year. I have heard that I must empty this account by the end of 2035. I have also heard that I can stretch distributions over my life expectancy. Which is correct?

Answer:

Thank you for the kind words! Both are actually correct. You are an eligible designated beneficiary (EDB) because you are older than your brother. Any beneficiary who is not more than ten years younger than the IRA owner is an EDB. Being older means you are not more than ten years younger. As an EDB who inherited a Roth IRA, you have a choice. You can choose the 10-year rule with no annual required minimum distributions (RMDs), or you can choose to use the stretch.

Question:

Can I make a Roth IRA contribution if I am contributing to a Roth 401(k) at my job?

Answer:

Yes, assuming your income does not exceed the Roth IRA contribution phaseout levels. Your ability to make a Roth IRA contribution is not affected by your participation in a Roth 401(k) at work. As long as you are otherwise eligible, you can go ahead and make a Roth IRA contribution.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/eligible-designated-beneficiaries-and-roth-ira-contributions-todays-slott-report-mailbag/

By Sarah Brenner, JD
Director of Retirement Education

IRA and Roth IRA contributions are only permitted when you have taxable “compensation” or earned income. Typically, whether or not a person has compensation is a relatively straightforward determination. For most individuals, compensation comes from employment, either as an employee or from self-employment income. Confirmation of compensation can be found in box 1 of the person’s W-2 form. Any amount listed there qualifies as compensation.

As is often the case with IRAs, special rules exist for spouses when it comes to compensation. A spouse with little or no compensation can make an IRA contribution based on his spouse’s compensation. If the higher-compensated spouse has enough eligible income, both spouses can make the maximum IRA contribution.

For the lower-compensated spouse, the most that can be contributed for 2026 to an IRA is the smaller of the following two amounts:

1. $7,500 ($8,600 if age 50 or older), or

2. The combined compensation of both spouses for the year, reduced by the higher-compensated spouse’s IRA contribution for the year.

This means that the total combined contributions that can be made to 2026 IRAs can be as much as $15,000 ($16,100 if only one of you is age 50 or older, or $17,200 if both of you are age 50 or older).

Example: Randy, age 57, is unemployed in 2026. He has no compensation. He marries his girlfriend, Rita. Rita, age 52, has $75,000 in compensation from her job in 2026. Both Rita and Randy can contribute $8,600 to their IRAs for 2026.

Rules to Keep in Mind

If you and your spouse are thinking about making spousal contributions, here are some rules to keep in mind:

1. You may make spousal IRA contributions in some years and regular IRA contributions in others.
2. There is no need to keep regular and spousal contributions in separate IRAs.
3. There is no need 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.
4. Spouses are not required to contribute to the same type of IRA. One may choose to contribute to a traditional IRA, and the other may contribute to a Roth IRA.
5. Spouses are also not required to make their contributions at the same time or with the same IRA custodian.
6. To make a spousal contribution for the year, the couple must be legally married on December 31 of that year.
7. The couple must file a joint federal income tax return for the year.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

By Andy Ives, CFP®, AIF®
IRA Analyst

In our December 8, 2025 Slott Report entry (“Yes, RMDs Apply to Inherited Roth IRAs, But…”), we wrote about the application of required minimum distributions (RMDs) to inherited Roth IRAs. As expected, that article received significant attention. One reader asked if we could expand on the topic by discussing how an inherited Roth IRA is passed to the next beneficiary in line, i.e., to a successor beneficiary.

Successor beneficiaries (the beneficiary of a beneficiary) do NOT get to use any of their own personal information or status to dictate the payout structure of an inherited IRA. It does NOT matter who the successor beneficiary is or what the successor’s relationship to the first beneficiary is. It does NOT matter if the successor is a spouse, disabled or a minor child. The successor’s status as either an eligible designated beneficiary (EDB) or a non-eligible designated beneficiary (NEDB) plays NO role in determining the required payout of the inherited IRA. The successor simply “steps into the shoes” of the previous beneficiary and follows the exact same payout program that applied to the original Roth IRA beneficiary, with one exception (outlined in Example #2 below).

As explained in the December 8 Slott Report article, if the first beneficiary of a Roth IRA is an NEDB, then the 10-year rule applies. Since original Roth IRA owners are never subject to RMDs while alive, there are no annual RMDs in years 1-9 within the 10-year period. The account simply needs to be emptied by the end of the 10^th year, starting in the year after the year of death. If the first beneficiary dies during that 10-year period, the successor beneficiary “steps into the shoes” of the first beneficiary and continues with the existing 10-year window, still with no annual RMDs. A successor does NOT get to add an additional 10 years.

Example 1, NEDB: Grandfather Gary dies with a Roth IRA. The beneficiary of Grandfather Gary’s Roth IRA is Adult Son Sam, who qualifies as an NEDB. As such, Adult Son Sam gets the 10-year rule with no annual RMDs within the 10-year period. Sadly, Adult Son Sam dies 7 years later. The successor beneficiary for Adult Son Sam’s inherited Roth IRA is Wife Wanda. It does not matter that Wife Wanda is the spouse of the first beneficiary. Wife Wanda is a successor beneficiary. Wife Wanda steps into the shoes of the first beneficiary and continues with the existing 10-year period. Wife Wanda must empty the inherited Roth IRA within 3 years.

The December 8 Slott Report also outlined how an EDB can leverage the stretch RMD rules on an inherited Roth IRA. The status of the original beneficiary impacts the successor’s payout.

Example 2, EDB: Grandma Jones dies with a Roth IRA. The beneficiary of Grandma Jones’ Roth IRA is Daughter Debbie. Daughter Debbie is disabled, which qualifies her as an EDB. Accordingly, Daughter Debbie can stretch annual RMDs on the inherited Roth IRA over her own single life expectancy. Sadly, Daughter Debbie dies 7 years later. The successor beneficiary for Daughter Debbie’s inherited Roth IRA is Husband Harold. It does not matter that Husband Harold is the spouse of the first beneficiary. Husband Harold is a successor beneficiary. Husband Harold steps into the shoes of the first beneficiary. Husband Harold continues with Debbie’s exact same RMD factor, minus 1.0 each year. Additionally, Husband Harold must ALSO initiate a 10-year period. Husband Harold will have annual RMDs in years 1-9 and must empty the inherited Roth IRA by the end of the 10^th year after the year of the first beneficiary’s death. (If Husband Harold dies within 10 years, the next beneficiary, the successor of the successor, would step into Harold’s shoes and continue with the same RMD factor and whatever remains of the 10-year window).

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/inherited-roth-iras-and-successor-beneficiaries/

By Andy Ives, CFP®, AIF®
IRA Analyst

QUESTION:

Hello,

I am searching for confirmation that Roth SIMPLE IRA contributions are not limited by modified adjusted gross income (MAGI) in the same way that Roth IRA contributions are. This is not addressed in any of the articles or blogs I have read. I am setting up a SIMPLE plan as an employee-owner in 2026. I would prefer to make my deferrals into a Roth IRA, but have too much income to contribute. I hope you can help me clear this up!

Thank you,

Tracy

ANSWER:

Tracy,

While there are MAGI limits for making a Roth IRA contribution (in 2026, $242,000 – $252,000 for those married filing jointly; $153,000 – $168,000 for single filers), there are no such restrictions when contributing to the Roth portion of a work plan like a SIMPLE or 401(k). A person with a million-dollar salary could still make Roth contributions to a work plan. Additionally, IRS Publication 590-A includes a worksheet titled “Modified Adjusted Gross Income for Roth IRA Purposes.” There is no similar worksheet applicable to work plans, because MAGI has no impact on Roth contributions to workplace retirement plans.

QUESTION:

Your Q&A posts are excellent, down-to-earth and understandable – very much appreciated.

My question is about my mother-in-law who inherited a SEP IRA account a couple of years ago when her sister passed away (she was self-employed). Both were over age 73 at the time.

One advisor stated that my mother-in-law cannot satisfy the required minimum distribution (RMD) from that SEP IRA account with a qualified charitable distribution (QCD) and refuses to allow the distribution to be done as a QCD. Another advisor claims that she can use the QCD rules because the SEP IRA is not receiving contributions and has not for many years, so it is not an active SEP IRA. Please let me know your thoughts.

John

ANSWER:

John,

Thank you for the feedback about our Q&A Mailbag! In the scenario you outlined, advisor #2 is correct. Yes, a QCD can be done from that inherited SEP IRA. Your mother-in-law is over age 70½, so she is eligible to do a QCD. The fact that it is an inherited SEP IRA eliminates the possibility that any dollars are being contributed to it on behalf of your mother-in-law. This means the SEP IRA is inactive (as you described), which opens the door to allowing QCDs from that account.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/simple-plans-and-qualified-charitable-distributions-todays-slott-report-mailbag/

By Ian Berger, JD
IRA Analyst

One of the most common retirement account transactions – rolling over Roth 401(k) funds to Roth IRAs – is also one of the most complicated tax-wise. That’s because the rollover involves two five-year holding periods, one for the Roth 401(k) distribution/rollover and the other for the eventual Roth IRA distribution.

When you withdraw from a Roth IRA that contains dollars previously in a Roth 401(k), there are three pieces to consider:

• Roth 401(k) contributions that were rolled over;
• Earnings on Roth 401(k) contributions that were rolled over; and
• Earnings on the rolled-over amounts that were generated after the rollover.

Rolled-Over Roth 401(k) Contributions

The Roth contributions you make to your 401(k) are funded with after-tax salary. So, it would be unfair (even for the IRS) to tax you again when you withdraw those funds from your Roth IRA after a rollover. That’s why the rolled-over contributions (but not necessarily earnings on those contributions) are always available for withdrawal from your Roth IRA without tax or the 10% early distribution penalty.

Earnings on Roth 401(k) Contributions That Are Rolled Over

This is the sticky part. Earnings that you rolled over may also be available for withdrawal from your Roth IRA at any time without tax or penalty if the Roth 401(k) distribution met two conditions. First, you must have been at least age 59½ (or disabled) when you received the distribution. Second, you must have satisfied a five-year holding period for that particular 401(k) plan, starting on January 1 of the year of your first Roth 401(k) contribution (or in-plan Roth conversion).

If you didn’t satisfy both of these conditions, then the rolled-over earnings can be withdrawn tax-free from your Roth IRA only if your eventual Roth IRA distribution meets two slightly different conditions. The first is that you must be at least age 59½ (or disabled or using the funds for first-time homebuyer expenses) when you receive the Roth IRA distribution. The second is you must satisfy a five-year period that begins on January 1 of the year you made your first contribution (or Roth conversion) to any Roth IRA. Note that the period when you made Roth 401(k) contributions cannot be credited towards the Roth IRA five-year clock. Getting the Roth IRA clock running is why it’s so important to open a Roth IRA (even with a small amount) as soon as possible. (Withdrawals of rolled-over earnings won’t be penalized if you’re at least 59½ or qualify for a penalty exception.)

Earnings on the Rolled-Over Amounts Generated After the Rollover

What about earnings that are generated after the rollover? They can always come out of the Roth IRA tax-free if both conditions described in the preceding paragraph (being 59½, disabled, or a first-time homebuyer and having a Roth IRA holding period of at least five years) are satisfied. (They can come out penalty-free if you’re 59½ or older or you qualify for an exception.)

The bottom line: If you want to withdraw from your Roth IRA, you can always get your rolled-over Roth 401(k) contributions out first without tax or penalty. But you may have to wait some time before the earnings you rolled over (and the earnings generated after the rollover) are available free and clear of tax and penalty. Getting help from a competent financial advisor is essential.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/making-sense-of-the-roth-401k-to-roth-ira-rollover-rules/

Sarah Brenner, JD
Director of Retirement Education

The rules for required minimum distributions (RMDs) can be complicated and, under the law, the responsibility to get it right rests with the IRA owner. If you are required to take an RMD from your IRA for 2026, you should watch out for an important RMD communication that your IRA custodian is required to send to you by January 31, 2026. Your RMD statement includes critical information that can help you get your 2026 RMD right and avoid penalties.

Early Reminder

The RMD statement is an early reminder that you have an RMD for 2026. Statistics consistently show that many IRA owners do not take their RMDs. The IRS requirement that custodians send RMD statements is designed in part to improve those statistics. Your RMD statement puts you on notice at the beginning of 2026 that you have an RMD for the year.

