By Andy Ives, CFP®, AIF®
IRA Analyst

QUESTION:

I have a question regarding joint health savings accounts (HSAs). What happens if an HSA is shared with a spouse who is not yet eligible for Medicare? Can that spouse continue to contribute if they remain enrolled in a high-deductible health plan (HDHP)?

Best regards,

Shyam

ANSWER:

Shyam,

Technically there is no “joint HSA.” Each spouse must open their own account, but the family contribution limits are aggregated among spouses. If one spouse is age 65 or older and enrolled in Medicare, that spouse can no longer contribute to an HSA. However, if the other spouse is not yet enrolled in Medicare and remains in an HDHP, that spouse can continue to contribute to an HSA based on the self-only contribution limits. For 2026, the self-only limit is $4,500, plus a $1,000 catch-up for those age 55 and older.

QUESTION:

I am age 71 and currently have a small traditional IRA at Vanguard as well as a large traditional IRA and a Roth IRA at Fidelity. In the interest of preparing for required minimum distributions (RMDs) in a couple of years, I plan to roll my Vanguard traditional IRA into my Fidelity traditional IRA, and convert some of my Fidelity traditional IRA into the Fidelity Roth IRA. Can I do both of those transfers this year? Does it matter what order I do them in?

ANSWER:

You can do of both these transactions this year, and you can do them in any order. We recommend that you move the small IRA into the larger traditional IRA via direct transfer as opposed to a 60-day rollover. That way you can avoid any tax reporting with the transfer and not have to worry about either the 60-day deadline or the once-per-year rollover rule. As for the partial Roth conversion, you can do that at any time and for any amount. (But be aware that, once your RMDs start, you must take your full RMD before you do any Roth IRA conversions.)

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/health-savings-accounts-and-ira-rollovers-todays-slott-report-mailbag/

By Ian Berger, JD
IRA Analyst

Many of you are probably aware of the 60-day rollover deadline and the once-per-year rollover rule. But there’s a third IRA rollover restriction you may be less familiar with: the “same-property rule.”

The same-property rule is the Rodney Dangerfield of rollover rules. It gets no respect. That’s because it comes into play much less often than the other two rules. However, it should not be overlooked. As with the other IRA rollover rules, failing to comply with the same-property rule can have serious tax consequences.

What does the same-property rule require? It requires that if property is received in an IRA distribution, the very same property must be rolled over. If cash is received, cash must be rolled over. If shares of stock are received, those same shares of stock (notthe same value of the stock) must be rolled over. It’s not enough to substitute another asset of equal value to the property received and roll over that other asset.

Example: Ella owns 1,000 shares of Choosin’ Texas Company stock in her IRA, valued at $150,000 ($150 per share). Ella requests that those shares be distributed in-kind from her IRA to her non-qualified brokerage account so she can roll them over to an IRA with another custodian within 60 days. However, by the time she does the rollover, the Choosin’ Texas share price has dropped to $100. To avoid a violation of the same-property rule, Ella must roll over the same 1,000 shares, even though their value has fallen to $100,000.

When does the same-property rule apply? It applies to the following types of 60-day rollovers:

• Traditional IRA-to-traditional IRA;
• Roth IRA-to-Roth IRA;
• Traditional IRA-to-plan (“reverse rollovers”), if allowed by the plan; and
• Roth conversions.

What about plan-to-IRA rollovers? The same-property rule does apply, but there’s an exception: If you receive property from a plan, you can either roll over the same property to the IRA or sell the property and roll over the proceeds. There must be an actual sale. You cannot elect to keep the property and roll over cash.

What happens if I violate the rule? You’ll definitely have some tax headaches. Since the IRA distribution was not eligible for rollover, it’ll become taxable and possibly subject to the 10% early distribution penalty. And since the rollover was invalid, it’s treated as an excess contribution that’s subject to a 6% annual penalty unless timely corrected. And don’t look to the IRS for help. The IRS has no authority to excuse same-property rule violations.

How can these complications be avoided? It’s simple: Don’t do 60-day rollovers. Instead, do direct transfers. The same-property restriction does not apply to direct transfers. (Extra bonus: Direct transfers also avoid the other two rollover rules – the 60-day deadline and the once-per-year rule.)

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-same-property-rollover-rule-gets-no-respect/

By Sarah Brenner, JD
Director of Retirement Education

The unfortunate reality for many Americans is that medical expenses will be a large part of their expected budget in retirement years. Health Savings Accounts (HSA), which continue to grow both in numbers and in balance size, can help. We receive many questions about HSAs for individuals who are age 65 or older. Here is what you need to know about your HSA as you reach your retirement years.

1. You can use your HSA to pay most Medicare premiums.

   Generally, insurance premiums are not considered qualified medical expenses. However, after age 65 and enrollment in Medicare, certain insurance premiums can be paid tax-free with HSA distributions. You can pay for all Medicare premiums (including IRMAA), except for Medigap.

2. You can take penalty-free distributions.
   
   If a distribution is taken from an HSA and the funds are not used for qualified medical expenses, the distribution is taxable and a 20% penalty applies. However, there is good news if you are age 65 or older. Distributions that you take from your HSA after age 65 are never subject to penalty. What you use the funds for does not matter. All HSA distributions after age 65 are penalty-free, even if the funds are not used for qualified health expenses. (If not used for qualified expenses, they still will be taxable.)
3. You can make prorated contributions.

   When it comes to making contributions to an HSA when you reach age 65, things can get a little tricky. This is due to the complicated interaction of the HSA rules with Medicare. To be eligible to contribute to an HSA, you must have a High Deductible Health Plan (HDHP). You cannot have coverage under another plan that is not an HDHP. Because Medicare is not an HDHP, you cannot contribute to your HSA if you are enrolled in Medicare. Enrollment in any Medicare coverage (Parts A, B, C, D, or Medigap) will end HSA eligibility.

   You lose your eligibility to make an HSA contribution as of the first day of the month you reach age 65 and enroll in Medicare. You can make a prorated contribution for the year to your HSA for the months before you became ineligible due to your enrollment in Medicare. This contribution can be made until the HSA contribution deadline, which is generally April 15 of the following year.

4. You must understand the interaction between Social Security and your HSA.

   Social Security can add another wrinkle. This is because if you claim Social Security at age 65 or later, you also will automatically be enrolled in Medicare Part A. This would mean that you are no longer eligible to contribute to an HSA because you no longer have an HDHP. The bottom line is if you are over 65, you cannot be both receiving Social Security and contributing to your HSA.

   Things get even more complicated for those workers who decide to delay receiving Social Security benefits. If you claim Social Security and therefore enroll in Medicare Part A after reaching age 65, your enrollment will be backdated by six months. However, it cannot be backdated past age 65. Because Medicare enrollment makes you ineligible for HSA contributions, you must exclude those retroactive months from HSA contribution eligibility.

5. You may be able to continue to make HSA contributions after age 65.

   Are you delaying retirement after age 65 and still working? If you do not claim Social Security and you have an HSA, can you still contribute? Well, it depends on whether you are enrolled in Medicare. You may decide to opt out of Medicare and receive healthcare coverage through a large employer’s HDHP. In that case, you can continue to contribute to your HSA.

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-things-to-know-about-hsas-at-age-65/

By Ian Berger, JD
IRA Analyst

QUESTION:

I have a client who is age 52 and is being placed on hospice due to his battle with cancer. I understand that there is a provision in the SECURE 2.0 Act that allows individuals to withdraw from their IRAs prematurely without the 10% penalty if their condition is expected to result in death within 7 years. Can my client qualify for this exception?

ANSWER:

You are correct that SECURE 2.0 created a new exception for pre-59½ IRA withdrawals for a terminal illness. To qualify for the exception, your client must obtain a certification by his physician that describes the illness and includes a specific statement that his illness is reasonably expected to result in death in 84 months (7 years) or less. This certification must then be provided to the IRA custodian.

QUESTION:

Can an IRA owner within the 60-day window pay back multiple distributions received at different times but within the 60 days?

ANSWER:

No. Under the “once-per-year” rollover rule, if an IRA owner receives multiple distributions within any 12-month period, he can do a 60-day rollover of only one of those distributions. This rule applies to both traditional IRA-to-traditional IRA rollovers and Roth IRA-to-Roth IRA rollovers. Violating that rule could result in taxes and penalties.

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/can-my-terminally-ill-client-qualify-for-a-penalty-free-ira-withdrawal-todays-slott-report-mailbag/

By Andy Ives, CFP®, AIF®
IRA Analyst

IRA owners and retirement plan participants trip over the required minimum distribution (RMD) rules all the time. Bad advice is provided, misinformation is freely disseminated on TikTok, and sometimes smart individuals do less-than-smart things. Here is a Top 10 list of common RMD mistakes:

10. Rolling over an RMD. RMDs are not eligible to be rolled over. This happens most frequently when company plan assets are rolled over to an IRA. Doing the rollover first with the idea to take the plan RMD from the IRA later will not work. If the plan RMD is not taken prior to the rollover, you have an excess contribution in the IRA that needs to be corrected.

9. Spouses combining RMDs. One spouse cannot take an RMD for another spouse, even if they file a joint tax return and report the correct overall RMD income.

8. Not considering liquidity. If your IRA investment is illiquid, that is not an excuse to miss an RMD. The IRS does not care about your cash flow issues.

7. Taking credit for withdrawing more than the RMD in the previous year. Just because you took more than your RMD last year does not eliminate your RMD this year. Taking more last year will reduce the year-end balance resulting in a lower RMD calculation this year, but an RMD still exists.

6. Misunderstanding the still-working exception. This rule can delay RMDs on a plan, but it does not apply to IRAs, nor does it apply to plans at companies at which you no longer work. It also does not apply if you own more than 5% of your company (counting family ownership).

5. Not realizing a delayed first RMD means two RMDs the following year. An IRA owner turning 73 can delay his first RMD until April 1 of the following year (i.e., the “required beginning date”). But if the first RMD is delayed, that means there will be two RMDs due the following year – the delayed RMD by April 1 and the “normal” RMD by 12/31.

4. Thinking your annual qualified charitable distribution (QCD) is limited by the RMD amount. The annual QCD limit (for 2026) is $111,000, regardless of the size of your RMD.

3. Not understanding the RMD aggregation rules. A person’s own IRAs can be aggregated for RMD purposes. IRAs and 401(k) plans cannot be aggregated.

2. Not taking an RMD at all. Missing all or part of an RMD could result in a 25% penalty if the error is not identified and corrected in a timely manner.

1. RMD calculation errors. Be sure to use the proper life expectancy table, age and balance. This is the most fundamental rule and is applicable to all accounts that have 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/top-10-rmd-mistakes/

By Sarah Brenner, JD
Director of Retirement Education

QUESTION:

Are there any penalties/consequences/tax issues if I move money from a Roth IRA to start a new Roth IRA at another company?

Thanks,

Ramona

ANSWER:

Hi Ramona,

Roth IRA funds are portable. There are no penalties or negative tax consequences when you move your funds from one Roth IRA to another. For example, the five-year holding period for qualified distributions of earnings does not reset. Instead, it continues on. One caveat – if you are thinking of moving your account, it is best to do a direct trustee-to-trustee transfer. Doing a 60-day rollover is more risky and comes with more rules.

QUESTION:

If a spouse beneficiary dies before retitling or taking any action on an inherited IRA, who inherits the account? Would it be the contingent beneficiaries of the original IRA owner? Or, is it the estate of the spouse beneficiary?

ANSWER:

This is a question that comes up a lot. When an IRA owner dies, the funds immediately belong to the beneficiary. This is true even if no paperwork officially retitling the account is done. Assuming no disclaimer, the contingent beneficiaries no longer matter because the account has been inherited by the primary beneficiary. If the spouse (who is the primary beneficiary in this case) dies before naming their own beneficiary on the account, then the IRA custodial document’s default beneficiary will inherit the funds. Often, the default beneficiary is the estate.

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-iras-and-roth-ira-portability-todays-slott-report-mailbag/

By Sarah Brenner, JD
Director of Retirement Education

With the cost of food, energy, healthcare and other basics on the rise, many Americans are facing a cash crunch. For some, their IRA is their largest asset. Therefore, it is not surprising that they may be looking to their IRAs for a quick solution. Why not borrow from your IRA instead of securing a loan? Why not use your IRA as an immediate cash resource and just pay the IRA back later?