RMD Deadline

The RMD statement will also tell you the deadline for taking your 2026 RMD. If you attain age 73 in 2026, this is your first distribution calendar year; your statement will tell you that your deadline for taking your 2026 RMD is April 1, 2027. If 2026 is not your first distribution calendar year, your statement will tell you that your RMD deadline is December 31, 2026.

Amount of RMD

Your RMD statement may include an RMD amount for 2026. Some IRA custodians do this calculation for you. Other IRA custodians include a statement offering to calculate your RMD upon request.

Reporting to the IRS

The statement will tell you that the IRA custodian will be reporting the fact that you have an RMD for 2026 to the IRS. Consider yourself warned that the IRS has been informed that you must take a 2026 RMD!

No RMD Statements for Beneficiaries

If you are an IRA beneficiary, you may have to take an RMD from an inherited IRA for 2026. Currently, the IRS does not require IRA custodians to send RMD statements to beneficiaries. A beneficiary will not receive an RMD statement but may still need to take a 2026 RMD.

May Be Included with FMV Statements

IRA custodians are required to provide IRA owners with the December 31, 2025 fair market value (FMV) of their IRAs by January 31, 2026. Your IRA sponsor may include your RMD statement with the FMV statement.

Default Calculation Use

Be careful! While your IRA custodian may provide you with your calculated RMD amount, your custodian is permitted to use certain defaults in the calculation. They may use the December 31, 2025 balance without any adjustments and may use the Uniform Lifetime Table. For most IRA owners, this will result in an accurate RMD calculation, but for some it will not. If you had an outstanding rollover or transfer, or if your spouse is the sole beneficiary of your IRA and is more than ten years younger than you, you will need to adjust the calculation to find your actual RMD for 2026.

Information Purposes

You do not need to file the RMD statement with your tax return. Take a few minutes to read through your statement and be sure there are no errors. If you have any questions about the statement or your RMD in general, you may want to consult with a knowledgeable advisor.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/how-your-rmd-statement-can-help-you/

Ian Berger, JD
IRA Analyst

Question:

Does a non-spouse eligible designated beneficiary (EDB) have to pay taxes on required minimum distributions (RMDs) either at the end of ten years or with annual RMDs?

Answer:

Any EDB (other than a minor child) can stretch RMDs over the beneficiary’s life expectancy. And, if the IRA owner died before his required beginning date (RBD) for starting RMDs, the EDB can instead elect the 10-year rule. In that case, the entire inherited IRA must be emptied by the end of the 10^th year following the year of death. Annual RMDs are permitted, but not required, during the 10-year period. The EDB will need to pay taxes on any RMD received, either annually if the stretch is used or in the 10^th year (or sooner) if the 10-year rule is used.

Question:

I am a big fan of yours and respect your opinion. I have a rollover IRA from which I have been taking annual required minimum distributions (RMDs) because I am well past my required beginning date (RBD). I also make maximum annual qualified charitable distributions (QCDs) to reduce my tax burden. I am also the trustee and income beneficiary of a marital trust which is the beneficiary of my late wife’s IRA. Can I also make annual QCDs from this trust?

Thank you,

Richard

Answer:

Hi Richard,

Thanks for the kind words! Unfortunately, a trust that is the beneficiary of an inherited IRA cannot make QCDs because only individuals age 70½ or older can do so. The individual can be either an IRA owner or an IRA beneficiary. Since a trust is not an individual, it is not eligible.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/taxes-on-required-minimum-distributions-and-qualified-charitable-distributions-from-trusts-todays-slott-report-mailbag/

By Andy Ives, CFP®, AIF®
IRA Analyst

It’s a new year, and the slate is wiped clean. Here we go again! While we are only one week into 2026, there are some important IRA and work plan transactions to be aware of:

First RMDs. For anyone turning age 73 in 2026, this year is your first required minimum distribution (RMD) year (assuming the still-working exception does not apply to your workplace retirement plan). Divide your 2025 year-end IRA or plan balance by the applicable life expectancy factor to determine your initial RMD. Typically, the Uniform Lifetime Table is used. The corresponding factor for a 73-year-old from this table is 26.5. This first RMD can be delayed until as late as April 1, 2027. All future RMDs (including the RMD applicable to 2027) must be taken by December 31 of that year.

QCDs. Speaking of first-time RMD takers, know that all or a portion of your IRA RMD can be offset with a qualified charitable distribution (QCD). The permitted QCD age is 70½, and the annual QCD limit for 2026 is increased to $111,000. Any IRA dollars sent directly to charity via QCD are excluded from income. If a QCD check is made payable to a charity but sent to the IRA owner for hand delivery, that qualifies as a valid QCD. Also note that QCDs are not available from workplace plans like a 401(k). QCDs are for IRAs only.

Roth Conversions. Roth conversions should be considered by every IRA owner and retirement plan participant. That does not mean a Roth conversion makes sense for every person, but it must be a topic of discussion. Be aware that there is no such thing as a “prior-year conversion.” It’s too late to do a conversion for 2025. Any conversions done in 2026 will be taxable in 2026 and have a January 1, 2026 start to the 5-year conversion clock. Also, Roth conversions are not an all-or-nothing proposition. Smaller partial conversions throughout the year are acceptable. This can help smooth out market volatility and can alleviate concerns about converting at a market peak. Think of it as “dollar-cost averaging” into a Roth IRA or the Roth portion of a plan.

IRA Contributions. While Roth conversions cannot be done for the previous year, IRA contributions can still be made for 2025. The deadline to make a prior-year 2025 traditional or Roth IRA contribution is April 15, 2026. And if you have extra cash in your pocket, there is no reason you can’t also make a 2026 IRA contribution at the same time. The 2025 contribution limits are $7,000, plus $1,000 for those age 50 and older. For 2026, those limits increase to $7,500 and $1,100, respectively.

401(k) Plan Contribution Limits. The limits for contributing to a work plan like a 401(k) have also increased for 2026. The “regular” contribution amount is now $24,500, and the standard age-50-and-older catch-up is $8,000. So, for those who qualify, who have access to a work plan, and who have extra income to be able to sock money away for retirement, the combined IRA and 401(k) contributions/salary deferrals are significant.

Beneficiary Form Review. While this is not technically an IRA or work plan transaction, the new year is a good reminder to review beneficiary forms on all accounts. Life happens and things may have changed. Be sure all beneficiary forms are updated. It’s a new year. Time to get after it!

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

By Ian Berger, JD
IRA Analyst

Since 2010, participants in certain private sector 401(k) plans have been able to boost their Roth retirement savings by doing an “in-plan Roth conversion” of non-Roth plan funds to a Roth account within the same plan. This plan feature is optional, not mandatory, and a recent survey by Fidelity found that about 40% of the 401(k) plans it services allow in-plan conversions.

Starting January 28, 2026, the Thrift Savings Plan (TSP), a 401(k)-like retirement savings plan for federal civilian employees and uniformed services members, will also begin offering in-plan conversions.

Here are the rules governing TSP in-plan Roth conversions:

• In-plan conversions will be available to all TSP participants, including active participants, separated and retired participants, and spouse beneficiaries with accounts.
• The minimum amount for each in-plan conversion is $500. However, a minimum of $500 must be left in each account after an in-plan conversion. (This rule does not apply to rollover or spouse beneficiary accounts.) Aside from the $500 “leave-behind” requirement, there is no maximum in-plan conversion amount.
• Up to 26 in-plan conversions can be made per calendar year.
• Married TSP participants are not required to obtain spousal consent before doing an in-plan conversion.
• For participants subject to required minimum distributions (RMDs), the RMD for that year must be withdrawn before doing an in-plan conversion.
• Only funds invested in TSP funds are available for an in-plan conversion. Certain TSP participants are eligible to invest in non-TSP mutual funds. However, funds invested in non-TSP mutual funds are not available for in-plan conversion. Participants wishing to do an-plan conversion with non-TSP mutual funds must first sell their shares in those funds and request to have them transferred to TSP funds.

As with in-plan Roth conversions in private sector 401(k) plans, TSP in-plan conversions create taxable income in the year of the conversion and cannot be reversed or changed. In addition, because there is no withholding on in-plan conversions, participants may be required to make estimated tax payments to the IRS. Therefore, a TSP participant considering an in-plan conversion must make sure he has enough funds to cover the increased tax liability.

We encourage any retirement savings plan participant – whether in the TSP or not – to seek help from a knowledgeable financial advisor before taking the in-plan Roth conversion plunge.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/coming-soon-the-thrift-savings-plan-will-start-offering-in-plan-roth-conversions/

By Sarah Brenner, JD
Director of Retirement Education

‘Tis the season for lists! Best TV shows, best of music and best podcasts. The lists go on and on. In the spirit of year-end lists, we present the “Best of the 2025 Slott Report.” Here are the retirement account blogs that got people talking in 2025.

• In January of 2025, we started the year strong with “Beneficiary Form Resolutions.” An annual check-up of retirement account beneficiary forms should be on everyone’s to-do list. Make it one of your resolutions for 2026.

• Later on in January, we examined how baseball and IRAs are NOT alike. On January 21, Ichiro Suzuki was elected to Major League Baseball’s Hall of Fame by the Baseball Writers Association of America. It takes 75% of the writers’ support to gain entry, and Ichiro was chosen on 393 out of 394 ballots. While a person can reach Cooperstown without 100% of the votes, such is not the case with many IRA transactions. A single misstep, a lone “missed vote,” and the outcome could be completely different. Read about some transactions where a 1% shortfall can cause the entire house of baseball cards to come tumbling down here: “99%: Good Enough for the Hall of Fame, but Not for Certain IRA Transactions.”

• It seems that some topics generate tons of questions every time we write about them. One of those is “How Roth IRA Distributions Are Taxed.” Another is the tax break for net unrealized appreciation (NUA), which we focus on in the blog post “NUA: ‘Resetting’ Cost Basis.”

• No one wants to imagine it could happen to them, but each year millions find themselves in bankruptcy. What does that mean for your IRA? Our blog post, “Higher IRA Federal Bankruptcy IRA Protection Limit Became Effective on April 1,” answers those questions.

• The SECURE Act, which upended the rules for retirement account beneficiaries, went into effect in 2020. Five years later, we are still getting questions on this complicated law. In “Surprise! You May Still Be Eligible for the Stretch IRA,” we explore the nuances of the rules for eligible designated beneficiaries who still get the stretch post-SECURE Act.

• While most distributions from a traditional IRA are taxable, sometimes distributions can include after-tax dollars. These after-tax dollars are known as “basis.” Handling and tracking basis in your traditional IRAs can be challenging, but it is important to get it right. If mistakes are made, double taxation can occur. That is a result no IRA owner wants. See how to get it right in our blog post, “Basis In Your Traditional IRA.”

• Qualified charitable distributions (QCDs) are a popular strategy for older IRA owners who are charitably inclined. There has never been special coding on Form 1099-R for QCDs. That changed in 2025 when the IRS introduced Code Y, but then backed off and made the new code optional. Here are the details: “New Code Y is Optional for 2025 QCDs.”

• At the Slott Report in 2025, we were constantly battling the unending stream of misinformation that can trip up even experienced financial advisors. In “Misconceptions About the Still-Working Exception” and “The Craziest Stuff I’ve Heard,” we do our best to set the record straight.

• Summer of 2025 was a busy time with the passage of the One Big Beautiful Bill Act (OBBBA). We discussed “3 Retirement Account Takeaways from OBBBA,” as well as the “OBBBA Impact on HSAs.”

• OBBBA also brought us a new tax advantaged account called a “Trump Account.” In “Trump Accounts – A Hot New Bombshell Enters the Tax-Advantaged Account Villa,” we explain these new accounts scheduled to be available later in 2026. We also reported on new IRS guidance in “IRS Addresses Unanswered Questions About Trump Accounts.”

• Other new developments to look for in 2026 include the arrival of the delayed mandatory Roth catch-up contributions for high earners. In “IRS Confirms Effective Date of Mandatory Roth Catch-Up Rule” and “8 Questions Answered About the New Mandatory Roth Catch-Up Rule,” we give all the details.

• Also, catch-up contributions for SIMPLE IRAs for 2026 will be more complicated than ever, as discussed in “The Crazy-Complicated 2026 SIMPLE IRA Plan Elective Deferral Limits.”

We look forward to sharing more retirement account information and developments in the upcoming year. Stay tuned in 2026 for the latest news on the rules that impact your IRA or employer plan.

Happy New Year from the Slott Report!

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/best-of-the-2025-slott-report/

By Andy Ives, CFP®, AIF®
IRA Analyst

The Grinch likes it when things go horribly wrong. He likes it when rambunctious pets tip over Christmas trees. He likes it when festive lights get terribly tangled, and he likes it when holiday cards are lost in the mail. The Grinch likes burned Christmas dinners and obnoxious uncles and seeing people slip on ice. And when it comes to IRAs and other retirement accounts, the Grinch’s favorite things are penalties and missed opportunities. Here’s a coal-stuffed stocking full of transactions that are (for the most part) now too late to get done. (Insert evil Grinch smile here.)

Net Unrealized Appreciation (NUA). When a person has highly appreciated company stock in his 401(k), that stock can be distributed in-kind to a non-qualified brokerage account. The result is the account owner pays taxes at long-term capital gain rates on the appreciation when the stock is ultimately sold. But if the NUA transaction is not handled properly, ordinary income rates will apply to the gains. If a 401(k) owner unwittingly “activated” his NUA eligibility earlier this year (for example, by taking a distribution from the plan after a trigger event), it is too late to start the NUA process. There is little chance a 401(k) will be able to handle a new NUA distribution request this late in 2025. The NUA opportunity applicable to the most recent NUA trigger is forever lost. And to that, the Grinch whispers, “Delicious.”

Qualified Charitable Distributions (QCDs). QCDs are the most efficient way for those age 70½ and older to donate IRA money to charity. The funds must be sent directly from the IRA custodian to the charity. Or, if the check is made payable to the charity, it could be sent to the IRA owner for hand delivery. Do you think an IRA custodian will process a new QCD request this late in the year? Highly doubtful. Be aware: there is no such thing as a “prior-year QCD,” so don’t think you can backdate a distribution in early 2026 for 2025. Ah, but you have a “checkbook IRA” that allows you to write checks from your IRA account? The check must be CASHED by the charity before the clock strikes midnight on New Year’s Eve to qualify for 2025. It does not matter when the check was written. Better hustle, Little Who, if you want your QCD to count for 2023, plus 2!

Fixing an Excess IRA Contribution. Did you contribute too much to an IRA in 2024? Did you contribute to a Roth IRA in 2024 and then realize after the fact that you were not eligible for a Roth IRA? The Grinch points his gnarled finger at you and smirks. The deadline to fix a 2024 excess (or ineligible) IRA contribution with no penalty was October 15, 2025. You missed it by months. For your holiday gift, the Grinch stuck a big red bow on a box that contains a 6% penalty, just for you. (He also put Form 5329 in a holiday envelope so you can pay the IRS.)

Taking a Required Minimum Distribution (RMD). The deadline to take an RMD from an IRA is December 31. We are not talking about a person’s first RMD at age 73, which can be delayed until April 1 of the following year. We are talking about post-age 73 lifetime RMDs and RMDs applicable to inherited IRAs. Take the RMD by the end of the year, or you will get your own specially wrapped gift from the Grinch containing a potential 25% missed RMD penalty. (The Grinch shopped all over for your special prize…in just the right color and shape and right size.)

Roth Conversions. For a Roth conversion to count for 2025, the funds must be out of the taxable account by December 31. Oh, such a tantalizing close date…and it’s probably already too late! To all the people who missed their target, the Grinch knows he won’t lose. He scoffs and he sneers, “Boo-hoo to the too-late Whos.”

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/grinch-gifts-penalties-and-missed-opportunities/

By Ian Berger, JD
IRA Analyst

In the spirit of the holiday season, here’s a list of cheers and jeers for the IRS and Congress:

Cheers to the IRS: To its credit, the IRS did issue timely guidance on two retirement-related provisions set to kick in next year. The first is the SECURE 2.0 Act requirement that, beginning January 1, 2026, certain high-paid employees who want to make 401(k) catch-up contributions must have them deposited into a Roth account. The second is the One Big Beautiful Bill Act (OBBBA) provision allowing for Trump accounts. Contributions to those accounts are expected to be available sometime in 2026, but not before July 4.

Jeers to the IRS: However, we must continue to ding the IRS for failing to address a very important, yet simple, question relating to 529 plan-to-Roth IRA rollovers. In the SECURE 2.0 Act, Congress said that, starting in 2024, owners of unused 529 accounts can transfer up to $35,000 of surplus funds tax-free to a Roth IRA for the benefit of the 529 beneficiary. The new law requires that the 529 account be held for at least 15 years, but doesn’t tell us how that rule works if the 529 beneficiary is changed (for example, if the account owner/parent changes the beneficiary to himself). Does the 15-year clock start over again or can the period with the prior 529 beneficiary be tacked on? An answer is long overdue.

Cheers to Congress: This year, unlike in December 2019 and 2022, Congress did not hit us with last-minute legislation that would make massive changes to the IRA and employer plan tax rules. Of course, OBBBA was signed into law on July 4, 2026, but aside from the introduction of Trump accounts, there were no provisions directly related to retirement accounts.

Jeers to Congress: As much as we’re grateful that Congress didn’t saddle us with end-of-the-year retirement legislation this year, it sure would be nice if the folks in Washington started giving some thought to simplifying the IRA and employer plan tax rules. Here are just some of many examples of how convoluted those rules currently are: There are now 21 different exceptions to the 10% early distribution penalty (3 of which apply only to IRAs, 7 of which apply only to employer plans, and 11 of which apply to both); 8 different IRA beneficiary RMD rules (just covering IRAs inherited after 2019); 6 different SIMPLE IRA plan deferral limits for 2026; 4 different ages when lifetime RMDs are first due; 2 different 5-year rules for Roth IRA distributions; and a partridge in a pear tree!

Best wishes for a happy holiday season to our Slott Report readers!

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/holiday-cheers-and-jeers/

By Sarah Brenner, JD
Director of Retirement Education

The holidays are here and the countdown to year’s end has started. For many retirement account owners, this means that an important deadline is fast approaching. Most of those who are age 73 or older will need to take a 2025 required minimum distribution (RMD) by December 31, 2025. However, that deadline does not apply to everyone. Even if you are age 73 or over and have a retirement account, you may not be facing the quickly approaching December 31 deadline.

Here are five exceptions that might apply to you:

1. You just reached age 73 in 2025. Generally, when you reach age 73, you must take an RMD. However, for the first year you catch a break. You do not have to take your 2025 RMD until your required beginning date (RBD), which is April 1, 2026. You only get lucky once. All future RMDs must be taken by December 31. There is a downside to waiting until 2026 to take your 2025 RMD. You will need to take your RMD for 2025 by April 1 and the 2026 RMD for your second distribution calendar year by December 31. That means two taxable distributions, which would need to be included in income.

• You are “still working.” If you don’t own more than 5% of the company you work for and your plan allows, you can delay your RBD to April 1 of the year following the year you finally retire. This is sometimes called the “still-working” exception to the RBD. It does not apply to an employer plan if you are not currently working for that company. This provision is optional on the part of the plan. You should be aware that the still-working exception does not apply to IRAs, including SEP IRAs and SIMPLE IRAs.

• You have “old money.” If you have a 403(b) and you have funds from participation in the plan from before 1987, there is a rule that allows you to delay RMDs on that money, commonly known as “old money,” until age 75. There must be a cut-off balance clearly showing the December 31, 1986, balance, which most plans will have readily available, or which may even be shown on a current statement. Remember, the regular April 1 RBD applies to all other amounts in the plan, including earnings on the pre-1987 balance.

• You have invested in a QLAC. If you have a qualifying longevity annuity contract (QLAC), the value of the annuity will be excluded from your retirement account balance for RMD calculation purposes. You must begin QLAC distributions by the month after attainment of age 85.

• You have a Roth IRA. You do not need to worry about taking an RMD from your Roth IRA by December 31, because Roth IRA owners are not required to take distributions during their lifetimes.

You will want to be sure that you do not miss your 2025 RMD. There is a 25% penalty on any RMD that is not taken. If you have questions as to whether one of these exceptions applies to you, your best bet is to consult with a tax or financial advisor who is knowledgeable about the complex RMD rules.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/5-exceptions-to-the-year-end-2025-rmd-deadline/

By Sarah Brenner, JD
Director of Retirement Education

Question:

If a grandchild, age 30, inherits IRA assets from her grandparent, age 92, and has to take required minimum distributions (RMDs) from the inherited IRA, can she send those RMDs directly to charity and not be subject to tax?

Chris

Answer:

Hi Chris,

It sounds like you are describing a qualified charitable distribution (QCD) where funds are transferred tax-free from an IRA to a charity. While an IRA beneficiary can do a QCD, the beneficiary must be age 70½ or older. The age of the deceased IRA owner does not matter. Unfortunately, because the grandchild is only age 30, she cannot do a QCD.

Question:

Hi Ed and Team

If a parent, age 86, inherited their son’s IRA who passed at age 58, does the parent still have 10 years to withdraw the funds?   A lot is discussed about beneficiaries younger than the deceased, but not really beneficiaries that are older.

Thanks!

Janet

Answer

Hi Janet,

This is an interesting scenario. Any beneficiary who is not more than ten years younger than the IRA owner is an eligible designated beneficiary (EDB). This includes beneficiaries who are older than the IRA owner.

When an IRA owner dies before their required beginning date (April 1 of the year following the year the IRA owner reaches age 73), an EDB can choose to stretch distributions from the inherited IRA over their single life expectancy or use the 10-year rule with no annual RMDs. In your situation, the life expectancy of the parent beneficiary, age 86, is less than 10 years, so it may make sense to use the 10-year rule instead of the stretch for a longer payout period with no annual RMDs.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/qualified-charitable-distributions-and-inherited-iras-todays-slott-report-mailbag-3/

By Andy Ives, CFP®, AIF®
IRA Analyst

In a scene from “The Simpsons,” daughter Lisa announces she has become a vegetarian. Homer asks some probing questions. “Are you saying you’re never going to eat any animal again? What about bacon? Ham? Pork chops?” When Lisa says that all those come from the same animal, an incredulous Homer responds, “Yeah, right—a wonderful, magical animal.”

IRS Form 5498 is the bacon, pork chops and spiral ham of tax forms. An enormous amount of information is contained in this document, yet a taxpayer doesn’t even file it with his taxes. In fact, Form 5498 is so unique that the official deadline for its release by custodians is not until late May, well after the tax filing deadline. However, once received by the taxpayer and the IRS, Form 5498 can help answer tax questions for decades into the future. What are these magical qualities of Form 5498? What information does it contain that can be so useful over a lifetime? Here are just a few details:

Box 1 – IRA contributions. This box includes traditional IRA contributions for the previous year (the year listed on the form). Since Form 5498 may not be released until late spring, it will also include contributions made earlier that same calendar year for the previous year. It does not delineate if those contributions were deductible or not – only that they were made.

Box 2 – Rollovers. This shows proof that a distribution from an IRA or qualified plan was rolled over in the previous calendar year. The IRS will receive Form
1099-R showing the distribution. Box 2 on Form 5498 is evidence that the distribution was, in fact, rolled over.

Box 3 – Roth conversions. “How do I track the 5-year clock on a Roth conversion?” See Form 5498. A Roth conversion is essentially time-stamped January 1 for the year listed on the form.

Box 10 – Roth IRA contributions. Roth contributions are also time stamped on Form 5498. There is no place on Form 1040 to report a Roth contribution. So how does the IRS know when a person opened his very first Roth IRA and started his 5-year clock? Form 5498.

Box 11 (checkbox); Box 12b – RMD Amount. Box 11 is checked to notify an account owner that he must take a required minimum distribution (RMD) for the current year (the year in which Form 5498 is issued). The amount of the RMD can be provided in Box 12b.