This may sound tempting, but you should be cautious as there are rules that make this strategy more complicated than it may seem. Loans from your IRA are not permitted. In fact, taking a loan from an IRA would be considered a prohibited transaction and could result in the entire account becoming an immediate taxable distribution and the retirement savings lost.

You can, however, “borrow” from your IRA funds on a short-term basis by taking a distribution, using the funds as needed, and then replacing them in the IRA via a 60-day rollover. There is nothing in the rules that prohibits you from taking a distribution at any time from your IRA and for whatever purpose you choose. There is also no rule that limits what you can do with the money while it is out of the IRA during the 60-day period. So yes, it is possible to “borrow” money from your IRA by using the 60-day rollover rule, but this is not technically a “short-term loan.”

The 60-Day Rollover Deadline

A major concern with using an IRA for a “short-term loan” is the rollover deadline. An IRA owner does not have unlimited time to complete a rollover. Instead, there is a 60-day window to finalize the transaction. If the funds are not deposited back to an IRA within 60 days, the distribution may be both taxable and subject to penalty.

Life doesn’t always go as planned, and many times IRA owners find themselves unable to meet the 60-day deadline. While anything goes during the 60-day rollover period, it’s a different story when the clock runs out. What you do with the funds during the 60-day rollover period can never undo a timely rollover, but if the deadline is missed, the result is very different. When trying to defend a late rollover to the IRS, what happened during the 60-day period suddenly matters. Also, self-certification of a late rollover will provide no lifeline if your situation does not fit neatly into one of the 12 reasons where self-certification is permitted.

Once-Per-Year Rollover Rule Violations

Another concern when it comes to “borrowing” from your IRA is the once-per-year rollover rule applicable to IRA-to-IRA and Roth IRA-to-Roth IRA rollovers. For purposes of this rule, traditional and Roth IRA rollovers are aggregated. For example, a 60-day rollover of a Roth IRA distribution to another Roth IRA will prevent a 60-day rollover of a traditional IRA distribution, received within 12 months of the date of the Roth IRA distribution, to another traditional IRA. (Note that Roth conversions do not count against the one-rollover-per-year rule.)

This rule prevents IRA owners from rolling over a distribution within 12 months of a prior distribution that was rolled over. Naturally, that is not as simple as it sounds. The 12-month period is a full 365 days. Assume an IRA owner received a distribution on December 15 that she rolled over. She is not eligible to do another 60-day rollover from any IRA to another IRA (or from any Roth IRA to another Roth IRA) until the following December 15. The 12 months begin with the date the funds are received by the account owner.

Proceed with Caution

“Borrowing” from your IRA by doing a 60-day rollover is allowed but best avoided if possible. The risks are high and the ramifications if things do not go as planned could be a tax bill and penalties. What was intended as a short-term loan could easily result in the long-term loss of your hard-earned retirement savings.

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/can-i-borrow-from-my-ira/

By Andy Ives, CFP®, AIF®
IRA Analyst

The 72(t) rules (“series of substantially equal periodic payments”) allow a person to tap retirement dollars before age 59½ without a 10% early distribution penalty. However, to gain early access to the funds, the IRA owner must commit to a strict withdrawal plan. For example, the payments must continue for at least five years or until age 59½, whichever period is longer. Also, the payments must be distributed at least annually, and an approved method must be used to calculate the annual distribution amount.

Typically, when IRA owners are in need of funds, a 72(t) schedule is set up on their traditional IRA. While the 10% early withdrawal penalty can be avoided with a 72(t), taxes will still apply. But what if a person had a Roth IRA? Could a 72(t) be established to access Roth funds early?

Yes, but a 72(t) on a Roth IRA doesn’t always make sense. Why not? Because Roth IRAs follow strict distribution ordering rules. Contributions come out first, then converted dollars, and then earnings. A Roth IRA owner always has tax- and penalty-free access up to an amount equal to his total Roth IRA contributions. This is true regardless of age. Since Roth contributions come out first, these dollars are fully accessible – no 72(t) needed.

If any Roth conversions were done, an amount up to the total of all conversions comes out next. AFTER five years, a person has tax- and penalty-free access to those converted dollars, again, regardless of age. Yes, each conversion has its own 5-year clock, but after the clock specific to that conversion has been satisfied, those converted dollars are available for withdrawal penalty-free. (DURING the five-year holding period, distributions of converted funds are subject to the 10% penalty if the individual is under age 59½, unless an exception applies.)

Based on the ordering rules, it seems like a 72(t) on a Roth IRA is merely a way to gain early access to Roth IRA earnings. But if those earnings are touched prior to age 59½, even through a 72(t) program, they would be taxable. All things considered, a 72(t) on a Roth IRA appears to be almost pointless. A person would have to be in a unique situation for a 72(t) on a Roth IRA to make sense.

Such a unique situation recently presented itself. A retired traditional IRA owner, age 55, needed access to his IRA for annual living expenses. The problem was, based on other financial entanglements, he required tax-free income. Yes, a 72(t) on his traditional IRA would allow penalty-free access to the funds, but they would be taxable. This taxable income would negatively impact his other dealings each year going forward.

So, his astute Ed Slott Elite Advisor™ devised a creative plan. The advisor proposed a large Roth conversion in 2026. Yes, this would generate a significant tax hit this year, but the need for tax-free income did not begin until next year. The next step was to initiate a 72(t) on the new Roth IRA, with the first payment scheduled for 2027. Based on the aforementioned Roth IRA distribution ordering rules (and since this person had no Roth IRA contributions), distributions of the converted dollars could begin. The 10% penalty would be avoided, and the annual income over the life of the 72(t) would be tax-free. After five years the 72(t) could be stopped, and the then-60-year-old would have full access to all his Roth IRA funds. Brilliant.

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/72t-on-a-roth-ira/

Andy Ives, CFP®, AIF®
IRA Analyst

QUESTION:

I did a qualified charitable distribution (QCD) in early January of 2026 to cover a portion of my required minimum distribution (RMD), then took the rest of the RMD before I processed a Roth conversion. Am I now allowed to process another QCD if I still keep under the maximum allowed per year?

Kind regards,

Greg

ANSWER:

Greg,

Yes, you can continue to do QCDs in 2026. Even though your entire RMD has been satisfied and you even did a Roth conversion, QCDs are still available. The only limitation is the annual QCD cap ($111,000 in 2026).

QUESTION:

I have an inherited traditional IRA from my mother and I am age 70. I’m told the account must be emptied by the end of 2034 based on the 10-year rule. I am also taking annual required minimum distributions (RMDs) from that account. Is it better that I take out more than the RMD annually so I don’t have a big tax bill in 2034 when all the money must be taken out?

Thank you.

ANSWER:

The 10-year payout rule was created by Congress to accelerate the distribution of inherited IRAs, which in turn expedites the taxation of those dollars. With this shorter payout window, proper tax planning is vital. Annual RMDs within the 10-year period are not designed to deplete the account evenly over the 10 years. So, there could be a large balance remaining which could force you into a higher tax bracket in the 10th year. To avoid this potential problem, you should consider taking distributions over and above the RMD in the remaining years of the 10-year period to level out the taxes due and potentially reduce your overall tax liability.

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

One of the mantras we have here at Ed Slott & Company is: “Don’t do 60-day rollovers. Do direct transfers instead.” The reason? 60-day rollovers between IRAs are subject to several rules that have serious tax consequences if not followed.

One of those restrictions is the so-called “once-per-year” rollover rule. That rule prevents you from doing a 60-day rollover of more than one IRA distribution you receive during any 12-month (365-day) period. If you violate this rule, the second IRA distribution is not eligible for rollover. So, it could become taxable and subject to the 10% early distribution penalty. And, depositing that second withdrawal into another IRA is 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 corrected by you or waived by the IRS. That’s why we call it a “fatal error.”

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).

The easiest way to explain the rule is to say you can’t do more than one 60-day rollover in any 12-month period. But that’s not really completely accurate. The rule actually kicks in if you receive more than one IRA distribution in a 12-month period – not if you do more than one 60-day rollover within 12 months.

Here are a few examples that illustrate the difference:

Example 1: Jolene received a traditional IRA distribution on September 1, 2025, that she rolled over to another traditional IRA on October 1, 2025. Let’s say Jolene receives a second distribution on August 15, 2026 (within 12 months of her first distribution). She would still violate the once-per-year rule even if she delays rolling over the second distribution until October 2, 2026 (more than 12 months after the first rollover on October 1, 2025).

Example 2: Now assume Jolene receives the second distribution on September 10, 2026 (more than 12 months after the first distribution on September 1, 2025). She would not violate the once-per-year rule even if she rolls over the second distribution on September 25, 2026 (within 12 months of the first rollover on October 1, 2025).

Once again, you can avoid all of this complexity and potential tax problems by doing direct transfers instead of 60-day rollovers when you want to move your IRA funds. You can do as many direct transfers as you like during a 12-month period without any concern about the once-per-year rule.

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-once-per-year-rollover-rule-works-and-how-to-avoid-it/

By Sarah Brenner, JD
Director of Retirement Education

Fall is in full swing and October is almost upon us. That means that an important IRA deadline looms just ahead. Here are three transactions you must get done by October 15, 2026.

1. Make a SEP IRA contribution for 2025.

The deadline for making a 2025 traditional or Roth IRA contribution was April 15, 2026. That deadline has long passed. However, employers who are interested in establishing and funding a SEP IRA for 2025 may have a little more time to get this done. The deadline for making a SEP contribution is the business’s tax-filing deadline, including extensions. For some businesses that date is October 15, 2026.

2. Correct a 2025 excess IRA contribution without penalty.

Did you contribute too much to your traditional or Roth IRA for 2025? Maybe your income ended up being higher than you expected and it turned out you were ineligible for the Roth IRA contribution you made. If you made an excess contribution to your traditional or Roth IRA for 2025, you can fix that mistake by withdrawing the contribution, plus net income or loss attributable. Your deadline for getting this done and avoiding the 6% excess contribution penalty is October 15, 2026.

While recharacterization of Roth IRA conversions is long gone, recharacterization of tax year contributions remains an option to correct an excess contribution by moving it to a different type of IRA. The deadline for getting this done for 2025 contributions is also October 15, 2026.

3. Remove an unwanted 2025 IRA contribution.

It’s not too late. You can still change your mind about a 2025 IRA contribution. Have you changed your mind about the type of IRA to which you wanted to make your 2025 contribution? Maybe you contributed to a Roth IRA and now you think a traditional IRA is a better fit, or vice versa. October 15, 2026 is your last chance to recharacterize that contribution to the other type of IRA. If you later discovered that your 2025 traditional IRA contribution was not deductible and you wish you never made the contribution, October 15, 2026 is the deadline to correct this problem. Don’t miss the deadline. If you do, the contribution must remain in the IRA as a nondeductible 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/three-ira-transactions-you-must-do-by-october-15/

By Ian Berger, JD
IRA Analyst

QUESTION:

I really enjoy reading the Slott Report articles, but I’m confused about the inherited Roth IRA required minimum distributions (RMD) explanations. My understanding was Roth IRAs do not have RMDs even when inherited. Am I mistaken?

Thanks,

Donald

ANSWER:

Hi Donald,

There’s lots of confusion over this issue. Roth IRA owners do not have RMDs while they are living, but beneficiaries of inherited Roth IRAs do have RMDs. Further confusion results because only Roth IRA beneficiaries who are “eligible designated beneficiaries” and elect to stretch RMDs have annual RMDs. Roth IRA beneficiaries who are “non-eligible designated beneficiaries” are subject to the 10-year payout rule, but they do not have annual RMDs in years 1-9 of the 10-year period. However, they must empty the inherited account by the end of the 10th year following the year of death, and this 10th-year distribution is considered their RMD.

QUESTION:

I am age 85. Would it make sense to convert my IRA (worth $1.3 million) to a Roth IRA at this late stage, or am I too old to convert?

I have four children, two of whom are on Social Security Disability Insurance (SSDI). Would the children on SSDI still have to follow the 10-year rule?

Thank you.