Box 15a – Fair Market Value (FMV) of certain specified assets. You can hold some unique and unconventional assets in an IRA. The annual valuation of such items is reported by the custodian in Box 15a. Sometimes the task of placing a value on quirky investments falls to the IRA owner, so be careful with certain holdings.

Box 15b – Codes(s) – If you do hold hard-to-value assets in your IRA, the IRS will be curious as to what those investments are. Box 15b codes these items. For example, Code A is for “Stock or other ownership interest in a corporation that is not readily tradable on an established securities market.” Code C is for an ownership interest in an LLC, and Code D is for real estate.

Form 5498 contains a bevy of valuable information that can be used for decades. For those looking for documented proof of a particular transaction, IRS Form 5498 could be that needle in the haystack. A wonderful, magical needle of information.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/the-wonderful-magical-form-5498/

Ian Berger, JD
IRA Analyst

As is often the case with new legislation, the One Big Beautiful Bill Act (OBBBA) left unanswered a number of questions about Trump Accounts, the new savings vehicle for children. Some of those questions were discussed in a Slott Report article from August 6, 2025. On December 2, 2025, the IRS issued its initial guidance on Trump Accounts in Notice 2025-68. Sarah Brenner, JD, wrote a great summary of that notice in a Slott Report article published on December 10.

Today’s article focuses on how the IRS addressed the unanswered questions:

1. How will Trump Accounts be established? OBBBA says that a formal election must be made in order to establish a Trump Account. Notice 2025-68 indicates that this election can be made on new IRS Form 4547 or, beginning sometime in the middle of 2026, online through the www.trumpaccounts.gov website. The IRS released a draft Form 4547, but has not yet finalized that form. The IRS Notice says that Form 4547 can be filed with the 2025 federal tax return.

2. How will the $1,000 Federal government contribution become available? OBBBA requires that someone accepting the $1,000 Federal government contribution on behalf of a child born between 2025 and 2028 must make a separate election. In Notice 2025-68, the IRS says this election can also be made on Form 4547 and eventually through the website. The election to receive the $1,000 for eligible children can be made at the same time as the election to open an initial Trump Account.

3. Will Roth conversions be allowed starting in the year the individual turns age 18? OBBBA provides that starting in the year a child turns age 18, the usual rules for traditional IRAs apply to Trump Accounts. Notice 2025-68 specifically says that, as a result, Trump Account funds can be converted to a Roth IRA starting in the year the individual turns age 18. A Roth conversion at age 18 would allow for decades of tax-free growth of what could be a substantial account balance. That’s because up to $5,000 (indexed starting in 2028) of up to 18 years’ worth of contributions can be made to Trump Accounts by parents, grandparents or anyone else, even if the child has no earned compensation.

4. Will Trump Account funds be subject to required minimum distribution (RMD) rules? Notice 2025-68 says that Trump Accounts would be subject to RMDs if the account is maintained until later in life.

5. Is the Trump Account employer contribution limit a lifetime limit or an annual limit? OBBBA is not clear as to whether the $2,500 per-employee limit (also indexed starting in 2028) on employer contributions is a lifetime limit or an annual limit. In Notice 2025-68, the IRS takes the position that it’s an annual limit.

6. Do employer contributions count towards the $5,000 limit? Notice 2025-68 confirms that employer contributions count towards the annual $5,000 limit (as indexed) on individual contributions. However, the $1,000 Federal contribution, and any contributions made by tax-exempt organizations, do not count.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/irs-addresses-unanswered-questions-about-trump-accounts/

By Andy Ives, CFP®, AIF®
IRA Analyst

QUESTION:

My client turns age 73 in November 2026. If he takes his first required minimum distribution (RMD) in December 2026 rather than waiting until April 1, 2027, what balance is used to do the RMD calculation?

Thanks

ANSWER:

Since his first RMD is for 2026, he will use the December 31, 2025, balance for the calculation. Even if he delayed his first RMD until early 2027, he would still use the 2025 year-end balance and his age in 2026 to calculate the RMD amount. The factor for a 73-year-old from the Uniform Lifetime Table is 26.5. Divide 26.5 into the 2025 year-end balance, and that amount is his 2026 RMD. (This assumes he is not eligible to use the Joint Life Table.)

QUESTION:

As a married couple, can my spouse and I do a $216,000 qualified charitable distribution (QCD) for 2025 using only my IRA?

Bill

ANSWER:

Bill,

The maximum QCD amount for 2025 is $108,000 per IRA owner. However, a married couple cannot combine QCDs and take the consolidated total from only one or their IRAs. Each IRA owner is deemed to be an individual, despite tax filing status. So, as a couple, you can still reach the total desired QCD amount of $216,000, but only if you take $108,000 from your own IRA and your spouse takes that amount from her IRA. (Of course, each spouse must be eligible to do a QCD, i.e., age 70½ or older.)

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/first-time-required-minimum-distributions-and-qualified-charitable-distributions-todays-slott-report-mailbag/

Sarah Brenner, JD
Director of Retirement Education

The IRS has issued guidance on Trump Accounts, which are new tax advantaged accounts for children established as part of the One Big Beautiful Bill Act (OBBBA). Trump Accounts are scheduled to become available as soon as July 4, 2026. Notice 2025-68 provides answers to some questions about how these accounts will work.

Establishment

There have been many questions about how Trump Accounts can be opened. The IRS guidance gives us some answers. A new account can be established by making an election on IRS Form 4547, “Trump Account Election(s),” or (eventually) through an online application on trumpaccounts.gov. The Treasury Department will select one or more financial institutions to serve as trustee for all initial Trump Accounts. However, Trump Accounts may be moved to other financial institutions via trustee-to-trustee transfer. The entire account must be moved.

Contributions

One element of Trump Accounts that has generated significant interest is the $1,000 Federal government seed money available to children born between 2025 and 2028. To receive this contribution, a separate election must be made on Form 4547 at any time or through the website.

Notice 2025-68 also clarifies some details about how other contributions to Trump Accounts will work. During the period before the year in which a child reaches age 18, (i.e., the “growth period”), there are several types of contributions that can be made beyond the government $1,000 contribution. These include qualified general contributions, which are contributions that can be funded by government entities or charities for members of a qualified class of beneficiaries, employer contributions, and contributions from individuals, such as parents.

Combined annual contributions from individuals and employer contributions are limited to $5,000, as indexed beginning in 2028. There is a separate $2,500 annual limit, as indexed, on employer contributions. Note, however, that the $1,000 from the Federal government and any qualified general contributions do not count towards the $5,000 limit.

There are no prior-year contributions to Trump Accounts like there are for IRAs.

Distributions

No distributions will be allowed during the growth period, except for a trustee-to-trustee transfer to a rollover Trump Account, a qualified ABLE rollover contribution, a distribution of excess contributions, or a distribution upon the death of the account beneficiary.

After the growth period, distributions may be taken for any purpose and at any time. Any contributions made by parents or other individuals would be after-tax basis when distributed. However, all other contributions and earnings in the Trump Account would be fully taxable when withdrawn.

Coordination with IRAs

The guidance answers some questions about the relationship between Trump Accounts and IRAs. A child with compensation can make an IRA contribution as well as receive a Trump Account contribution. After the growth period, nearly all of the special rules for Trump Accounts cease to apply, and the accounts generally will be subject to the traditional IRA rules. The Notice confirms that Roth IRA conversions are allowed after the growth period.

Despite following the IRA rules in the year the child turns age 18,  a Trump Account continues to be a “Trump Account” even after the growth period (unless it is converted to a Roth IRA). It can never receive SEP or SIMPLE IRA contributions. Similarly, a Trump Account can never be aggregated with other IRAs when allocating basis (i.e. the “pro rata rule”) related to a distribution from either the Trump Account or a person’s IRA account.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/new-irs-guidance-on-trump-accounts-is-released/

By Andy Ives, CFP®, AIF®
IRA Analyst

We have written about this topic in The Slott Report before (“Inherited Roth IRA: RMDs or No?” – May 15, 2023), yet the questions continue to roll in. Yes, required minimum distributions (RMDs). DO APPLY to inherited Roth IRAs. However, recognize that there are a number of variables and some context needed here. Simply stating that “RMDs apply” does not come anywhere near explaining HOW the payout rules work for inherited Roth IRAs.

QUESTION: “Do RMDs apply to inherited Roth IRAs?” That question must be clarified by adding the word “annual.” “Do annual RMDs apply to inherited Roth IRAs?”

ANSWER: It depends on the type of beneficiary.

When a non-eligible designated beneficiary (NEDB) inherits a Roth IRA, the 10-year rule applies. There are NO annual RMDs during this 10-year period. The only stipulation is that the entire account must be emptied by the end of year 10. Technically, this final payment is considered an RMD. This is the necessary clarification and context. When people hear “RMD,” most think “annual distribution.” Such is not always the case.

Bottom Line: When an inherited Roth IRA is subject to the 10-year rule, there are no annual RMDs, but the full distribution at the end of year 10 is considered an RMD. (After all, it is required that the account be emptied.)

On the other hand, when an eligible designated beneficiary (EDB) inherits a Roth IRA, that EDB has a choice. He can elect the 10-year rule with no annual RMDs, or he could elect the full lifetime stretch, i.e., annual RMDs over his single life expectancy. (The EDB category includes surviving spouses; minor children of the account owner until age 21; disabled and chronically ill individuals; and individuals not more than 10 years younger than the IRA owner.)

Not counting surviving spouses who have their own set of rules, if a non-spouse EDB chooses the full lifetime stretch, he uses his age in the year after the year of death to determine his initial RMD factor from the Single Life Expectancy Table. The factor is then divided into the prior year-end balance to determine the RMD. The initial factor is then reduced by 1.0 each year. This is the same way RMDs on inherited IRAs have been calculated for years.

Bottom Line: When an inherited Roth IRA is subject to the full lifetime stretch (based on the EDB status of the beneficiary), there ARE annual RMDs, and the payout structure follows the standard beneficiary RMD calculation that applies to inherited traditional IRAs.

Is this confusing? Of course! Does it stink that we have to consider all these permutations and types of beneficiaries? Absolutely. But this is the nutty world we live in. Just understand that there is context to the question, “Do RMDs apply to inherited Roth IRAs?”

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/yes-rmds-apply-to-inherited-roth-iras-but/

By Ian Berger, JD
IRA Analyst

Question:

Hello Ed,

I have been a fan of yours for a long time (and the owner of a copy of The Retirement Savings Time Bomb) and have always appreciated your insights.

We have a client who is age 58 years and is the sole beneficiary of a traditional IRA of a non-spouse relative (sister) who died at age 51 in 2022. The client is therefore an eligible designated beneficiary (EDB) because she is not more than 10 years younger than the deceased, So, she can choose to stretch required minimum distributions (RMDs) over her lifetime based on the Single Life Table.

My assumption is that our client must begin taking RMDs in the year following the year of death (and not wait until she attains age 73), but I am unable to confirm this. Also, due to the fact that the IRS waived RMDs for IRAs inherited between 2020 and 2023, can she begin taking stretch RMDs in 2025 using the factor for her age in 2023 (minus 2.0)?

I appreciate your help.

Michael

Answer:

Hi Michael,

Thank you for the kind words! Your assumption that your client should have started taking annual RMDs in 2023 is correct. Only spouse beneficiaries who roll over an inherited IRA to their own IRA can delay RMDs until age 73. Further, the IRS waiver you mentioned only covers non-spouse beneficiaries subject to the 10-year payment rule who are required to take annual RMDs. It does not cover EDBs subject to the stretch like your client. So, your client has missed RMDs for 2023 and 2024 and should request a penalty waiver using IRS Form 5329.  Alternatively, your client could choose to be governed by the 10-year rule. In that case, there would be no annual RMDs, but the entire inherited IRA would need to be emptied by 12/31/32.

Question:

I have a significant amount of money in an IRA. My son keeps bugging me to roll over some each year to a Roth IRA. Can I do this if I am retired and have no job and no earned income.

Thanks,

Ray

Answer:

Hi Ray,

Yes. You can do a Roth conversion in any year regardless of what your compensation is and even if you have no compensation. The rule is different for traditional IRA or Roth IRA contributions, where you need compensation up to the amount of your contribution.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/stretch-rmds-and-roth-conversions-todays-slott-report-mailbag/

Ian Berger, JD
IRA Analyst

Since 2002, SIMPLE IRA plans have allowed employees who reach age 50 or older by the end of the year to make “catch-up contributions” beyond the usual elective deferral limit.

Beginning in 2024, Congress automatically increased the regular and catch-up contribution limits for smaller (25 employees or fewer) SIMPLE IRA plans. These higher deferral limits were intended to make small-business retirement benefits more competitive with the benefits offered by larger employers. The same higher limits were also available for larger (26-100 employees) plans, but only if the employer makes a higher-than-usual company contribution. (If the employer matches deferrals, the match must go up to 4% of pay instead of the usual 3% of pay. If the employer contributes to all eligible employees, the contribution must go up to 3% of pay instead of the usual 2%.)

Starting in 2025, Congress raised the catch-up limit even higher for participants aged 60-63 by allowing “super catch-up contributions” to SIMPLE IRA plans.

Although well-intentioned, these changes have caused the SIMPLE IRA plan deferral limits to become far too complicated. Depending on your age, the size of your company and (in the case of larger businesses), the amount of your company’s contribution, you are subject to one of six SIMPLE IRA deferral limits, including one of three catch-up limits. On November 13, 2025, the IRS announced the 2026 COLA limits for IRAs and retirement plans. Here are the 2026 limits for SIMPLE IRAs:

• If you’re under age 50 on December 31, 2026, and your company has 25 or fewer employees, your deferral limit is $18,100. The same limit applies if you’re under age 50 on December 31, 2026, your company has more than 25 employees, and it makes the increased company contribution.

• If you’re under age 50 on December 31, 2026, your company has more than 25 employees, and it doesn’t make the increased company contribution, your deferral limit is $17,000.

• If you’re between ages 50 and 59 OR age 64 or older on December 31, 2026, and your company has 25 or fewer employees, your total deferral limit is $21,950 (including $18,100 of regular deferrals and $3,850 of catch-ups). The same limits apply if you’re between ages 50 and 59 OR age 64 or older on December 31, 2026, your company has more than 25 employees, and it makes the higher-than-usual company contribution.

• If you’re between ages 50 and 59 OR age 64 or older on December 31, 2026, your company has more than 25 employees and it doesn’t make the increased company contribution, your total deferral maximum is $21,000 (including $17,000 of regular deferrals and $4,000 of catch-ups).

  You will notice that the 2026 age-50-and-older catch-up limit for smaller employers (and larger employers who make the higher company contribution) – $3,850 – is lower than the $4,000 age-50-and-older catch-up limit for other larger employers. This was clearly not intended by Congress and results from a quirk in the tax code as to how COLAs are applied to various deferral limits. Hopefully, Congress will fix this for future years.

• If you’re between ages 60 and 63 on December 31, 2026 and your plan allows it, you can defer up to a total of either $23,350 or $22,250 (including regular deferrals up to $18,100 or $17,000,and $5,250 of super catch-ups).

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/the-crazy-complicated-2026-simple-ira-plan-elective-deferral-limits/

By Sarah Brenner, JD
Director of Retirement Education

As the calendar runs out on 2025, retirement account owners and beneficiaries may face a looming deadline. December 31 is the deadline for many to take 2025 required minimum distributions (RMDs). Test your knowledge of RMDs with our quiz. Who needs to take a 2025 RMD by December 31, 2025? Answers can be found below the quiz.

1. Rick just celebrated his 73^rd birthday on November 21. He has a traditional IRA. Does Rick need to take a 2025 RMD by December 31?
2. Kate, age 75, is still working for a company that offers a SIMPLE IRA plan. Does Kate need to take a 2025 RMD by December 31?
3. Luis, age 54, inherited a traditional IRA from his father who died at age 90 in 2024. Luis is subject to the 10-year payout rule. Does Luis need to take a 2025 RMD by December 31, 2025?
4. Luis also inherited Roth IRA from his father and is subject to the 10-year payout rule. Does Luis need to take a 2025 RMD by December 31, 2025?
5. Janice, age 54, died in 2018. Her sister, Carol, age 49, inherited her traditional IRA. Carol died in 2024. Her daughter, Madi, is the successor beneficiary of this inherited IRA. Does Madi need to take a 2025 RMD by December 31, 2025?

Answers

1. NO. Rick does not need to take his 2025 RMD by December 31. Because this is the year that Rick reaches age 73, it is the first year for which he must take an RMD. The deadline for taking the first RMD is April 1 of the following year, so Rick does not need to take his 2025 RMD until April 1, 2026.
2. YES. Because Kate is age 75 in 2025, she must take an RMD from her SIMPLE IRA. It does not matter that she is still working for the company that offers the SIMPLE IRA plan. The still-working exception only applies to employer plans that are not IRA based. It does not apply to SIMPLE IRAs, so Kate must take a 2025 RMD by December 31, 2025.
3. YES. In final regulations, the IRS confirmed that if the IRA owner dies after their required beginning date (April 1 of the year following the year age 73 is reached) then annual RMDs must be taken by the beneficiary during the 10-year payout period. Due to confusion over this rule the IRS waived the requirement for 2021, 2022, 2023, and 2024. However, these RMDs are required for 2025. Luis will need to take his RMD by December 31, 2025.
4. NO. Roth IRA owners are never required to take RMDs during their lifetime, so all Roth IRA owners are considered to have died before their required beginning date. Therefore, no RMDs are required during the 10-year payout period for Roth IRA beneficiaries. Luis will not have to take a 2025 RMD from the inherited Roth IRA by December 31, 2025.
5. YES. Madi as a successor beneficiary is subject to the 10-year rule. She also must take an RMD for 2025. The IRS confirmed in final regulations that because annual RMDs started when the account was inherited by Carol (before the SECURE Act, when all designated beneficiaries could take stretch RMDs), those distributions must continue for the successor beneficiary. Therefore, Madi must take a 2025 RMD by December 31, 2025.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/who-needs-to-take-a-2025-rmd/

By Andy Ives, CFP®, AIF®
IRA Analyst

Thanksgiving Season is upon us! Here at The Slott Report, we are thankful for many things:

• We are thankful to have a platform to share all the important IRA and retirement account information about which we write.

• We are thankful that we have an audience of diligent Slott Report readers who are continuously searching for the correct answers to their IRA and retirement plan issues.

• We are thankful that this group of diligent readers also takes the time to send us real-world inquiries for our weekly “Mailbag.” Keep the good questions coming!

• We are thankful that artificial intelligence still fails miserably when trying to answer such detailed retirement questions. (The machines have some work to do before they can replace us.)

• We are thankful that accurate information about the benefits of Roth conversions and net unrealized appreciation (NUA) seems to be traveling well. It is important that everyone is aware of tax-saving strategies like these. Knowledge is power.

• We are thankful for the members of Ed Slott’s Elite IRA Advisor Group℠ who make it their business every day to stay current with all the crazy retirement account rules and properly educate and assist their clients.

• We are thankful for each other, for without the help and teamwork of the entire Ed Slott staff, this website, the programs we offer, the webinars we host, the newsletters we write and the educational conferences we operate would not exist.

Happy Thanksgiving from the entire Ed Slott team!

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/the-slott-report-gives-thanks/

By Ian Berger, JD
IRA Analyst

The IRS has released the cost-of-living adjustments (COLAs) for retirement accounts for 2026, and many of the dollar limits will increase next year.

Retirement Plans

The elective deferral limit for employees who participate in 401(k), 403(b) and 457(b) plans is increased to $24,500, up from $23,500. The catch-up contribution limit for those age 50 or over jumps to $8,000, increased from $7,500. The “super catch-up” limit for individuals aged 60, 61, 62 and 63 remains $11,250.

Starting in 2026, certain high-paid participants in 401(k), 403(b) and governmental 457(b) plans who wish to make catch-up contributions must make them to Roth accounts within the plan. This requirement will apply to employees who had 2025 W-2 (Box 3) wages with the current employer that exceeded $150,000.

SEP and SIMPLE IRA Plans

The maximum SEP contribution will increase to $72,000 from $70,000. The cap on compensation that can be taken into account for calculating SEP and other retirement plan contributions moves up to $360,000 from $350,000.

The SIMPLE elective deferral limit is increased as well, going to $17,000, up from  $16,500. Individuals in certain SIMPLE plans, including those sponsored by businesses with 25 or fewer employees, can contribute a higher amount. For 2026, this higher amount is $18,100, increased from $17,600.

The general catch-up contribution limit that applies for SIMPLE plan participants aged 50 and over jumps to $4,000, up from $3,500. However, those aged 50 and over who participate in certain SIMPLE plans, including those sponsored by businesses with 25 or fewer employees, are limited to $3,850, the same amount in effect for 2025. (This appears to be a quirk in the law that may need to be fixed by Congress.) The “super catch-up” limit for SIMPLE participants aged 60, 61, 62 and 63 remains $5,250.

IRA Contributions

The IRA contribution limit increases to $7,500, increased from $7,000. The IRA catch-up contribution limit is now indexed for inflation. For the first time, that limit is increased, jumping to $1,100, from $1,000. This will allow those who are aged 50 or over to contribute $8,600 to an IRA for 2026, up from $8,000.

The phase-out range for savers making contributions to a Roth IRA is increased to $153,000-$168,000 for single filers, up from $150,000-$165,000. For those who are married filing jointly, the income phase-out range is increased to $242,000-$252,000, up from $236,000-$246,000.

Phaseout ranges for active participants in employer plans looking to make deductible traditional IRA contributions have also been increased. For single individuals covered by an employer retirement plan, the phase-out range is $81,000-$91,000 for 2026, up from $79,000-$89,000. For married couples filing jointly, if the spouse making the IRA contribution is covered by an employer retirement plan, the phase-out range is increased to $129,000-$149,000, up from $126,000-$146,000. For those who are not covered by an employer retirement plan but who are married to someone who is covered, the phase-out range goes up to $242,000-$252,000, increased from $236,000-$246,000.

Qualified Charitable Distributions

The 2026 limit for qualified charitable distributions (QCDs) is increased to $111,000, up from $108,000 in 2025. And, the limit for a one-time QCD from an IRA to a split-interest entity goes up to $55,000, up from $54,000.

More details on the COLAs for 2026 can be found in IRS Notice 2025-67.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/ira-and-retirement-plan-dollar-limits-increased-for-2026/

By Sarah Brenner, JD
Director of Retirement Education

Question:

My wife and I have a large disparity in IRA balances. It is about a 10 to 1 ratio. I would like to transfer a significant amount to her IRA.

Our brokerages say they do not allow these types of transfers. How do you manage to do that type of rollover?

Scott and Linda

Answer:

Hi Scott and Linda,

Unfortunately, you may not transfer your IRA funds to your spouse during your lifetime. That is not allowed under the IRA rules. The “I” in IRA stands for “individual.” The funds in it are solely for your benefit and, with very limited exceptions, cannot be transferred to anyone else during your lifetime. One exception is divorce, so if you are happily married that will not apply to you. You can name your spouse as your beneficiary though, and at your death she will inherit your IRA funds and can roll them over to her own IRA.

Question:

Good Day,

I just read Andy Ives’s Slott Report article entitled “Five Things You Need to Know about Qualified Charitable Distributions” and have a question he did not address in his article.

I inherited three IRAs from my mother and father who were both over age 70½ when they died. I know I must start taking required minimum distributions (RMDs) this year and I want to give this money to charity. So, instead of withdrawing in cash, having to pay ordinary income tax, and then making the donations, I would like to take these RMDs as qualified charitable distributions (QCDs). I am only 60 years old, but because the original owners were over age 70½ I am hoping this is doable.

Thank you kindly for your help.

Answer:

Some IRA beneficiaries can do QCDs from inherited IRAs. However, to be eligible, the beneficiary must be age 70½ or older. The age of the IRA owner does not matter. Because you are only age 60, you cannot do a QCD from the IRAs you have inherited.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/ira-rollovers-and-qualified-charitable-distributions-todays-slott-report-mailbag/

By Sarah Brenner, JD
Director of Retirement Education

The year 2025 has been a turbulent time for the economy. Whether due to job loss or seeking better investment opportunities in volatile markets, the result is that more and more retirement account funds are on the move.