ANSWER:

There are no age restrictions for doing Roth conversions. Many older IRA owners choose not to do conversions because there may not be enough time for the tax-free accumulation to offset the additional taxable income resulting from the conversion. However, others who wish to leave a tax-free inheritance to children or grandchildren may find a Roth conversion beneficial at any age. IRA beneficiaries who are “disabled” are “eligible designated beneficiaries” and can therefore stretch RMDs over their life expectancy instead of being subject to the 10-year rule. Beneficiaries on SSDI are automatically considered “disabled.”

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/do-inherited-roth-ira-beneficiaries-have-rmds-todays-slott-report-mailbag/

By Andy Ives, CFP®, AIF®
IRA Analyst

For those workplace retirement plan participants fortunate enough to own highly appreciated company stock in their plan – like a 401(k) or ESOP – the net unrealized appreciation (NUA) strategy may be available. NUA allows a person receiving a workplace plan distribution to:

• Pay ordinary income tax on only the cost basis of company stock (the amount paid to acquire the stock in the plan) in the year of distribution.
• Pay tax at more favorable long-term capital gains (LTCG) rates on the appreciation when the stock is sold – even if sold within one year.

However, a person must hit a “trigger event” to be NUA eligible, and the plan must be completely emptied. Trigger events include turning age 59½, separation from service (not for the self-employed), disability (only for the self-employed), and death.

Example: Gonzo, a 401(k) participant at Muppet Company, owns ABC stock in his plan with a total value of $1 million and a cost basis of $200,000. If Gonzo did not pursue the NUA strategy, the entire $1 million would eventually be taxed at ordinary income rates. On the other hand, if Gonzo properly implemented the NUA strategy, then only the $200,000 cost basis would face ordinary income rates in the year he received the distribution from the plan. The $800,000 of appreciation that occurred within the plan would be taxed at LTCG rates when he sells the stock. The “spread” between paying higher ordinary income rates vs. LTCG rates on the $800,000 of appreciation is the NUA tax savings.

When it comes to determining a participant’s cost basis in company stock, plans will typically provide an average. Average cost basis is determined by dividing the total dollar amount used to purchase the shares (overall cost basis) by the current total value of the shares. That percentage is then multiplied by the current share price. From the example above, Gonzo’s overall cost basis is $200,000. Dividing that number by the current total value of his shares ($1 million) equals 20%. If the current share price of Muppet stock is $150, then Gonzo would have an average cost basis of $30 in each share ($150 x 20%).

But what if Gonzo (or the plan) maintained meticulous records and, over the years, was able to accurately document the actual purchase price of each share? As Muppet stock fluctuated, Gonzo may have bought shares early in his career at only $8 per share and bought shares more recently at over $100. Can Gonzo take an NUA distribution of only the low-basis shares of Muppet stock? Yes! NUA is not an all-or-nothing proposition. Partial NUA distributions are allowed. By distributing the low-basis shares in an NUA transaction and rolling the high-basis shares to his IRA, Gonzo can maximize his NUA opportunity. This targeting of low-basis shares is known as “specific identification,” but it is only available when detailed records of each purchase price are maintained.

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/nua-average-cost-basis-vs-specific-identification/

By Sarah Brenner, JD
Director of Retirement Education

QUESTION:

I understand that the SECURE Act 10-year payout rule applies to certain beneficiaries. I also understand that, if the IRA owner died after his required beginning date (RBD), annual required minimum distributions (RMDs) must be taken during the 10-year period. My question is whether we use the life expectancy of the IRA owner or the beneficiary to calculate these RMDs?

Thank you,

Bill

ANSWER:

Hi Bill,

You are correct that annual RMDs must be taken during the 10-year payout period when the IRA owner dies after the RBD. Those annual RMDs are based on the beneficiary’s life expectancy.

QUESTION:

First, you all are fantastic, and I appreciate your insights and information.

My question relates to the beneficiaries of a Roth IRA.

If the IRA owner completes a conversion to her first Roth account and dies before the five-year holding period is over, do the beneficiaries have any problems with receiving the earnings in their inherited Roth account tax free?

Thank you,

Tom

ANSWER:

Hi Tom,

Thanks for the kind words!

There is good and bad news when it comes to inherited Roth IRAs and the five-year holding period for qualified tax-free distributions of earnings. The bad news is that the holding period does apply to inherited accounts. The good news is that it starts with the Roth IRA owner’s first contribution. It does not restart for the beneficiaries. The beneficiaries would need to wait out whatever is left of the Roth IRA owner’s five-year holding period, but after that all earnings would be tax free.

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/do-we-us-the-life-expectancy-of-the-ira-owner-or-the-beneficiary-to-calculate-rmds-todays-slott-report-mailbag/

By Sarah Brenner, JD
Director of Retirement Education

Believe it or not, you still have some time if you are having second thoughts about that IRA contribution you made for 2025. Maybe you made a Roth IRA contribution and then discovered your income was too high. Maybe you made a traditional IRA contribution, but you were ineligible due to having no earned income. Maybe you made a 2025 contribution but changed your mind. There is good news if you act quickly. You can correct 2025 IRA contribution errors by the upcoming October 15, 2026, deadline.

October 15, 2026 – Correction Deadline

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

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

Withdrawal or Recharacterization

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

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

One option for correcting an IRA contribution is withdrawal. Be sure to tell the IRA custodian that the distribution is a return of an excess contribution. With this method of correction, the contribution and the NIA are distributed. The contribution is not taxable. However, the earnings are taxable in the year in which the contribution was made. Thanks to the SECURE 2.0 Act, these earnings are not subject to the 10% penalty, regardless of your age. The IRA custodian will use special reporting on Form 1099-R to reflect that this is a corrective distribution before the deadline.

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

Correcting IRA contributions can be complicated. Be sure you get it right by seeking the advice of a professional tax or financial 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/time-is-running-out-for-penalty-free-correction-of-2025-ira-contributions/

By Andy Ives, CFP®, AIF®
IRA Analyst

In our August 31, 2026, Slott Report entry, we offered a list of situations where Roth conversion could make sense. In that article, we also said that a Roth conversion is not for everyone. Conversion is NOT a universally beneficial transaction, so each scenario must be evaluated individually. We all have different opinions and financial goals. While a Roth conversion could make sense for one person, it might not be the best way forward for another. To help with the decision, here is a list of situations where a Roth conversion may not be the ideal way forward.

1. Seniors who need the money. A Roth conversion of either an IRA or workplace plan will generate an increased tax bill for the year of the conversion. Anyone living on a fixed income must be careful when adding to their expense list. No one should go broke converting if the funds needed to live on must be sent to the IRS to cover the elevated tax bill.

2. Those who believe they will be in a much lower tax bracket in retirement. Why convert at a higher tax bracket when you know you will be taking distributions in the future at a lower bracket? Sure, the earnings would be tax-free after a conversion, but the long-term tax impact of a conversion must always be considered.

3. Those who just cannot bring themselves to pay the tax now. Delaying taxes for as long as possible is the mindset of many people. A Roth conversion flies in the face of that belief. A Roth conversion increases ordinary income for the year of the conversion, potentially causing the loss of valuable tax credits and deductions, taxation of Social Security, and increased IRMAA surcharges. While this only happens for the year of the conversion, such an expedited route to a higher tax bill (and the potential collateral consequences) is a bridge too far for some.

4. Those who do not have non-retirement assets to pay the tax on the conversion. We believe that it is typically best to pay the taxes due on a Roth conversion from another source of funds (as opposed to having taxes withheld from the IRA on the conversion). Having taxes withheld from the IRA leaves less funds available for tax-free accumulation. Also, it’s important to note that IRA owners under age 59½ should almost never have the taxes withheld from the IRA on a conversion. Why? Taxes withheld are a withdrawal and are not part of the conversion. For a person under 59½, this is an early withdrawal, and there would be a 10% penalty on the tax dollars that are being sent to the IRS!

5. Anyone who asks how soon they can take the money out. This is a red flag. If a person needs the money immediately, why convert to a Roth? Anyone over 59½ will have immediate access to the converted funds, but for those under 59½, there is a 5-year wait before converted dollars can be withdrawn without penalty (assuming no exception applies).

6. Those who have a charity named as their IRA beneficiary. Charities do not have to pay income tax when they inherit a traditional IRA, so why would the IRA owner want to pay the income tax on a Roth conversion? Charities don’t care if they receive a traditional IRA or a Roth IRA. From a tax perspective, it’s all the same to them.

7. Anyone receiving financial aid based on income. An income spike could disqualify a person from whatever financial aid they may be depending on. A Roth conversion could push them over the eligibility threshold for receiving that aid.

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/part-2-who-should-not-convert-to-a-roth-ira/

By Andy Ives, CFP®, AIF®
IRA Analyst

QUESTION:

I am age 74 and inherited both a traditional IRA and a Roth IRA from my older sister who recently died. Can I do a conversion from the inherited IRA into the inherited Roth IRA?

Daniel

ANSWER:

Daniel,

Non-spouse beneficiaries like yourself cannot convert an inherited traditional IRA to an inherited Roth IRA. However, if you have your own traditional IRA (not inherited), you could do Roth conversions with that account and take withdrawals from your inherited traditional IRA to help cover the taxes due.

QUESTION:

I inherited a Roth IRA from my brother who was seven years younger than me. I understand that I can choose either the 10-year rule or the stretch. Can I use my brother’s age to determine the annual required minimum distributions (RMDs) if I choose the stretch?

Thanks,

Jeremy

ANSWER:

Jeremy,

Since you qualify as an eligible designated beneficiary (EDB) under the “not more than 10 years younger” category, you are correct that you can choose either the 10-year rule (with no annual RMDs) or the full stretch (with annual RMDs) on this inherited Roth IRA. If you elect annual RMDs, you must use your own age from the IRS Single Life Table. Start with your age in the year after the year of death to determine your initial RMD factor. Then, subtract 1.0 each year thereafter.

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/can-i-do-a-conversion-from-the-inherited-ira-into-the-inherited-roth-ira-todays-slott-report-mailbag/

By Ian Berger, JD
IRA Analyst

A Slott Report article from April 20, 2026, reported that a number of states intended to tax Trump accounts less favorably than they are taxed under the federal tax code, and others were undecided about state tax treatment. Since then, several states have changed their minds and will adopt the federal tax treatment of Trump accounts. In addition, several previously undecided states have decided to do the same thing.

As a reminder, four types of contributions to Trump accounts are permitted:

(1) A one-time $1,000 federal government contribution for children born between 2025 and 2028;

(2) Individual contributions by parents, grandparents, or anyone else on behalf of a child, up to $5,000 for 2026;

(3) Contributions by employers for dependents of employees and employees themselves, up to $2,500 for 2026; and

(4) Contributions by tax-exempt organizations or any government.

For federal income tax purposes, Trump account contributions in categories (1), (3) and (4) are considered pre-tax contributions. So, taxation of those contributions and their earnings can be deferred until distribution. Individual contributions (category (2)) are considered after-tax contributions, so they are taxable in the year made. But taxation of earnings on those contributions is deferred until distribution.

States aren’t necessarily required to adopt federal tax treatment of Trump accounts. If they do not, earnings on all types of contributions will be taxed at the state level annually. This will be confusing to residents because earnings will be taxed one way for federal taxes and another way for state taxes.

Here’s an updated list of how things currently stand:

• Nine states (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming) don’t have state income tax, so this isn’t an issue if you reside there.
• According to the Tax Foundation, 20 states and the District of Columbia broadly match federal tax law. Those 20 states are: Alabama, Colorado, Connecticut, Delaware, Illinois, Iowa, Kansas, Louisiana, Maryland, Missouri, Montana, Nebraska, New Mexico, New York, North Dakota, Oregon, Rhode Island, Utah, Vermont and West Virginia. Those states will likely tax Trump account contributions like federal law does.

What about the remaining 21 states?

• Ten states (Arizona, Arkansas, Idaho, Indiana, Maine, Minnesota, North Carolina, Ohio, Oklahoma and Virginia) have either said they will conform to federal tax law or have recently passed conformity legislation.
• Three states (California, Hawaii and Kentucky) previously said they wouldn’t follow federal law, but have since changed their minds.
• Four other states (Georgia, Michigan, New Jersey and Mississippi) apparently will follow federal law.
• This leaves four states (Massachusetts, Pennsylvania, South Carolina and Wisconsin) that continue to say they won’t recognize the federal tax treatment of Trump accounts.