When retirement funds are in motion, there are rules that must be followed. Retirement account owners must be very careful to be sure that their funds are moved correctly. Otherwise, there could be taxes, penalties and the loss of hard-earned retirement savings.

The best way to ensure safe passage of retirement funds is to move the retirement funds directly from one retirement account to another.

Employer Plan Moves

From work plans, like a 401(k), this means doing a direct rollover to another plan or to an IRA.Instead of opting to receive the funds, the participant instructs the plan to send the funds directly to the receiving retirement account.

A check made payable to the receiving plan administrator or IRA custodian satisfies this requirement, even if it is sent to the plan participant. Money can also be moved this way from an IRA to an employer plan via “reverse rollover” if the plan allows.

IRA Moves

For IRA funds, the best way to move money is by doing a direct transfer. The IRA custodian would send the funds directly to the other IRA without the account owner taking receipt of the funds. (As with a direct rollover from a plan, a check from an IRA payable to the receiving custodian and sent to the IRA owner would qualify as a direct transfer.)

Whenever Possible – Avoid 60-Day Rollovers!

With a 60-day rollover, money is distributed to the account owner and subsequently deposited to an IRA within 60 days. A 60-day rollover is one way that funds can be moved from one retirement account to another, but it should be avoided whenever possible. This is because 60-day rollovers come with a lot of potential problems and risks.

For both plans and IRAs, doing a direct rollover or transfer instead of a 60-day rollover avoids the risk of missing the 60-day rollover deadline. Missing this deadline by even one day could mean the entire distribution would be taxable and ineligible to ever be deposited back into a retirement account.

For plan distributions, a direct rollover also avoids the mandatory 20% withholding rule that applies when rollover-eligible plan funds are paid to the plan participant. This rule can create headaches for participants who are looking to roll over the full amount of the distribution within 60 days because a portion will be lost to required withholding.

For IRAs, a transfer between IRAs eliminates concerns about the complicated once-per-year IRA rollover rule. This rule is tricky, and the IRS has no discretion to waive it. A direct transfer also avoids the hassle of the IRA owner having to report the move on her tax return for the year.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/the-right-moves-how-to-move-retirement-funds/

By Andy Ives, CFP®, AIF®
IRA Analyst

For those who have 401(k)s or other retirement plans, the required beginning date (RBD) when required minimum distributions (RMDs) are officially “turned on” is April 1 of the year after the year a person turns age 73. This is the same RBD applicable to IRAs. However, if a person is still working for the company that sponsors the 401(k), and if that person does not own more than 5% of the company, then RMDs from the company retirement plan can be delayed until April 1 of the year after the year the person retires. This is commonly called the “still-working exception.”

Some additional details about the still-working exception include the following:

• It only applies to RMDs from employer plans like a 401(k) or 403(b). It does not apply to IRAs or IRA-based plans like SEPs and SIMPLEs.
• It does not apply to employer plans if the person is not currently working for that company (e.g., plans from previous employers).
• The still-working exception is optional on the part of the plan. It is not a required design feature, although most plans allow it.
• An employee must work through the entire year for the still-working exception to apply for that year.

That last bullet point about retirement/separation from service trips people up the most. For example, if a 75-year-old employee retires in late December, then an RMD will apply for that same year. (That RMD can be delayed until April 1 of the next year unless a rollover is done prior to the RBD.) Or, if this hypothetical 75-year-old was laid off, that would also result in an RMD for that year. To ensure that an RMD is avoided for a particular year using the still-working exception, the safest bet is to schedule your official retirement/separation-from-service date for January 1 (or later) of the following year. (And, to avoid IRS scrutiny, you should actually work up to and including that January retirement date.)

Speaking of timing and separation from service, there is a tricky scenario with the still-working exception that must be considered.

Example: Roger is age 75 and still gainfully employed at ABC, Inc. He participates in the company’s 401(k) and has been delaying RMDs from the plan for a few years. Roger anticipates working until he is 80. Sadly, Roger had a heart attack and died. Of course, this ends Roger’s career at ABC, Inc., and he is no longer an employee.

Since Roger has separated from service (albeit not in the fashion he intended), and since he is no longer still working, does this mean he has an RMD from the ABC, Inc. 401(k) in his year of death?

He does not! Remember, the RBD (when RMDs are officially “turned on”) is April 1 of the year after the year person turns age 73, or April 1 of the year after the year a person retires if using the still-working exception. You must live long enough to reach that date for RMDs to officially begin. Since Roger died before the RBD applicable to his 401(k) plan, there is no year-of-death RMD from the plan for his beneficiaries to worry about.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/the-tricky-still-working-exception-after-death/

By Andy Ives, CFP®, AIF®
IRA Analyst

QUESTION:

A husband owned a Roth IRA which had been in existence for at least 5 years. He died in January of 2025. His wife was his primary beneficiary. The wife opened a Roth IRA in late January 2025 to receive the distribution from husband’s Roth IRA. The wife then unexpectedly died at the end of February 2025 and each of the three adult children received 1/3 of her Roth IRA into inherited Roth IRAs for each of them.

Are the kids’ inherited Roth IRAs subject to the remainder of the 5-year rule (~ 5 years) because they inherited assets from mom’s Roth IRA which had only been existence for ~ 1 month, or are they exempt from the 5-year rule because the dollars could be sourced back to dad’s Roth IRA which had been in existence for at least 5 years?

Thanks in advance for your input.

Geoff

ANSWER:

Geoff,

When Husband died, his 5-year clock carried over to Wife with the spousal rollover. (I assume she did not have her own Roth IRA. Hypothetically, if she did, then Wife could choose the 5-year clock that was most beneficial to her.) Now that Wife has died, the children all get the 10-year payout rule on their inherited IRAs. There are no annual required minimum distributions (RMDs) in years 1 – 9. After their Dad’s original 5-year clock is satisfied, then all earnings in the inherited Roth IRAs will be tax free. For now, they will have tax-free access to any contributions or conversions that Dad did. Based on Roth IRA distribution ordering rules, contributions come out first, then converted dollars, and then the earnings.

QUESTION:

My client is age 72. She has a traditional IRA and an inherited IRA. She would like to make a 2025 qualified charitable distribution (QCD) from the inherited IRA for $1,000. Because she is making a QCD from the inherited IRA, is she allowed to make a 2025 deductible contribution to her traditional IRA?

Will

ANSWER:

After age 70½ , deductible IRA contributions and QCDs do not mix. If a deductible contribution is made to an IRA at age 70½  or older, that amount will offset the same amount of any future QCD, thereby making all or a portion of the QCD a taxable distribution. It does not matter that she is doing the QCD from the inherited IRA. If she makes a deductible IRA contribution of $1,000 or more, her entire $1,000 QCD will be taxable.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/the-5-year-clock-and-qualified-charitable-distributions-todays-slott-report-mailbag/

By Ian Berger, JD
IRA Analyst

With continuing economic uncertainty, it’s not surprising that the number of employees who need to dip into their 401(k) and other company plan funds is on the rise.

Congress originally set strict limits on the ability of employees to make in-service plan withdrawals. This reflected the belief that retirement plan funds should be saved for retirement. In recent years, however, Congress has created a number of exceptions to the no-withdrawal rule for certain specified reasons. Yet there are still significant barriers to getting money out while still working. And plans are always free to apply even stricter rules than those required by Congress. So, check your plan written summary or ask your plan administrator or HR rep for the particular withdrawal rules that apply to your plan.

Pre-tax and Roth Elective Deferrals

Generally, you can’t withdraw from your pre-tax or Roth elective deferral accounts in your 401(k), 403(b) or 457(b) plan before age 59½ if you’re still working. But, assuming the plan permits it, you can withdraw before that age to cover medical and other hardship expenses, in case of disability, birth or adoption or IRS levy, or if you are an active reservist. Your plan may also allow pre-59½ SECURE 2.0 withdrawals (discussed below).

After-tax Contributions

Some plans offer after-tax (non-Roth) employee contributions. If yours does, you may be able to make in-service withdrawals from your after-tax account at any time, even before age 59½. This would be especially helpful if you wish to use the “Mega Backdoor Roth” strategy to convert after-tax contributions to Roth IRAs.

Employer Contributions

If your plan allows matching or nonelective (across-the-board) employer contributions, it probably follows the same in-service withdrawal rules for those accounts that it uses for pre-tax and Roth deferral accounts. This means you likely won’t be able to access your employer contribution funds while still working until you turn age 59½. But some plans are more liberal and allow withdrawals at a specified age (even earlier than 59½), after at least five years of plan participation or after the contribution has been in the plan for at least two years.

Rollover Contributions

Your plan might allow you to roll over pre-tax retirement accounts, including IRAs, into the plan. If so, you may be able to make an in-service withdrawal from your rollover contribution account at any time, regardless of your age or service. But this is not mandatory and here again, your plan may apply the stricter limits that apply to in-service withdrawals of pre-tax and Roth elective deferrals.

SECURE 2.0 Withdrawals

The 2022 SECURE 2.0 Act added several new in-service withdrawals that can be taken from retirement plans at any age. However, your plan is not required to offer any of these new withdrawal options. Withdrawals are now available for: federally-declared disaster expenses, terminal illness, victims of domestic abuse, and emergency expenses. (In-service withdrawals to pay for long-term care premiums become available in 2026.) Note that withdrawals for terminal illness are only available if you are otherwise eligible for a withdrawal (for example, because of financial hardship).

Taxation

Keep in mind that in-service withdrawals of retirement plan funds may be taxable. However, in most (but not all) cases, you won’t be hit with the 10% early distribution penalty for withdrawals before age 59½.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/when-can-i-take-an-in-service-withdrawal-from-my-401k/

By Sarah Brenner, JD
Director of Retirement Education

While naming a spouse directly as the IRA beneficiary has many advantages and is a popular choice, it is not always the correct planning strategy. In some cases, another beneficiary may be better such as trust.

Here are five situations where it may be better NOT to name the spouse directly as the IRA beneficiary.

1. Sufficient Assets. If a spouse already has sufficient assets, the IRA owner may want the money to go to other beneficiaries like children or a charity.
2. Vulnerable Beneficiaries. There is no shortage of con artists and scammers looking to take advantage of vulnerable or naïve widows with large inheritances.

   To protect these individuals, naming a trust as the IRA beneficiary can be extremely useful for limiting access and warding off those with malicious intent.

3. Remarriage Concerns. A spouse, named as the beneficiary, has control over the inherited IRA assets and can choose how to manage them, including withdrawing funds or rolling them over.

   However, this also means they are not obligated to follow any specific instructions from the original owner regarding the use of the funds. She can also choose who to name as the beneficiary – and that could be a future husband. Using a trust can be a viable option for spouses who want to exercise control from the grave.

4. Blended Families. In second marriage situations, an IRA owner may want to provide for a spouse and at the same time ensure that children from a prior marriage ultimately will inherit the IRA funds. Rather than naming the spouse directly, an IRA owner may use a qualified terminal interest property (QTIP) trust.

   However, QTIP trusts are complex and since the rules for inherited IRAs are also complicated a better strategy may be to split the IRA during the IRA owner’s lifetime. One IRA can be set up for the spouse and another for the children.

5. Special Needs Beneficiaries. For spouses with special needs, a trust is essential to manage money and to protect government benefits when IRA funds are inherited.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/5-times-when-you-should-not-name-your-spouse-as-beneficiary/

By Ian Berger, JD
IRA Analyst

Question:

Greetings,

In 2025, I converted a traditional IRA to an existing Roth IRA, which I have held for 20 years. I will turn age 60 in 2026. Can I withdraw the converted money from my Roth IRA penalty free? Or do I have to wait five years?

I am so confused about this. Thanks for any information.

Chris

Answer:

Hi Chris,

Don’t feel bad; this is one of the most confusing retirement account rules. The bottom line is that if you wait until age 59½, the withdrawal of your converted amounts (and earnings) will be completely penalty-free. You wouldn’t have to worry about a five-year clock because that clock only applies to withdrawals of conversions before age 59½. If you can’t wait until age 59½, you may be able to avoid a penalty on all or part of the withdrawal because IRS ordering rules would allow you to treat at least part of it as a withdrawal of the contributions you have made to your Roth IRA (instead of a withdrawal of conversions). This would be an advantage because withdrawals of Roth IRA contributions are always penalty-free at any age. But these rules are REALLY complicated. So, better off waiting until age 59½.