Keep in mind that this list is still subject to change. The best way to know for sure how a particular state will tax Trump accounts is to contact the state tax office directly.

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

Question:

Can I roll over my pre-tax 401(k) funds to a traditional IRA and my Roth 401(k) funds to a Roth IRA? I am concerned about the once-per-year rollover rule.

Thanks,

Ken

Answer:

Hi Ken,

I have good news for you. The once-per-year rollover rule only applies to traditional IRA-to-traditional IRA and Roth IRA-to-Roth IRA rollovers. It does not apply to rollovers of 401(k) (or other plan) funds to a traditional or Roth IRA. (It also does not apply to rollovers from IRAs to plans or to conversions of traditional IRAs to Roth IRAs.)

Question:

Should my daughter continue contributing to her son’s 529 plan or open up a Trump account? I said she should focus on the 529 plan. Tax-free beats tax-deferred all day long. Am I right?

Craig

Answer:

Hi Craig,

Most financial advisors and commentators agree that if a parent’s (or grandparent’s) goal is to save for the child’s college, contributing to a 529 plan is likely a better option than a Trump account. Parents can contribute more to a 529 plan than they can to a Trump account and can take state tax deductions in many states. However, although 529 funds come out tax-free if used for higher education, taxes and penalties do apply if the funds are used for other purposes. Even if your daughter’s savings are going to a 529 plan, it is still worth opening a Trump account if her son is eligible for the $1,000 Federal government contribution (i.e., born between 2025 and 2028) or for contributions made by an employer or charity. Don’t pass up free money!

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/should-my-daughter-continue-contributing-to-her-sons-529-plan-or-open-up-a-trump-account-todays-slott-report-mailbag/

By Sarah Brenner, JD
Director of Retirement Education

Hurricane season is upon us. Wildfires are raging in the West, and many states are dealing with flooding from summer storms. Natural disasters are increasingly common. After the impact comes the cleanup…and the cost. While tapping a retirement account early is never ideal, for some victims of natural disasters there may be no other option to pay the resulting bills. Fortunately, the rules do offer some relief for these account owners.

Penalty-Free Distributions

A qualified disaster distribution from a retirement account is exempt from the 10% early distribution penalty. This includes a distribution made to an individual whose principal place of abode is in a federally declared disaster area and who has sustained an economic loss caused by the disaster. An individual who has not sustained an economic loss will not qualify for tax relief. The distribution must be taken within 180 days of the first day of the disaster (or, if later, the date the disaster is declared).

The maximum amount that an individual can take from all their retirement accounts combined as a qualified disaster distribution is $22,000. This is a per-disaster limit. A married couple could each take $22,000 from their own retirement plans. There are no restrictions on how the distributed funds are used, and the law does not specifically limit the amount of the distribution to the amount of the damage caused by the disaster.

Repayments

Victims who take qualified disaster distributions also have the opportunity to repay a qualified disaster distribution within three years to a retirement account tax-free. The three-year period will begin on the day after the date the funds were received. Individuals can make one or more recontributions during the three years. Repayments cannot exceed the amount that was distributed. The repayments can be made to any retirement plan to which the original distribution could have been rolled over. They do not have to be made to the account from which the qualified disaster distribution came.

The repayments are considered a direct rollover between a plan and an IRA and a trustee-to-trustee transfer between IRAs. This treatment means that no taxable event is considered to have occurred when a repayment of a qualified disaster distribution is made. It also means the once-per-year rollover rule will not apply to repayments of qualified disaster distributions. If an individual has already paid income tax on their qualified disaster distribution and then later recontributes the funds to a retirement plan, they will be able to file an amended tax return to recover the taxes already paid.

Spreading the Income Tax Over 3 Years

For many individuals struck by a disaster, taking a sizeable taxable distribution from their retirement account could mean more grief, this time from Uncle Sam at tax time. Remember, even though a qualified disaster distribution gets the individual out of the early distribution penalty, they will still have to pay income tax on any pre-tax funds withdrawn. To ease the pain, Congress has included a provision that allows individuals to include the income on their tax return ratably over a three-year period beginning with the year of the distribution. An individual can also elect to include the total amount in income for the year of the distribution.

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-disaster-distributions/

By Sarah Brenner, JD
Director of Retirement Education

Question:

Can I convert my traditional IRA to a Roth IRA even though I have no earned income for this year?

Answer:

While having earned income or taxable compensation is a requirement for making a tax-year contribution to an IRA or Roth IRA, there is no such requirement for doing a conversion. Anyone with a traditional IRA is eligible to convert to a Roth IRA.

Question:

I have both an IRA and a 401(k). Can I satisfy the required minimum distribution (RMD) from my IRA by taking additional funds from the 401(k)?

Answer:

Unfortunately, this will not work. While you may aggregate RMDs from multiple IRAs, you cannot aggregate IRA and employer plan RMDs. You must take your IRA RMD from your IRA and your 401(k) RMD from 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/can-i-do-a-roth-conversion-with-no-earned-income-todays-slott-report-mailbag/

By Ian Berger, JD
IRA Analyst

One of the most important features of Trump accounts is that they must be invested a certain way during the period before January 1 of the year the child turns age 18. (The IRS calls this the “growth period.”) The IRS recently issued guidance on permissible (“eligible”) investments during the growth period. The guidance came in the form of proposed regulations issued on August 21, 2026.

During the growth period, Trump account funds must be invested in a low-cost mutual fund or ETF that tracks the S&P 500 stock index or another index comprised primarily of U.S. companies. The fund may not use leverage, and annual fees and expenses may not exceed 0.10% (10 basis points) of the net value of the assets.

On July 1, 2026, the Treasury Dept. announced that initial Trump account contributions must be invested in the State Street SPDR Portfolio S&P 500 ETF (Ticker: SPYM). In the coming months, funds can be allocated among four other ETFs.

Here are the highlights of the August 21 proposed regulations:

• ETF share classes of mutual funds qualify as permissible ETFs.
• The mutual fund or ETF must seek to replicate the returns of an index, but it need not necessarily hold each of the underlying stocks of the index.
• An index that is based on market capitalization (e.g., a mid-cap fund) would qualify, but an industry or sector-specific index (e.g., a health care fund) would not. In addition, an environmental, social and governance (ESG) fund index may not be used.
• An index will be treated as comprised of “primarily” U.S. companies if those companies represent at least 90 percent of the index based on their weighting in the index.
• Annual fees and expenses include transactional fees, such as sales charges, loads and redemption fees. They don’t include custodial fees or other similar charges associated with a Trump account itself (rather than any particular investment fund).
• A custodian may offer multiple eligible investments for Trump account funds. In that case, the custodian must select a default eligible investment if no fund is selected.
• Before a custodian first offers an investment fund, it must determine that the fund qualifies as an eligible investment. Thereafter, the custodian must monitor all investment funds at least once every 12 months. If the custodian determines that a fund no longer qualifies, its shares must be sold and reinvested within 30 days.

Most of the rules in the regulations are proposed to be effective retroactively back to January 1, 2026. However, the rules governing custodians won’t apply until after the IRS finalizes the regulations.

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-issues-guidance-on-permissible-trump-account-investments/

By Sarah Brenner, JD
Director of Retirement Education

Naming a trust as your IRA beneficiary can help you meet important estate planning goals. However, if you are considering this, you should proceed with caution. Here are four common mistakes with IRA trusts you will want to avoid.

1. Naming an Unnecessary or Unwanted Trust as Your IRA Beneficiary

If you plan to leave your IRA funds to a vulnerable beneficiary such as a minor or an individual, a trust can be a good strategy to protect the beneficiary or preserve government benefits. However, naming a trust when it is not needed or wanted is a mistake.

When an unnecessary trust is named as IRA beneficiary, the trust beneficiaries will often look to the IRS for a private letter ruling (PLR) allowing a spouse beneficiary to do a spousal rollover or nonspouse beneficiaries to set up inherited IRAs.

While these PLR requests do have a track record of success, they are expensive and time consuming, not to mention the money and effort required for drafting an unnecessary IRA trust. A better approach is to proactively determine whether a trust is really needed from the onset. If the desired outcome is a spousal rollover or nonspouse beneficiaries having their own inherited IRAs, avoid the mistake of naming a trust and just name the living, breathing beneficiaries directly.

2. Paying Out the Entire Inherited IRA to the Trust

Imagine spending a lifetime building a retirement account only to have beneficiaries lose the tax-deferred status in one fell swoop by taking a total distribution from the inherited IRA. Avoid this outcome by correctly establishing an inherited IRA for the trust and only distributing RMDs or other desired distributions out of the inherited IRA to the non-qualified trust account.

3. Failing to Name the Trust as Your IRA Beneficiary

It is hard to believe, but one critical step that can get missed is remembering to name the trust on the beneficiary form. Don’t go through the trouble of having a perfect trust drafted and then overlook updating the beneficiary form.

4. Not Updating Your Trust for the Secure Act

It has been several years since the SECURE Act became a reality, and there are still many outdated IRA trusts that do not take the new rules into account. It is not too late. If you named a trust as your IRA beneficiary, you should act to review and potentially revise the trust. Conduit trusts may have to be changed to discretionary-type trusts to either allow distributions within the 10-year payout period to smooth out the tax bill, or to be held within the trust beyond the 10 years for long-term protection.

If you are considering a trust as an IRA beneficiary after the SECURE Act, one strategy worth pursuing is to convert your traditional IRAs to Roth IRAs. Leaving Roth IRA funds to a discretionary trust can provide post-death control while also eliminating trust or individual taxes.

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/avoid-these-4-common-ira-trust-mistakes/

Andy Ives, CFP®, AIF®
IRA Analyst

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 required minimum distribution (RMD)?

ANSWER:

You qualify as an eligible designated beneficiary (EDB) on this inherited Roth IRA under the “not more than 10 years younger than the decedent” EDB category. As such, you have the option to take stretch annual RMDs over your own single life expectancy. Use your age (on your birthday) in the year after the year of your sister’s death. Find the corresponding factor from the Single Life Table. That is your first RMD factor. Then, subtract 1.0 from the first factor for the next year, and 1.0 from the previous year’s factor for each year thereafter.

QUESTION:

A client rolled over $7,500 of her 529 account to a Roth IRA in 2026. Can she also contribute $7,500 to her Roth IRA, assuming she has the earned income?

ANSWER:

A beneficiary of a 529 account with unused dollars (money that will not be used for higher education) can roll over up to $35,000 to a Roth IRA. This is a lifetime limit, and only an amount up to the annual Roth IRA contribution amount can be rolled over in any given year. Whatever amount that is rolled over counts toward the annual contribution limit. So, if your client already rolled over $7,500 in 2026, she cannot contribute additional funds to a traditional or Roth IRA for this year as she has already hit the maximum annual contribution total.

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-contributions-todays-slott-report-mailbag/

By Andy Ives, CFP®, AIF®
IRA Analyst

The foundational premise of a Roth IRA and a Roth 401(k) is the same – after-tax dollars go into the Roth account (either via contribution or conversion), and eligible earnings are tax-free. Pretty easy. But when it comes to withdrawing dollars from a Roth IRA or Roth 401(k), there is a fork in the road. Roth distribution rules between Roth 401(k) plans and Roth IRAs do NOT work the same.

Roth IRAs follow strict distribution ordering rules. Contributions come out first, converted dollars come out next, and earnings are paid out last. It does not matter how many Roth IRAs a person has or if those Roth IRAs are held at different custodians. The IRS sees only one big, consolidated Roth IRA bucket.

Example: Jim, age 48, has a Roth IRA at Custodian A into which he makes annual contributions. Over the years, his total contributions into this Roth IRA are $50,000, and the account value is $100,000. Jim has a second Roth IRA at Custodian B worth $300,000 that was created when he did a full conversion of a traditional IRA. Jim has made no contributions to his “Roth Conversion IRA” at Custodian B. If Jim takes a distribution of $10,000 from the Roth IRA at Custodian B (the “conversion Roth”), the distribution is deemed to consist of contributed dollars. That’s because Jim’s two Roth IRAs are considered to be one consolidated bucket of Roth IRA money, consisting of contributions, conversions and earnings. Regardless of which Roth IRA Jim takes a distribution from, he would need to withdraw a total of $50,000 before his Roth IRA conversion dollars could be reached.