Question:

My client is age 75. He retired on January 1, 2025. The company has recognized his retirement date as being January 1, 2025. When must he take his first required minimum distribution (RMD) from the company plan?

Rick

Answer:

Hi Rick,

If your client legitimately retired on January 1, 2025, then his first RMD year for the plan is 2025. He may be able to defer his 2025 RMD until April 1, 2026, but that would require him to take two RMDs in 2026 – the 2025 RMD by April 1, 2026 and the 2026 RMD by December 31, 2026. However, if the client does a rollover of his plan funds in 2025, he can’t defer the 2025 RMD until April 1, 2026. Instead, he must first take that RMD before doing the rollover.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/penalty-free-withdrawals-of-roth-conversions-and-the-first-rmd-year-todays-slott-report-mailbag/

By Andy Ives, CFP®, AIF®
IRA Analyst

At their core, IRAs and 401(k) plans operate in a similar fashion. Contributed dollars avoid taxation until they are withdrawn at some point in the future. Also, Roth is available in both IRA and 401(k) form. Roth dollars grow tax-free under both the IRA and 401(k) umbrella. It is these fundamental similarities that create a false narrative that IRAs and 401k) plans are essentially the same. This could not be further from the truth. There are significant differences between the two. Here are just a few of those variations:

Contribution Limits. The maximum IRA contribution in 2025 is $8,000. This includes the $1,000 catch-up for those age 50 and over. The maximum 401(k) contribution is significantly higher – $77,500 for those age 50 and older, and a whopping $81,250 for those aged 60 – 63 using the “super catch-up.”

10% Penalty Exceptions. There are currently 20 exceptions to the 10% early withdrawal penalty for those under age 59½ (with a 21^st coming on-line in late December). Of which, three apply to IRAs only: higher education, first-time homebuyer, and health insurance if you are unemployed. All the rest apply either to plans only, or to both IRAs and plans. If the goal is to leverage an exception, it is imperative to know which exceptions apply to which type of account.

Qualified Charitable Distributions (QCDs). You can do a QCD from an IRA, but you cannot do a QCD from a 401(k) plan.

Loans. You can take a loan from a 401(k) plan (if the plan is designed to allow loans). You cannot take a loan from an IRA (not counting using IRA funds during a 60-day rollover).

Excess Contribution Correction/Penalty. If an IRA owner mistakenly contributes more than the allowable limit, we have an excess contribution. The penalty is 6% if the excess is not timely corrected. With a “timely” correction, the excess is typically removed from the IRA, along with the earnings, by October 15 of the year after the year of the excess. With a 401(k), the corrective process is completely different. The deadline for correction is April 15 after the year of the excess contribution. If the excess contribution is not removed from the plan by the deadline, those dollars remain in the plan! The fallout is double taxation. The excess 401(k) contribution must be reported as taxable income for the year of the excess contribution, and those dollars are taxed again upon distribution from the plan.

Pro-Rata Rule. When an IRA contains after-tax (non-deductible, non-Roth) dollars, every distribution (barring a few exceptions) must consider the pro-rata rule. Each withdrawal (or Roth conversion) will contain a proportionate amount of pre-tax and after-tax dollars. With a 401(k), pro-rata works differently. In-plan Roth conversions can target only the after-tax dollars (and their earnings). In fact, if a 401(k) plan contains after-tax (non-Roth) dollars and the plan participant does a full rollover, the plan can carve off the after-tax dollars and send them in a separate check for deposit into a Roth IRA. This qualifies as a tax-free Roth conversion. Even the taxable earnings on the after-tax (non-Roth) dollars can be separated and lumped into the plan’s pre-tax “bucket” for rollover into a traditional IRA.

The list of differences between IRAs and 401(k) plans goes on and on. Investment options, hardship withdrawals, creditor protection and even basic rules governing access to the dollars are all different. While IRAs and 401(k) plans may seem similar, it is critical to recognize that they operate in two separate and distinct worlds.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/iras-and-401k-plans-different-rules-different-worlds/

By Ian Berger, JD
IRA Analyst

Many employers with company plans, and their recordkeepers, are scrambling to be ready for the soon-to-be-effective SECURE 2.0 rule requiring high-paid employees to make plan catch-ups contributions to Roth accounts. Here are 8 Q&As about the new rule:

When is the rule effective? For most plans, it’s effective January 1, 2026. (Plans with non-calendar year fiscal years must comply as of the first day of the 2026 fiscal year). The law was originally scheduled to be effective January 1, 2024, but the IRS delayed it two years after plan recordkeepers complained that they didn’t have enough time to comply. On September 15, 2025, the IRS issued final mandatory catch-up regulations. The IRS did not extend the effective date of the law but did extend the effective date of the regulations until January 1, 2027. During 2026, plans have some leeway in applying the law.

Who is affected? You are affected ifyou earned more than $145,000, as indexed, of “wages” in the prior year from your current employer. Although the 2025 dollar threshold hasn’t yet officially been announced, it’s likely to be $150,000. If you’re affected, you cannot make catch-ups on a pre-tax basis.

What kind of “wages” count? Box 3 W-2 wages count. Box 3 shows wages on which your Social Security taxes are paid.

What if I’m a self-employed person with income, not wages? You are not subject to the mandatory Roth  catch-up – no matter how high your income is in the prior year.

Which plans must comply? 401(k), 403(b) and governmental 457(b) plans must comply. The rule doesn’t apply to other 457(b) plans or SIMPLE IRA plans. It also doesn’t apply to traditional IRA or Roth IRA catch-up contributions.

Which catch-ups are affected? The mandatory Roth requirement applies to the age 50 or older catch-up (up to $7,500 for 2025) and the “super” catch-up for ages 60-63 (up to $11,250 for 2025).

How does the rule apply to new employees? New employees are never affected in their first year of employment – no matter how well paid. That’s because they don’t have any prior-year wages from their current employer. And, in some cases, new employees won’t be affected in their second year of employment since the prior-year dollar threshold isn’t pro-rated.

Example: Claireis hired at Pritchett’s Closets & Blinds as of July 1, 2026 with an annual salary of $250,000. She will not be subject to the Roth mandate during 2026 because she had no 2025 wages with her new company. Assume the 2026 threshold is $150,000 and Claire earns $125,000 in 2026. In that case, Claire will also be exempt in 2027 since the $150,000 threshold isn’t pro-rated.

What if my plan doesn’t offer Roth contributions? Plans are not required to offer Roth contributions at all. The new law doesn’t change that. But the IRS says that if a plan doesn’t permit Roth contributions, only low-paid employees can make catch-up contributions. High-paid employees (those affected by the Roth mandate) can’t make any catch-up contributions – pre-tax or Roth.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/8-questions-answered-about-the-new-mandatory-roth-catch-up-rule/

By Sarah Brenner, JD
Director of Retirement Education

Question:

We have a 16-year-old minor inheriting an IRA from her 40-year-old father.

Is it true that the child will have to take required minimum distributions (RMDs) each year until age 21? Then, at age 21 she will switch to the 10-year rule? Also, she will have to continue taking RMDs every year for 10 years and empty the account in the 10th year?

Thanks,

Jennifer

Answer:

That is exactly right. A minor child of an IRA owner is an eligible designated beneficiary (EDB). She would get the stretch until she reaches age 21. The annual RMDs would be calculated using her single life expectancy. Then, the 10-year rule would apply with the annual RMDs continuing each year. This is true even though her father had not yet reached the age where RMDs would have been required. The IRS took the position in the final RMD regulations that because the minor started taking annual RMDs, these payouts must continue during the 10-year payout period.

Question:

Hello,

I found your article on inherited Roth IRA RMDs very helpful. It clarified that inherited Roth IRAs are not subject to an annual RMD requirement. This matters to me, as I am inheriting a Roth IRA from my grandmother who recently passed away.

I did a lot of reading on this topic and found mention of this same topic on the IRS’s website. The IRS seems to be saying the opposite: “Generally, inherited Roth IRA accounts are subject to the same RMD requirements as inherited traditional IRA accounts.” And the IRS says it again here: “The RMD rules do not apply to Roth IRAs or Designated Roth accounts while the owner is alive. However, RMD rules do apply to the beneficiaries of Roth IRA and Designated Roth accounts.”

It sounds like two opposite answers, but maybe I am misunderstanding. Can you help me understand?

Thank you so much!
Steven

Answer:

This is an area where there is a lot of confusion. It really boils down to how the term “required minimum distribution (RMD)” is used. The confusion comes when the term RMD is misunderstood to only mean an annual distribution requirement. In fact, this term is much broader under the tax rules.

In the tax code, RMDs generally mean any amounts that are required to be taken from a retirement account – not just annual RMDs. Technically, all inherited traditional or Roth IRAs are subject to the RMD rules because distributions must happen at some point. So, even inherited retirement accounts that do not have annual RMDs are still subject to the tax rules’ RMD requirements.

In your situation, the RMD rules will require you to empty your grandmother’s Roth IRA account by the end of the tenth year following the year of death. No annual RMDs will be required during the 10-year payout period, but the payment required in the tenth year is considered an RMD.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/eligible-designated-beneficiaries-and-inherited-roth-iras-todays-slott-report-mailbag/

By Sarah Brenner, JD
Director of Retirement Education

A few months ago, the IRS introduced a new Code Y for the reporting of qualified charitable distributions (QCDs) by IRA custodians on the 2025 Form 1099-R. The IRS has now issued guidance on its website making this new code optional for 2025.

QCDs Basics

QCDs first became available in 2006, and they were made permanent in 2015. The strategy has become increasingly popular among IRA owners who are charitably inclined. With a QCD, IRA owners or beneficiaries who are at least age 70½ make a tax-free donation to charity directly from their IRA. An important benefit of a QCD is that it can be used to satisfy a required minimum distribution (RMD).

The 2025 annual limit is $108,000, and it is indexed for inflation. A one-time QCD of $54,000 (also indexed) can go to a split-interest entity, such as a charitable remainder annuity trust, a charitable remainder unitrust or a charitable gift annuity.

QCDs can only be made through a direct transfer of IRA funds to charities that qualify under the tax code. Gifts made to donor-advised funds or private foundations do not qualify. In addition, the client cannot receive anything of value from the charity in exchange for making a QCD, and that must be documented in writing by the charity.

Update: Code Y is Optional for 2025 QCDs

Historically, IRA custodians were not required to report a QCD differently than any other IRA distribution. There never was any special code on Form 1099-R to identify the QCD. Instead, it was up to the taxpayer to let the IRS know about the QCD on the tax return.

For 2025 QCDs, the IRS changed its approach. Earlier this year, the IRS released instructions for the 2025 Form 1099-R which introduced a new Code Y for QCDs. The introduction of the new code for QCDs posed significant implementation challenges for IRA custodians which led to complaints from the large financial institutions that serve as IRA custodians (and their lobbyists).

On October 16, the IRS backtracked and made Code Y optional, instead of mandatory, for 2025 QCDs. The following language is now posted on the IRS website:

The entry of code Y in box 7 of a 2025 Form 1099-R is optional. If you are completing and filing a 2025 Form 1099-R, you may choose to, but are not required to, enter code Y in box 7.

Stay tuned to The Slott Report for updates on what QCD 1099-R reporting the IRS will require for 2026 and future years.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/new-code-y-is-optional-for-2025-qcds/

By Andy Ives, CFP®, AIF®
IRA Analyst

TRIVIA QUESTION:

John is age 40, he has a traditional IRA, and he is updating his beneficiary form. John wants to be sure that anyone he names on the form is an eligible designated beneficiary (EDB) who can leverage “the stretch,” meaning the beneficiary can take annual required minimum distributions (RMDs) based on his or her own single life expectancy. John does not want his beneficiaries to be saddled with the SECURE Act’s 10-year payout rule. He has many potential beneficiaries to choose from. Which of the following people qualify as an EDB for John’s IRA?