Roth 401(k) plans, on the other hand, do not follow the same distribution ordering rules. Dollars within the Roth portion of a plan can be a mix of salary deferrals (“contributions”), in-plan conversions and earnings. Any distribution from the Roth 401(k) bucket will come out based on a pro-rata mix of salary deferrals, conversions and earnings.

For plan participants who are age 59½ or older and who have held the Roth 401(k) for over 5 years, this is a non-issue. Any Roth 401(k) distribution to a person who meets these levels will receive a “qualified distribution.” That means the entire distributed amount is tax- and penalty-free. If a qualified distribution is rolled over to a Roth IRA, it all dumps into the “contributions bucket” within the Roth IRA and is immediately available for tax-free distribution.

But if a person is either under age 59½ or has not held the Roth 401(k) for 5 years (“non-qualified”), any distribution from the Roth portion of the plan will come out pro-rata. A non-qualified Roth plan participant cannot target only his Roth 401(k) salary deferrals for withdrawal. He must instead receive a proportionate blend of those deferrals (after-tax) and earnings on the deferrals – which will be taxable if not rolled over. If a non-qualified Roth 401(k) distribution is rolled over to a Roth IRA, the Roth dollars will “maintain their same character” when they go into the Roth IRA. Meaning, salary deferrals will go into the Roth IRA contributions bucket, conversions will go to conversions, and earnings will go into the Roth IRA earnings bucket.

While the basic principles of Roth IRAs and Roth 401(k) plans are the same, note that the distribution rules are not.

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-distribution-rules-iras-vs-plans/

By Ian Berger, JD
IRA Analyst

Recent IRS guidance confirms that any employer that wishes to make employer contributions to Trump accounts must comply with several administrative requirements. Especially for small employers, these requirements are likely to be challenging. The guidance came in the form of proposed IRS regulations issued on August 10, 2026.

Employers are permitted to make contributions to the Trump account of either an employee or of an employee’s dependent. These contributions can only be made until December 31 of the year the employee or dependent turns age 17 (i.e., during the “growth period”).

Annual employer contributions up to $2,500 (as indexed) won’t be taxable to the employee in the year they are made. However, those contributions, plus earnings, will be taxable when distributed. The $2,500 annual limit is per employee – not per dependent. For example, if an employer makes contributions to the Trump accounts of an employee’s two dependent children in 2026, the aggregate amount the employer can contribute between the two children is $2,500. Employers can make contributions that exceed the $2,500 limit, but amounts over the limit will be taxable to the employee in the year made.

Employer contributions count towards the $5,000 (as indexed) annual limit that applies to Trump account individual contributions made by parents, grandparents, or other persons during the child’s growth period.

An employer looking to make Trump account contributions will be required to carry out the following administrative steps:

• Establish a separate plan, called a “Trump account contribution program,” whose terms must be set forth in a separate written plan document;
• Notify employees of the availability and terms of the program;
• Provide an annual written statement to employees; and
• Comply with several complicated rules prohibiting discrimination in favor of highly compensated employees.

The proposed regulations clarify that a self-employed individual, such as a sole proprietor or a partner in a partnership, cannot make employer contributions to Trump accounts of his dependent children. However, a self-employed individual with employees can make employer contributions to Trump accounts of dependents of those employees. In addition, a self-employed person can make individual contributions to his own child’s Trump account, i.e., personal contributions that have nothing to do with any business entity. However, individual contributions are not deductible to a self-employed individual (or to any individual), whereas employer contributions are deductible as a business expense.

The IRS guidance confirmed that employer contributions can be offered through employee salary reduction contributions, but only for contributions made to the Trump account of an employee’s dependent – not to the Trump account of the employee.

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

QUESTION:

Does each conversion from a traditional IRA to a Roth IRA require a five-year holding period? I have made several conversions and know that taxes are due when conversions are done. But how long must each conversion remain in the Roth IRA? Thanks!

ANSWER:

The five-year holding period for Roth conversions determines whether distributions of converted amounts are subject to the 10% early distribution penalty. If you receive converted amounts on or after age 59½, you don’t have to worry about this holding period since the 10% penalty will not apply to you. However, if you receive converted amounts before age 59½, you must pay the penalty – unless the five-year holding period has been satisfied. There is a separate five-year period for each conversion. The five-year period starts on January 1 of the year of that conversion.

There is a second five-year holding period which helps determine whether the earnings portion of any Roth IRA distribution is taxable. (You can always withdraw Roth conversions themselves – and Roth IRA contributions – tax-free at any time.) This second holding period does not require separate five-year periods for each year you do conversions. Instead, the five-year period is measured from January 1 of the year of your first Roth IRA conversion or contribution, and it does not restart with subsequent conversions or contributions.

QUESTION

I have been a fan and a subscriber to your newsletters for years.

I would like to know if a Trump account can be opened for any child under age 18, even if born before 2025? And once that child reaches age 18, can the balance be converted to a Roth IRA? Finally, is the maximum contribution each year $5,000?

Thanks for all your wonderful advice!

Janice

ANSWER:

Hi Janice,

Thank you for the kind words!

Trump accounts can be opened for any child through December 31 of the year the child turns age 17. That period is known as the “growth period.” Parents, grandparents and other individuals can make contributions to the Trump account of any child during the growth period. Children born before 2025 (and after 2028) are not eligible for the $1,000 one-time federal government contribution, but are eligible for individual contributions during the growth period. Employers and tax-exempt organizations can also contribute during a child’s growth period.

As of January 1 of the year the child turns age 18, a Trump account can be converted to a Roth IRA. In addition, the account can be rolled over or transferred to another traditional IRA or company plan, withdrawn or maintained as a traditional IRA.

During the growth period, there is a $5,000 annual limit on all contributions made by individuals to a Trump account. This $5,000 limit will be indexed beginning in 2028. Any employer contributions made on behalf of the child during the same year count towards the $5,000 limit.

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-five-year-holding-period-for-roth-ira-conversions-todays-slott-report-mailbag/

By Sarah Brenner, JD
Director of Retirement Education

The SECURE Act, the SECURE 2.0 Act, and subsequent regulations have brought us a complex set of rules for IRA beneficiaries, including trusts. Only individuals who are named on the IRA beneficiary form (or named through the IRA custodial document if no beneficiary is named on the beneficiary form) can be considered non-eligible designated beneficiaries (NEDBs) who qualify for the 10-year rule, or eligible designated beneficiaries (EDBs) who qualify for the stretch.

A trust is not an individual. But if the trust qualifies as a “look-through” (also known as a “see-through”) trust, then the individual beneficiaries of the trust can qualify as NEDBs or EDBs for IRA distribution purposes. However, if one of the trust’s beneficiaries is not a living, breathing person (like a charity), there may still be no NEDB or EDB for IRA distribution purposes, even if the trust qualifies as a look-through trust.

If a trust qualifies under the look-through rules, then the shorter payouts required for non-designated beneficiaries (i.e., the 5-year rule) can be avoided. Instead, payouts to the trust can be made using the SECURE Act’s 10-year rule or even stretched over the life expectancy of the trust beneficiary if the trust beneficiary is an EDB.

To qualify as a look-through trust for IRA distribution purposes, the trust must meet the following technical requirements:

1. The trust must be valid under state law.

2. The trust must be irrevocable, or the trust must contain language to the effect that it becomes irrevocable upon the death of the employee or IRA owner.

3. The beneficiaries of the trust who are beneficiaries with respect to the trust’s interest in the IRA owner’s benefit must be identifiable; i.e., specifically named people or a specific group of relatives (“my grandchildren”), not a vague group (“my friends”).

4. For employer plans, the plan administrator can require that the trustee provide either a list of trust beneficiaries with a description of the conditions on their entitlement or the actual trust document, by October 31 of the year following the year of death. For trusts that are IRA beneficiaries, there are no documentation requirements.

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-look-through-rules-for-trusts/

By Andy Ives, CFP®, AIF®
IRA Analyst

Anyone with a traditional IRA can do a Roth conversion. As long as the funds are eligible to be rolled over, they can be converted. With a Roth conversion, traditional IRA funds are moved into a Roth IRA. This movement of funds is technically a rollover (as opposed to a transfer) because it is a reportable transaction. The custodian in charge of the traditional IRA will issue a Form 1099-R showing the total dollar amount leaving that IRA in Box 1, Gross distribution. The custodian holding the Roth IRA will issue a Form 5498 reporting the total amount converted in Box 3, Roth IRA conversion amount. Properly coded forms are essential to inform the IRS of what transpired and to track 5-year clocks within the Roth IRA.

When a standard conversion is done between traditional and Roth IRAs held at the same custodian, there are no concerns. The same custodian directly moves the funds between accounts and issues both a 1099-R and a Form 5498. Since the same custodian processed the entire transaction, that custodian is confident handling the tax reporting.

However, some custodians can get a little wary when a Roth conversion is completed via 60-day rollover. This is a perfectly acceptable way to execute a Roth conversion now, and it has been since the beginning of Roth time. A traditional IRA owner is allowed to take a distribution from his account and, within 60 days, roll those dollars over to a Roth IRA. That is a valid Roth conversion — and is sometimes a required necessity. Why so?

Example: John needs cash to make a down payment on a new home. John withdraws $50,000 from his traditional IRA with the intent to roll those dollars back to the traditional IRA within 60 days after his old house is sold. A week later, John realizes he needs $30,000 more to cover the down payment, so he takes a second distribution from his IRA. John quickly sells his old house and wants to roll over the entire $80,000. John learns that the one-rollover-per-year rule prohibits him from rolling back the entire $80,000 to his traditional IRA. John can choose one of the distributions to put back, so he returns $50,000 to the traditional IRA via 60-day rollover. John’s astute advisor knows that Roth conversions do NOT count against the one-rollover-per-year rule. Since John is already stuck with the taxes due on the $30,000, the advisor suggests he roll those dollars directly to a Roth IRA. John does so within the 60-day window. John will receive a Form 1099-R showing an $80,000 distribution, and a Form 5498 reporting $50,000 in Box 2, Rollover contributions, and $30,000 in Box 3, Roth IRA conversion amount.

The key to the example above is that the Roth IRA custodian codes the $30,000 deposit as a Roth conversion. This is essential to generate the proper coding on Form 5498. But some custodians are reticent to report the conversion because they may not know where the dollars originated. Coding this as a “60-day rollover” is incorrect! That would indicate the $30,000 came from another Roth IRA, and it clearly did not. In this example, John completed a valid Roth conversion, and it must be reported as such. Custodians unwilling to do so are creating a potentially mountainous problem for their clients.

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-roth-conversion-transaction-custodians-dislike/

By Sarah Brenner, JD
Director of Retirement Education

QUESTION:

Does the SECURE Act’s 10-year rule apply to inherited Roth IRAs?

ANSWER:

Yes, the SECURE Act’s 10-year rule also applies to inherited Roth IRAs for non-eligible designated beneficiaries (NEDBs). That means most nonspouse Roth IRA beneficiaries will have ten years to empty an inherited Roth account. On the other hand, eligible designated beneficiaries (EDBs) of Roth IRAs have the option to choose lifetime stretch required minimum distributions (RMDs) on their inherited Roth IRA.

QUESTION:

I have several IRAs. To keep things simple for my children after I die, is it better to put these IRAs into my trust? Thanks

Lisa

ANSWER:

Hi Lisa,

It is not possible to put your IRAs into a trust during your lifetime. That would result in a full distribution. The “I” in IRA stands for individual, and these accounts must be owned by the individual while they are alive. It is possible, however, to name a trust as your IRA beneficiary. That said, the rules for IRA trust beneficiaries can be complicated. Simplicity would not be guaranteed for your children if you name a trust as your IRA beneficiary.

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/does-the-secure-acts-10-year-rule-apply-to-inherited-roth-iras-todays-slott-report-mailbag/

By Ian Berger, JD
IRA Analyst

How well are your retirement plan account funds protected from creditors? The answer depends on which kind of creditors you are worried about.