A. John’s disabled daughter Mia, age 13.

B. John’s father, Robert, age 67.

C. John’s brother Jerry, age 42.

D. John’s neighbor Raul, age 35.

E. John’s wife, Joanna, age 39.

F. John’s cousin Michelle, age 31.

G. John’s coworker Doug, age 45.

H. John’s mailman Steve, age 51.

I. Some random guy sitting next to John on the train ride into the city, age 78.

J. None of the above.

K. All of the above.

TRIVIA ANSWER:

The correct answer is “K. All of the above.” Everyone on the list qualifies as an EDB for John’s IRA and can leverage stretch RMDs. How is this possible? Other than answer A (John’s daughter Mia), everyone else is “not more than 10 years younger” than John. That is a qualifying EDB category. (John’s wife, Joanna, has additional stretch benefits, but that is a different topic.) The 5 classes of EDBs are:

1. Surviving spouses

2. Minor children of the account owner, until age 21

3. Disabled individuals

4. Chronically-ill individuals

5. Individuals not more than 10 years younger than the IRA owner

The fact that some of the people are not related to John does not disqualify them from being an EDB. Yes, the “random guy on the train” would be an EDB on John’s IRA simply because he is not more than 10 years younger than John. Being older qualifies. That’s why John’s father and his mailman are also EDBs. In fact, based on John’s age (40), everyone in the world who is currently age 30 or older would qualify as an EDB for John’s IRA.

The only EDB on the list who is more than 10 years younger than John is his daughter Mia. But if Mia were to inherit John’s IRA, she can leverage stretch RMDs over her entire lifetime based on her status as a disabled EDB.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/eligible-designated-beneficiary-trivia/

By Andy Ives, CFP®, AIF®
IRA Analyst

QUESTION:

My client is age 71 and divorced. He is the primary beneficiary of his ex-wife’s IRA. She just recently passed away this year at the age of 67. I believe my client is an Eligible Designated Beneficiary (“EDB”) because he is not more than 10 years younger than his ex-spouse. As such, I believe my client can choose to take RMDs (required minimum distributions) over his own single life expectancy, which would begin in 2026, but no later than April 1, 2027. Am I correct?

Regards,

Brendan

ANSWER:

Brendan,

You are correct that your client qualifies as an EDB under the “not more than 10 years younger” EDB category. Since the ex-wife died in 2025, your client can begin annual stretch RMDs in 2026. (Incidentally, since the ex-wife had not yet reached her required beginning date, your client could choose the 10-year rule with no RMDs in years 1 – 9.) Regardless, assuming he elects the full stretch, he will use the Single Life Expectancy Table to determine his original RMD factor in 2026. Identify his age (at his birthday) in 2026, and use the corresponding factor. If he turns age 72 in 2026, that factor is 17.2. For each year thereafter, he will subtract 1 from the preceding year’s factor. Note that he cannot delay his first RMD until April 1, 2027. That option is not available on inherited IRAs. He must take the first RMD by December 31, 2026.

QUESTION:

My wife inherited an IRA from her uncle in 2019. She was taking RMDs from it each year. She died last year. I am age 53. Can I roll this IRA into an IRA in my name and stop the distributions?

ANSWER:

Condolences to you for the loss of your wife. Since this is an inherited IRA and not your wife’s own original IRA, that makes you a successor beneficiary. Successor beneficiaries, no matter who they are (spouses included), are bound by the 10-year rule. Since she passed in 2024, your 10-year drawdown period starts this year – 2025. Additionally, you must continue taking annual RMDs based on the same single life expectancy factor that your wife was using. Essentially, you step into her shoes and follow her same factor, subtracting 1 each year. Had this been your wife’s own IRA, you could do a spousal rollover into your own IRA. But since it is an inherited IRA and you are a successor, a spousal rollover is not an option.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/eligible-designated-beneficiaries-and-successor-beneficiaries-todays-slott-report-mailbag/

By Ian Berger, JD
IRA Analyst

The IRS rollover rules are fraught with complexity. (That’s why we always recommend direct transfers instead of 60-day rollovers.) The rule with the most serious consequences is the “once-per-year” rule. Running afoul of that rule triggers a taxable distribution and often a 10% early distribution penalty if you’re under age 59½. And, any rolled-over funds included in the “illegal” rollover are considered an excess contribution subject to an annual 6% penalty unless timely corrected. To make matters worse, unlike missing the 60-day deadline, a mistake with the one-rollover-per-year rule cannot be waived by the IRS or corrected.

The once-per-year rule applies to traditional IRA-to-traditional IRA rollovers and Roth IRA-to-Roth IRA rollovers. It doesn’t apply to company plan-to-IRA rollovers, IRA-to-company plan rollovers, or traditional IRA-to-Roth IRA rollovers (Roth conversions). Since 2015, the once-per-year rule has applied to all of a person’s IRAs – not to each IRA account separately. Traditional and Roth IRA rollovers are combined when applying the rule.

The easy way to explain the rule is to say that you can’t do more than one IRA-to-IRA (or Roth IRA-to-Roth IRA) rollover in any one-year (365-day) period. But that’s not always accurate. A more accurate explanation is to say you can’t do a 60-day rollover of more than one distribution received during any one-year period.

Here’s a few examples that illustrate the difference:

Example 1: Liam received a traditional IRA distribution on July 1, 2025 that he rolled over to another traditional IRA on August 1, 2025. If Liam receives a second traditional IRA (or Roth IRA) distribution any time before July 1, 2026, the once-per-year rule prevents him from doing another 60-day rollover of that second distribution to another like IRA.

Example 2: Let’s say Liam receives the second distribution on June 15, 2026 (within one year of the first distribution on July 1, 2025). He would still violate the once-per-year rule even if he delays rolling over the second distribution until August 2, 2026 (more than one year after the first rollover done on August 1, 2025).

Example 3: Now assume that Liam receives the second distribution on July 10, 2026 (more than one year after the first distribution on July 1, 2025). He would not violate the once-per-year rule even if he rolls over the second distribution on July 25, 2026 (within one year of the first rollover done on August 1, 2025). This is an example of when doing two rollovers within a one-year period (on August 1, 2025 and July 25, 2026) is perfectly acceptable.

The bottom line is that, in applying the once-per-year rule, look at the timing of the distributions being rolled over – not at the timing of the rollovers.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/why-the-once-per-year-rollover-rule-is-often-misapplied/

By Sarah Brenner, JD
Director of Retirement Education

The Halloween holiday is approaching. This is the time of year when tiny ghosts and goblins will ring doorbells and ask, “Trick or Treat?” In the spirit of the season, we at the Slott Report present our very own IRA Trick or Treat.

Which of the following IRA strategies are “treats” and which are just “tricks?”

Converting to a Roth IRA and taking tax-free distributions in retirement – TREAT!

No one likes to pay taxes before they absolutely must. However, doing a Roth conversion and choosing to pay taxes now can result in a sweet treat later. The payoff is distributions of years of tax-free earnings in retirement. Converting to a Roth IRA now locks in today’s low tax rates and reduces concerns about taxes in retirement.

Taking multiple IRA distributions with the intent to roll over the funds – TRICK!

Don’t fall for this trick in the IRA rollover rules. The once-per-year rollover rule limits 60-day rollovers between IRAs. You cannot roll over more than one distribution received during a 365-day period. Any attempt to do this will result in taxes and penalties. Avoid this whole mess by moving your IRA money via direct trustee-to-trustee transfer.

Making deductible IRA contributions and doing qualified charitable distributions (QCDs) at age 70½ or older – TRICK!

Uncle Sam has a trick up his sleeve when it comes to QCDs. If you are age 70½ and older and making deductible IRA contributions, that will reduce your tax-free QCDs. There is a complicated formula that comes into play that you will want to stay far away from. If you are doing QCDs and you are interested in continuing to grow your retirement savings, consider an employer plan or Roth IRA contribution instead.

Rolling over an employer plan to an IRA – TREAT!

Leaving a job can be a very stressful time, regardless of the circumstances. One important task that many overlook is what to do with the funds in their employer plan. A careful analysis should be done, and every situation is different. However, one strategy that should be strongly considered is an IRA rollover. IRAs offer a wide variety of investment choices, flexibility and control over your retirement savings. Plus, moving your retirement funds to an IRA continues the treat of
tax-deferred growth.

Happy Halloween from the Slott Report!

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/ira-trick-or-treat-2/

By Ian Berger, JD
IRA Analyst

Question:

I read your blog titled “5 Things You Need to Know About Qualified Charitable Distributions.” I was surprised that you didn’t include a 6th item to let people know that they cannot make a contribution to an IRA for the year of the qualified charitable distribution (QCD).

Answer:

Because of space concerns, we could not address all of the issues surrounding QCDs, but thank you for pointing this out. This “double-dipping” rule says that any traditional deductible IRAs made once someone turns age 70½ can turn QCDs, normally tax-free, into taxable distributions. This treatment will apply until the deductible IRAs have all been “used up.” To avoid this complicated rule, there is a better option. Consider making Roth IRA contributions instead.

Question:

I have heard that if you are age 73 or older you will need to take your 2025 required minimum distribution (RMD) from your IRA prior to a Roth conversion. However, if you turn age 73 in 2025, don’t you also have the option to defer your first RMD to before April 1, 2026? If so, then can’t you do a conversion in 2025 without taking the RMD?

Thanks!

Answer:

Unfortunately, no. It is true that someone turning age 73 can normally defer the 2025 RMD until April 1, 2026. However, if that person wants to do a conversion in 2025, they must first take their 2025 RMDs from all of their IRAs and then convert the remainder. That’s because 2025 is the first RMD year, and the first dollars distributed from an IRA in an RMD year are considered to be the RMD for year. Further, RMDs can never be rolled over or converted.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/qcds-and-rmds-before-roth-conversions-todays-slott-report-mailbag/

When a trust is named as beneficiary of an IRA, several possible negative issues may be introduced. For example, after the death of the IRA owner, things can become more complex for the beneficiaries. Trust beneficiaries cannot simply set up their own inherited IRAs. We must open a trust-held inherited IRA and, depending on the trust document, the trust beneficiaries could be limited in their access to the dollars. Also, recognize that there is no income tax benefit that can be gained with a trust that cannot be gained without a trust. In fact, naming a trust as IRA beneficiary creates the real possibility that taxes paid on the assets could be significantly higher vs. if an actual person was named as IRA beneficiary. Trust tax rates hit the 37% bracket when income exceeds $15,650. By comparison, a married couple filing jointly would not reach the 37% bracket in 2025 until taxable income exceeded $751,600. (Single filers reach the top tax rate of 37% in 2025 when taxable income exceeds $626,350.)

Based on these potential negative factors, a trust should not be named as beneficiary of an IRA unless there is a legitimate reason to do so. And there are valid reasons to name trust as IRA beneficiary. Good reasons to name a trust as IRA beneficiary include:

Minor as Beneficiary. Minors cannot make elections like IRA distribution decisions. If a minor were named directly as IRA beneficiary, the court could require a guardian be appointed for the minor to act on their behalf. To avoid this, a trust as beneficiary could be a better option.

Management. A trust could 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. A trust could help provide for someone who is not physically or mentally able to care for themselves or to handle money. A trust could also protect a vulnerable or unsophisticated beneficiary from unscrupulous people who might take advantage of him.

Creditor Protection. A trust could be used to protect the beneficiary from creditor problems, as many states may not provide creditor protection for IRA beneficiaries.

Control. Some people simply want to control their money after they die. We refer to this as “ruling from the grave.” A trust can accomplish this. However, if the only purpose of the trust is for the deceased person to exercise control over an otherwise healthy, mature, responsible, adult beneficiary, it is probably not a healthy plan for family relations.

Second Marriages. A person may want to leave Spouse #2 the annual IRA income, but after Spouse #2 passes away, the original IRA owner might want the assets to go to the children from his first marriage. Whatever the post-death planning needs are for the IRA owner in second-marriage situations, naming a trust as IRA beneficiary could be the only way to make it happen.

This is not the be-all, end-all list of why naming a trust as IRA beneficiary could make sense. While we will continue to dissuade people from naming trusts as their IRA beneficiary unless there is a legitimate reason to do so, it is important to recognize that valid reasons do exist.

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

https://irahelp.com/good-reasons-to-name-a-trust-as-ira-beneficiary/