There are two types of creditors that might be coming after your retirement savings. The first is bankruptcy creditors, who are owed money by you after you file for bankruptcy. The second is general (non-bankruptcy) creditors, who are owed money by you outside of a bankruptcy proceeding. These include creditors who’ve won a judgment against you in court and are trying to collect on that verdict.

For workplace retirement plans, it also matters whether your plan is covered by the federal Employee Retirement Income Security Act (ERISA). If your plan is an ERISA plan, you can sleep well at night. Your plan assets are completely shielded from both kinds of creditors. (Not surprisingly, there is an exception allowing the IRS to recoup unpaid taxes.)

Even if your plan is not an ERISA plan, your funds are still completely protected against bankruptcy creditors. This protection comes not from ERISA but from the federal Bankruptcy Code. But the situation may be different if you owe money to a general creditor. In that case, your ability to shield your non-ERISA plan accounts depends on the law of the state where you live. Many states offer complete protection similar to ERISA, but other states provide weaker protection.

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

By Sarah Brenner, JD
Director of Retirement Education

If you have compensation (or “earned income”), you can always contribute to a traditional IRA, but your traditional IRA contribution may not always be deductible. (Roth IRA contributions are never deductible.)

One factor for determining IRA deductibility is whether a worker is an “active participant” in a retirement plan at work. (This is sometimes referred to as “being covered” by a workplace plan.) If neither you nor your spouse (for those married filing jointly) has a retirement plan through an employer — no 401(k), no SEP, no SIMPLE, etc., then neither of you is “covered,” and each can deduct a traditional IRA contribution. Single filers not covered by an employer plan also qualify for a deductible IRA contribution.

Your W-2 form will usually indicate if you are covered by a work plan or not. If you are not covered by a work plan, there should NOT be a check in the “retirement plan” box (Box 13) on the W-2. If there is no checkmark and compensation was earned, a traditional IRA contribution can be deducted. The amount earned is irrelevant. (Be careful – sometimes employers mistakenly complete Box 13, so if any questions exist, it is advisable to confirm with the employer.)

If you are/were an active participant in an employer plan, you must consider the phase-out ranges for traditional IRA deductibility. For 2026, if you are a married active participant in a plan, your ability to deduct your traditional IRA contribution will phase out when your modified adjusted gross income (MAGI) is between $129,000 and $149,000.

Even if you are not an active participant, you may still not be able to deduct your traditional IRA contribution if you are married. There is another IRA deductibility phase-out range when one spouse is covered by an employer plan and the other is not. The covered spouse uses the married/filing joint phase-out ranges mentioned above. The uncovered spouse is permitted a higher phase-out range. If you are not covered by an employer plan but your spouse is, the MAGI phase-out range for 2026 is $242,000 – $252,000.

Example: Uma is an active participant in her company’s 401(k) plan. Her husband, Josh, works for a company that does not offer a retirement plan. For 2026, their MAGI is $300,000. If Josh makes a traditional IRA contribution for 2026, he cannot deduct any part of it because his spouse, Uma, is an active participant in a workplace retirement plan and their income exceeds $252,000. (Uma also could not make a deductible IRA contribution for 2026.)

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-spouse-can-impact-your-traditional-ira-deduction/

By Andy Ives, CFP®, AIF®
IRA Analyst

QUESTION:

You recently posted an article about the “still-working exception.” Does this apply to solo 401(k) plans?

Thanks,

Birdie

ANSWER:

Birdie,

The still-working exception allows participants in certain workplace retirement plans — like a 401(k) — to delay required minimum distributions (RMDs) until after they separate from service. However, one of the eligibility requirements to be able to use the exception is that the person cannot own more than 5% of the company. (In determining the 5% threshold, ownership by certain family members is considered to be owned by the participant.) Typically, a solo 401(k) participant is the 100% owner of the company. Based on this ownership percentage, the still-working exception would not be available.

QUESTION:

My question is about a SEP IRA account my mother had. She passed away last year. I have four sisters, one of whom withdrew her portion last year. The remaining four of us have not yet withdrawn any funds. Additionally, Mom did not make a withdrawal of her RMD prior to her passing. 1. How long do we have to make our withdrawals? 2. Is there a penalty because the RMD was not taken prior to Mom’s passing?

Charles

ANSWER:

Charles,

Since one sister withdrew her share, that 1/5 of the account most likely satisfied Mom’s year-of-death RMD. In that case, there would be no penalty to worry about. As for you and your other sisters who now have inherited SEP IRAs, you have your own RMDs beginning this year (2026). You will each use your own age in 2026 to determine the starting RMD factor from the IRS Single Life Expectancy Table. Then subtract 1.0 from that initial factor each year thereafter. Additionally, you and your sisters will be subject to the 10-year payout rule. So, take RMDs in years 1 — 9, and empty the inherited accounts by the end of 2035.

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/is-there-a-penalty-because-the-rmd-was-not-taken-prior-to-moms-passing-todays-slott-report-mailbag/

By Andy Ives, CFP®, AIF®
IRA Analyst

These days, anything with a hint of politics can be divisive. Trump accounts are no different. Public comments about this new savings vehicle are clearly rooted in the political divide that permeates our country. We are all sick up to our eyeballs with political bickering and the “whose-side-are-you-on” mentality. To avoid politics and focus solely on the numbers, we will refer to Trump accounts as “530A accounts,” so named by the section of the Internal Revenue Code enacted under the One Big Beautiful Bill Act (OBBBA) on July 4, 2025.

The math is clear. The compounding potential of dollars within a 530A account vs. a Roth IRA is impressive for those with a long-term view. Since eligibility for a 530A account can occur many years before Roth IRA eligibility, a 530A account owner can benefit not only from the extra years of growth, but also from additional contribution dollars. (Note that this article is not intended to be a comprehensive comparison of 530A accounts vs. a 529 account or an UGMA/UTMA.)

The Roth IRA Option. For a child to open a Roth IRA, he must have earned income. Yes, there are child actors and other ways for little kids to have earned income, but that is not the norm. Taxable wages don’t typically happen until the teenage years. Assume Henry, age 15, starts his first summer job and earns $5,000. (That’s an impressive number, but we are keeping things equal in this comparison.) Henry is eligible to contribute $5,000 to a Roth IRA, and he does so. Henry earns the same amount over the next two summers at ages 16 and 17, and he contributes all of it to his Roth IRA. The $15,000 is the most Henry is eligible to contribute based on his earnings. At age 18, assuming 6% average annual growth, Henry’s Roth IRA is worth just over $16,800. That’s an impressive balance for an 18-year-old! If Henry never adds another penny to his Roth IRA, assuming a 6% average annual return, the account will compound to over $172,000 (tax-free) in 40 years ($364,971 at 8% average annual; $760,355 at 10% average annual).

The 530A Account Option. 530A accounts do not require a child to have earned income to contribute. This allows babies to have 530A accounts opened for them. The current maximum contribution amount allowed for a 530A account is $5,000. (That number is indexed and will increase, but for this article we will stick to $5,000 annually.) Assume Henry has a newborn sister named Sophia. Sophia’s parents contribute $5,000 to a 530A account from her birth until Sophia’s age-17 year ($90,000 total). At a conservative 6% average annual clip, the account will be worth north of $150,000 by age 18. In the age-18 year, 530A accounts can be converted to a Roth IRA. Assume the conversion is done and Sophia’s parents pay the tax due. (Disregard the kiddie-tax concerns and the fear of giving an 18-year-old a $150K account. We are focusing on the math.) If Sophia never contributes another penny to her Roth IRA, after 40 more years of compounding, the future account value numbers are as follows: over $1.5 million at 6% average annual; over $3.2 million at 8%; and over a whopping $6.7 million at 10% — tax free!

530A accounts can be maximized as very long-term savings vehicles. Those with foresight and decades of patience can jumpstart a child’s retirement savings. The math cannot be argued with.

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/530a-trump-accounts-the-compounding-mathematical-facts/

By Ian Berger, JD
IRA Analyst

With contributions to Trump accounts having gone live on July 4, 2026, there has been lots of discussion recently about the “kiddie tax.” That’s because, once a child reaches January 1 of the year they turn age 18, they will be able to withdraw or do a Roth conversion of accumulated Trump account funds. And, at least part of that withdrawal or conversion will likely be taxable and subject to the kiddie tax.

But what exactly is the kiddie tax? It’s a rule that requires that some of a child’s “unearned income” be taxed at the parent’s marginal tax rate – not at the child’s tax rate. The kiddie tax was intended to prevent parents from shifting their investment assets into their children’s names in order to have those assets taxed at the child’s lower tax rate.

What is “unearned income?” It’s basically any taxable income that is not earned by the child. Wages paid to a child for summer or part-time work are considered “earned income” and not subject to the kiddie tax (i.e., taxed at the child’s own rate). On the other hand, taxable IRA and retirement plan distributions (including Trump account withdrawals or conversions) count as unearned income. Unearned income also includes the following:

• Interest income
• Dividends
• Capital gains
• Income produced by gifts, including UTMA/UGMA custodial accounts
• Certain taxable scholarship and fellowship grants

Only unearned income in a calendar year above a certain dollar threshold (indexed based on inflation) is subject to the kiddie tax. For 2026, that threshold is $2,700. The first $1,350 is tax-free to the child, and the next $1,350 is taxed at the child’s rate.

If the child’s unearned income exceeds $2,700 (for 2026), the kiddie tax will apply for the year if:

• The child is age 17 or younger at year end;
• The child is age 18 at year end and not financially independent (that is, their earned income for the year did not provide more than 50% of their total living expenses); or
• The child is between ages 19 and 23 and a full-time student at year end, and not financially independent under the same 50% test.

Note that the kiddie tax will never apply for a year if the child isn’t required to file a federal income tax return for that year or if neither of the child’s parents is alive at year end.

So, a child who wants to withdraw Trump account funds or convert those funds to a Roth IRA may want to delay those transactions until the kiddie tax no longer applies (in many cases, that will be the age-24 year).

If the kiddie tax does apply, the child will usually file their own tax return and attach IRS Form 8615. However, if certain conditions are met, the parents may report the child’s unearned income and pay the kiddie tax on their own return using Form 8814.

Check with your financial advisor or tax pro for more details about the kiddie tax.

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

QUESTION:

My wife (Keiko) currently does not take a required minimum distribution (RMD) on her retirement account because the plan allows this while she is still working.

Here are our questions:

If she retires this December (2026), would she have to take an RMD when we file 2026 taxes in 2027 based on the value of the account on 12/31/2026?

If she retires in January (2027), may she wait to take an RMD when we file 2027 taxes in 2028 based on the value of the account on 12/31/2027?

James and Keiko

ANSWER:

Hi James and Keiko,

When an employee uses the “still-working exception,” the first RMD is due for the year of retirement. It is not based on when taxes are filed. So, if Keiko retires in December 2026, her first RMD is for 2026 and will be based on her 12/31/2025 plan account balance. Similarly, if she retires in January 2027, her first RMD is for 2027 and will be based on her 12/31/2026 account balance. If Keiko keeps her funds in the plan, she could defer the first RMD into the following year (by April 1), but then she would have two RMDs for that following year. If she decides at any point to roll over her plan account balance, she must first take the RMD due for that year before doing the rollover.

QUESTION:

Hello,

I’m age 68 and will do a Roth conversion later this year. Does the five-year holding period pertain to me? Thank you for taking the time to answer this.

Kind regards,

Mary Anne

ANSWER:

Hi Mary Anne,

There are two five-year holding periods. The first one determines whether distributions of converted amounts are subject to the 10% early distribution penalty. However, since you’re over age 59½, you don’t have to worry about that first holding period since the 10% penalty will never apply to you.

The second holding period helps determine whether earnings on Roth IRA distributions are taxable. (Your Roth conversion and any Roth IRA contributions you have made can always be withdrawn tax-free.) Since you’re over age 59½, earnings will be tax-free if a five-year period – starting on January 1 of the year you made your first Roth IRA contribution or did your first Roth conversion – has been satisfied. So, if you’ve never made a Roth IRA contribution or done a Roth conversion before, earnings on your 2026 conversion would be taxable if withdrawn before 2031. The good news is that you could withdraw tax-free all of the amount you converted at any time before having to touch your earnings.

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 Sarah Brenner, JD
Director of Retirement Education

Tax rules require most retirement account owners who are subject to required minimum distributions (RMDs) to begin withdrawals at age 73. However, there is an exception to this rule for certain individuals who continue to work, called the “still-working exception.” Here is what you need to know about this strategy to delay RMDs.

Plans Only

The still-working exception applies only to employer plans. It does not apply to IRAs, ever (and that restriction includes SEP and SIMPLE IRA work plans). You may still be working but that will not help you delay RMDs from your IRA. Also, the exception will only apply to the plan of the company for which you are still working. If you have other funds in other company plans, it won’t help you with those.  Not all plans allow the still-working exception. Most do, but it is not required. You can’t take advantage of the exception if your plan doesn’t allow it.

Who Is “Still Working”?

Are you “still working”? This can be tricky because there is no official guidance from the IRS on this. There is no requirement that you work a certain number of hours a week in order for the exception to apply. A part-time position could be considered still working for purposes of this exception. When you use the still-working exception, then RMDs begin in the year you separate from service – even if your last day of work is December 31 of that year. Your required beginning date (RBD) is April 1 of the year after separation from service.

More Than 5% Owner

You can’t use the exception if you own more than 5% of the company for which you are still working. This is a one-time determination. If you are a “more than 5% owner” in the year you turn age 73, you will never be able to use the still-working exception on that company plan, even if you no longer own more than 5% of that same company in the future. When it comes to determining whether you are more than a 5% owner, it’s a family affair. The analysis starts with your personal ownership in the business but does not end there. The Tax Code’s family attribution rules apply. Any ownership in the business by your spouse, child, or grandchild will be included when making the call as to whether you are more than a 5% owner.

Rollovers

If your plan allows, you can roll over other retirement accounts to your company plan where you are still working and delay RMDs on these funds, too. Any RMDs for the year would not be eligible for rollover, nor would any after-tax funds from your IRA.

Downsides

Delaying your RMD using the still-working exception may sound like a good strategy, but there are downsides you should consider. You may face restrictions in the plan that would not apply to an IRA. Also, eventually all the funds in the taxable retirement account must be distributed, and there will be a tax bill that cannot be avoided. You must begin taking RMDs later, which means you will be taking larger RMDs. Larger RMDs mean more income taxes, resulting in the possibility of your Social Security income being taxed, and you could lose out on deductions, credits, exemptions and phase-outs.

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/what-you-need-to-know-about-the-still-working-exception/

By Andy Ives, CFP®, AIF®
IRA Analyst

During our recent Ed Slott and Company’s Instant IRA Success workshop in Brooklyn, NY, we were presenting information about qualified charitable distributions (QCDs) when an audible groan emanated from the crowd. Over the grumbling, an exasperated woman’s voice was heard making a loud complaint. The attendees were not criticizing the presenters or any part of the program. What they were frustrated with was news from the IRS.

In the “2026 Instructions for Forms 1099-R and 5498,” the IRS included the following language on the very first page: “Code Y for box 7a on Form 1099-R. We added code ‘Y’ to the list of codes for box 7a to identify a qualified charitable distribution (QCD). See QCDs, later. For tax year 2026, the use of code Y to report a QCD is optional. If you are completing and filing a 2026 Form 1099-R, you may choose, but are not required, to enter code Y in box 7a.”

A QCD is a great way for charitably inclined IRA owners to donate. As long as the funds are properly distributed to the charity and all the QCD rules are followed, then distributions (up to $111,000 in 2026) can be excluded from income. For IRA owners subject to taking required minimum distributions (RMDs), a QCD can even offset all or part of that income. It’s a win/win.

What has been the problem with QCDs is not the QCD itself, but the reporting of the donation. Historically, IRA custodians were not required to report a QCD. There was never a code on Form 1099-R to identify this special distribution. It was up to the taxpayer to inform the IRS on the tax return that a QCD had been completed (or to tell the tax preparer to do so). As a result, QCDs were often not reported, resulting in a taxable distribution.

On May 12, 2025, the IRS released instructions for the 2025 Form 1099-R. Those instructions announced for the first time that the IRS had created a new “Code Y” to identify a QCD on the 1099-R. This was welcome news to tax preparers and financial advisors. Since the new code announcement came mid-year, it was no surprise that the IRS made it optional for 2025.

But apparently this ship takes time to turn. Upon release of the 2026 “Instructions,” the new code Y is again listed as an optional feature. Hence, the groans from the crowd.

While I understand the frustration, I also understand the optionality of the code for at least another tax year. Our guess is that the IRS is allowing IRA custodians time to implement rules and paperwork to cover their tails in the event of a “bad QCD.” It’s not unreasonable to think that IRA custodians will build some sort of “hold harmless” language into their custodial documents to avoid being held liable for placing a Code Y on a 1099-R, even if the distribution didn’t qualify as a QCD. After all, an IRA custodian does not want to police the credentials of every charity. And how will the custodian know if a person hasn’t already hit the annual QCD cap from another IRA at a different institution? These reasons likely explain why “Code Y” is optional again in 2026.

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/qcd-code-y-optional-again-in-2026/

By Sarah Brenner, JD
Director of Retirement Education

Question:

Hello,

I’m married, filing jointly, and I have been converting my traditional IRA to Roth this year. If I convert too much and trigger higher Income-Related Monthly Adjustment Amount (IRMAA) charges, can I do a recharacterization to remove the overage?

Thank you,

Terri

Answer:

Hi Terri,

IRMAA is a surcharge added to your Medicare premiums. It is calculated using income reported on your federal tax return from two years prior. A conversion done in 2026 will be included in income for this year and can impact IRMAA surcharges for 2028. You won’t know if you are over the 2028 brackets until they are released in 2027. Recharacterization of Roth IRA conversions was ended by Congress back in 2018. Conversions are now irrevocable and cannot be undone. If a conversion in 2026 pushes you over an IRMAA bracket in 2028, that conversion cannot be reversed. If you are concerned about future IRMAA charges due to an increase in income because of your 2026 Roth conversion, you may want to investigate other ways to lower income for the year.

Question:

Hello,

My wife inherited an IRA from her father who died in 2019. She kept the IRA as an inherited IRA and chose to distribute the proceeds over her life expectancy. She named me, her husband, as the beneficiary of this inherited IRA. Should she die before me, what are my options with the inherited IRA?

Thanks for your help.

Answer:

If you inherit this IRA from your wife, you will be a successor beneficiary. She is the original beneficiary of her father. As the successor beneficiary, you would be subject to the 10-year rule beginning in the year of your wife’s death. During the 10-year period, annual distributions based on your wife’s single life expectancy would need to continue. You would not be able to do a spousal rollover to your own IRA, even though you are inheriting the account from your wife. This is because you are a successor beneficiary.

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

The June 15, 2026 Slott Report outlined the barriers preventing 401(k) and other plan participants from accessing their plan funds while working. The June 24, 2026 article discussed in-plan withdrawals as one way around those barriers. Another way to tap into plan funds while working is to take a plan loan. Company retirement savings plans are allowed to (but not required to) offer loans. According to a recent survey by Vanguard, 82% of 401(k) plans it services allow participants to borrow from their plan. (Loans are not allowed from IRAs, SEP IRA plans, or SIMPLE IRA plans.)

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

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

Many plans limit participants to one outstanding loan at a time. But some plans do allow participants to take out a second loan while one remains outstanding. The amount of a second loan is limited by the outstanding balance of the first loan.

Generally, you must repay a plan loan within 5 years. But a loan used to purchase your principal residence can have a longer repayment period, usually 10 or 15 years. Loans must be repaid in substantially equal amounts made at least quarterly. Most plans require repayment through payroll deduction.

Even if your plan offers in-service withdrawals, borrowing from plan assets may be a better option for these reasons:

• Loans are usually available at any age (even before 59½) and for any reason.
• A loan that complies with the maximum dollar limits and the repayment rules is not considered a taxable distribution or subject to penalty, even if taken from a pre-tax account.
• Loans are always repaid to the plan, whereas withdrawals usually cannot be repaid.

However, there’s one significant downside to taking a plan loan. If you leave your employer with an outstanding loan balance that you can’t pay off, your plan account may be offset by the loan balance. That balance is considered a distribution subject to tax and possible penalty. You can avoid the tax and penalty hit if you can come up with the funds to roll over the unpaid balance to an IRA. The rollover deadline is October 15 of the year following the year the offset occurs.

Example 2: Sonny, age 50, terminates employment on July 15, 2026, with a $200,000 401(k) account balance and a $40,000 outstanding loan balance. Sonny doesn’t have the funds to repay the loan balance. On August 15, 2026, the plan offsets his $200,000 account balance by the $40,000 loan balance and distributes $160,000 to him. He rolls over the $160,000 to an IRA within 60 days. Sonny has until October 15, 2027 to find other sources to replace the $40,000 so he can complete a full rollover. Otherwise, he will owe taxes on the $40,000 and a 10% early withdrawal penalty of $4,000 for 2026.

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-plan-loans-work/

By Sarah Brenner, JD
Director of Retirement Education

The SECURE Act of 2019 changed many rules for inherited IRAs. However, it left intact the rules for non-living (non-person) beneficiaries, such as an estate. For these non-designated beneficiaries (NDBs), the same two possible payout options still exist:

1. If death occurs before the owner’s required beginning date for starting required minimum distributions (RBD), payments must be made under the 5-year rule. The account must be emptied by December 31 of the 5th year after the year of death. This is the only time the 5-year payout rule is applicable — when a person dies before the RBD with an NDB. There are no annual required minimum distributions (RMDs) required within the 5-year period. Because Roth IRAs are not subject to lifetime RMD requirements, all Roth IRA owners are considered to have died before their RBD. Therefore, whenever an estate or other NDB is the beneficiary of a Roth IRA, the 5-year rule will always apply.

2. If death occurs on or after the RBD, annual stretch RMD payments are made over the deceased IRA owner’s remaining single life expectancy, had he survived. This is known as the “ghost-life rule.” The ghost-life rule will never apply to an NDB who inherits a Roth IRA. Since lifetime RMD requirements do not apply to Roth IRAs, a Roth IRA owner cannot die on or after the RBD.

To calculate the ghost-life rule payments, start with the single life expectancy factor of the deceased account owner in the year of death. For the first RMD (for the year after the year of death), use that factor minus 1.0. For succeeding years, use the preceding year’s factor minus 1.0. (This is different from standard inherited IRA RMD calculations in which the first RMD uses the age of the beneficiary in the year after the year of death.)

Example: Saldies at age 87 (well after his RBD) and leaves his IRA to his estate (an NDB). Sal’s son, Manny, age 40, inherits through the estate. RMDs to Manny would be based on his father Sal’s remaining single life expectancy. The first RMD in the year following the year of death would be based on Sal’s 6.1-year remaining single life expectancy (7.1 for an 87-year-old, minus 1.0).

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-ghost-life-rule-explained/

By Andy Ives, CFP®, AIF®
IRA Analyst

QUESTION:

I just wanted to verify that a 403(b) plan is not subject to the pro-rata rule when doing a Roth IRA conversion. Can you please let me know if this is correct?

Thanks!

Lynn

ANSWER:

Lynn,

You are correct. When doing a Roth IRA conversion, the pro-rata rule looks at all of a person’s traditional IRAs, SEP IRAs and SIMPLE IRAs. Accounts that the pro-rata rule does not consider are inherited IRAs, other Roth IRAs, and work plans like a 401(k) or 403(b).

QUESTION:

Is a participant in a 401(k) plan, who moves from full-time to part-time status, but continues to work with the same company that sponsors that plan, still allowed to delay their required minimum distribution (RMD)?

ANSWER:

If a 401(k) plan includes the optional design feature of the still-working exception (and most plans do), then participants can delay their first RMD until April 1 of the year after the year they separate from service. However, there is no universal definition of “still working.” Part-time status normally would qualify, but we suggest you confirm with your 401(k) plan provider to see what definition of “still working” the plan uses.

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-pro-rata-rule-and-the-still-working-exception-todays-slott-report-mailbag/

By Andy Ives, CFP®, AIF®
IRA Analyst

From its onset, I have been a fan of the concept of Trump accounts. Created by the One Big Beautiful Bill Act (OBBBA), this new savings vehicle for children is now up and running as of July 4, 2026. At their core, Trump accounts have the potential to supercharge the very long-term retirement planning for kids. Conservative mathematical assumptions and the magic of compounding could result in a multi-million-dollar account for a toddler when he is age 60.

For some background information, a Trump account is a long-term retirement savings vehicle that comes packed with many rules and restrictions. For example, the maximum annual contribution (as indexed) is $5,000. But since Trump accounts allow for many types of contributions from different sources, that annual limit can be exceeded. In fact, the annual maximum can be surpassed in the very first year for some Trump account owners. How so? The initial one-time $1,000 Federal government contribution for children born between January 1, 2025, and December 31, 2028, does not count against the annual maximum.

But since last summer when Trump accounts were first announced, some weird stuff keeps happening.

Trump accounts are established by an election made on IRS Form 4547. (That new form and form number in-and-of itself received more than a few eyerolls and groans.) One way to access the form and establish the account is via the website www.trumpaccounts.gov. But who is authorized to make the election to establish the account? There is an order of priority, as follows: Legal guardian; parent; adult sibling; grandparent; state child welfare agencies for foster children. Where things got weird was, if an eager grandparent jumped the gun and opened a new Trump account ahead of the child’s parent…the grandparent could be committing perjury! See the Slott Report entry which discusses that conundrum here: Grandparents should be very careful before opening Trump accounts.

As mentioned, contributions from different sources can be made to Trump accounts. One of these sources is tax-exempt organizations who make contributions to a “targeted group” of beneficiaries. It was originally understood that all contributions had to be made in the form of cash. But an odd development with these types of contributions sprung up just a few days ago, when the U.S. Department of the Treasury announced it will accept large philanthropic contributions of public company stock as Trump account contributions. Not only does this seem to fly in the face of current tax code provisions, but it also introduces new questions, like:

• If a large donor wants to give $150 per child, how can they do that if the stock price is, for example, $300 per share? One can’t donate partial shares (without a stock fund).

• Why was this rule made? To avoid a billionaire having to sell millions of shares that might depress the overall stock price? Is this a tax play to maximize a deduction?

It’s possible this could all be sorted out and explained away. So, while I am still a fan of the concept and possibilities of Trump accounts, it would be nice if the weird stuff went away.

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-weird-stuff-keeps-happening/

By Ian Berger, JD
IRA Analyst

On July 1, 2026, the Treasury Department announced the investment options for initial Trump account contributions.

In the One Big Beautiful Bill Act (OBBBA), Congress imposed strict investment restrictions on Trump account contributions made before the year the child turns age 18 (i.e., during the “growth period”). Before that year, Trump accounts must be invested in an “eligible investment.” An eligible investment is a low-cost mutual fund or exchange-traded fund (ETF) that tracks the S&P 500 index or any other “qualified index” comprised of stocks in primarily U.S. companies, and that does not use leverage.

The IRS has said that a mutual fund or ETF will be considered “low cost” if the sum of its annual fees and its annual expenses is less than 0.1% of the value of the fund’s net assets. A “qualified index” does not include any industry or sector-specific index but may include an index based on market capitalization. Therefore, a mid-cap or small-cap U.S. stock fund or ETF would qualify. Under a safe-harbor rule, an index will be treated as comprised of “primarily” U.S. companies if those companies represent at least 90 percent of the index based on their weighting in the index.

The Treasury Department selected the State Street SPDR Portfolio S&P 500 ETF (SPYM) as the initial Trump account investment. According to the July 1 announcement: “The fund was selected to provide broad exposure to the U.S. stock market while maintaining expenses well below the statutory fee limitation.”

The Treasury also said that in the coming months, parents will be able to allocate funds among four other options:

• iShares Core S&P 500 ETF (IVV)
• Vanguard Total Stock Market ETF (VTI)
• State Street SPDR Portfolio S&P 1500 Composite Stock Market ETF (SPTM)
• iShares Core S&P Total U.S. Stock Market ETF (ITOT).

If no investment is elected, SPYM will be the default investment.

At some point, parents (or other persons responsible for Trump accounts) also will be able to roll over funds to another approved custodian offering different investment options.

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/treasury-announces-initial-trump-account-investment-options/

By Ian Berger, JD
IRA Analyst

Question:

If someone has a SIMPLE IRA and is interested in doing a backdoor Roth IRA conversion, does the SIMPLE IRA count under the pro-rata rule?

Answer:

The pro-rata rule that determines the taxation of a backdoor Roth IRA conversion includes all of a person’s IRAs owned as of the end of the calendar year in which it is done. This includes SEP and SIMPLE IRAs, but not Roth IRAs or inherited IRAs. Even IRAs held at different financial institutions are aggregated.

Question:

Hi Mr. Slott,

I have a dual citizenship, U.S. and The Philippines. I have an IRA and would like to have my chronically ill/disabled nephew as one of my beneficiaries. Can he be my beneficiary if he is not a U.S. citizen?

Thank you so much,

Erlinda

Answer:

Dear Erlinda,

Yes, a non-U.S. citizen can be named as beneficiary, whether the beneficiary lives in the U.S. or abroad. If the beneficiary is a nonresident alien, distributions from the inherited IRA may be subject to a 30% U.S. withholding tax, unless reduced by a tax treaty between the U.S. and the country of residence.

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-pro-rata-rule-and-non-u-s-citizen-beneficiaries-todays-slott-report-mailbag/

By Sarah Brenner, JD
Director of Retirement Education

In just a few days, on July 4, Trump accounts will be available. As we come down to the wire, the IRS has stepped in to provide a safe harbor to address concerns about potential gift tax issues with contributions.

The Gift Tax Issue

Contributions to Trump accounts do not qualify under the annual gift tax exclusion ($19,000 for 2026). Only gifts of “present interest” qualify. A gift of “present interest” means a gift that the recipient can immediately access and use. Trump accounts are not considered gifts of “present interest” because they cannot be accessed until the year the child turns 18.

Congress did not include a provision in the One Big Beautiful Bill Act (OBBBA) to exempt Trump accounts, like it did many years ago for section 529 plans. Unless Congress or the IRS intervened, there was concern that a gift tax return (Form 709) would be required for individuals making Trump account contributions.

The Fix

On June 29, the IRS issued Rev. Proc. 2026-25. This guidance provides a gift tax reporting safe harbor for Trump account contributions made before the year the child reaches age 18.

Under the safe harbor, if certain requirements are met, contributions made by individual donors to Trump accounts in a given year will not be subject to gift tax reporting requirements for that year.

The IRS said that a safe harbor was necessary for several reasons. For many of those who contributed to Trump accounts, the cost and other burdens of complying with gift tax reporting requirements could outweigh the anticipated financial savings benefit of making contributions. In addition, gift tax reporting compliance by Trump account contributors could dramatically increase the burden on the IRS, who would have to process gift tax returns for taxpayers who would be unlikely to ever be subject to gift, estate, or generation-skipping tax. Also, according to the IRS, the fact that nearly six million Trump accounts have already been opened means the number of gift tax returns filed annually could be expected to increase from roughly 300,000 to several million.

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-provides-fix-for-trump-account-gift-tax-issue/

By Andy Ives, CFP®, AIF®
IRA Analyst

When it comes to the rules governing specific workplace retirement plans like a 401(k), there are the foundational rules dictated by law, and there are “in-house rules” put into place by the plan itself. Plans can choose to be far more restrictive than what the law allows. For example, while loans are permitted to be taken from a 401(k), a specific plan can be designed to refuse all loan requests. Workplace plans can implement all sorts of restrictions that plan participants may not be aware of…until it comes time to access their funds. Plans are perfectly within their rights to do so, and any complaints will fall on deaf ears. When it comes to plan design, we like to say, “the law of the plan is the law of the land.”

In one egregious scenario, a small (20-employee) blue-collar business installed a 401(k) plan for its employees. The problem was that the business owner appeared to suffer from some level of paranoia. He was so concerned that an employee would quit and use his 401(k) funds to start a competing business that he designed the 401(k) to be incredibly restrictive when it came to withdrawals. In fact, participants could not access a penny of their retirement money – even if they separated from service – until age 65 or death.

Recently, I was contacted by a member of Ed Slott’s Elite IRA Advisor Group℠ whose successful client was preparing to retire early, at age 56, from a large medical company (approximately 300,000 employees). The client had a significant balance in her 401(k). The idea was for the client to delay a rollover of the 401(k) to her IRA until she was 59½. Until then, she would take periodic distributions from the 401(k) to cover whatever expenses she had.

On its surface, this seemed like a wise planning strategy. The advisor had done his homework and was aware of the “age 55 exception” to the 10% early withdrawal penalty. When a person leaves her job in the year she turns age 55 or older, she can take penalty-free withdrawals from the 401(k) held at that business. The age 55 exception is written into the tax law and is claimed on a taxpayer’s federal return using Form 5329. The advisor in this case also knew the age 55 exception applies to plan withdrawals only. It does not apply to distributions from an IRA, hence the need to leave the 401(k) assets where they were for a few years.

The advisor and his client contacted the 401(k) provider to explain their intentions…and their best-laid plans fell apart.

In fact, the plan design of this large 401(k) did not allow for partial withdrawals before age 59½. For anyone in the age 55 to 59½ range, the plan contained an all-or-nothing withdrawal rule. Essentially, this 401(k) legislated out the age 55 exception. Ultimately, it appeared the plan was intentionally structured this way to discourage early retirement among highly skilled employees who would otherwise be most likely to separate from service. Most of these employees have no idea how much the plan rules disadvantage them, and the plan is within its rights to do so.

It would be wise to get a handle on what your plan does and does not allow before it is too late. After all, the law of the plan is the law of the land.

https://irahelp.com/the-law-of-the-plan-is-the-law-of-the-land/

By Ian Berger, JD
IRA Analyst

The June 15, 2026 Slott Report described the strict barriers employees face when attempting to access their 401(k) and other plan funds while still working. One exception to those barriers is for hardship withdrawals. Plans are not required to offer hardship withdrawals, but the overwhelming majority – estimated at 80-90% – do.

If you’re a 401(k) or 403(b) plan participant, you must satisfy three conditions to qualify for a hardship withdrawal:

• Your withdrawal must be for an “immediate and heavy financial need.” Most plans allow you to satisfy this requirement only if your expense fits into one of seven “safe harbor” categories: medical expenses; home purchase costs; post-secondary educational expenses; payments necessary to prevent eviction or mortgage foreclosure; funeral expenses; expenses to repair home damage; and disaster-related expenses and losses. As an alternative to using these safe harbors, your plan can evaluate each request individually using objective standards. But that is relatively rare.
• The amount you’re requesting can’t be more than is necessary to cover the expense (including any federal and state taxes and also, if applicable and the plan permits, the 10% early distribution penalty).
• You don’t have enough cash or other assets readily available to cover the expense.

If you’re a 457(b) plan participant, a stricter hardship standard applies: Your expense must have resulted from an “unforeseeable emergency.” This means an “extraordinary and unforeseeable circumstance” arising as a result of events beyond your control. This would include expenses due to imminent foreclosure or eviction from your primary residence, medical expenses, or funeral expenses of a spouse or dependent. However, the purchase of a home or payment of college tuition would not qualify because they are not “unforeseeable emergencies.” 457(b) hardships also must satisfy requirements similar to the second and third 401(k)/403(b) requirements.

Even if your withdrawal doesn’t qualify as a hardship withdrawal, you may still be able to tap into your workplace funds while still working. That would be the case if your plan allows withdrawals for one or more reasons that qualify as an exception to the 10% early distribution penalty for those under age 59½. One example would be withdrawals after the birth or adoption of a child. However, many plans don’t allow withdrawals due to birth or adoption or for other penalty exception reasons.

So, you can access your retirement plan funds while working if the plan allows, and you qualify for, hardship withdrawals or withdrawals for reasons that are exceptions to the 10% penalty. But keep in mind that, in either case, any pre-tax funds distributed to you will still be subject to taxes. And, if you’re under age 59½, the withdrawal may also be subject to the penalty.

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/breaking-the-barriers-to-access-your-retirement-plan-funds-while-working/

By Sarah Brenner, JD
Director of Retirement Education

On July 4, contributions to Trump accounts, a new savings vehicle for children, will become available. In these final days before their launch, we have been getting questions from parents about exactly what they should be doing to take advantage of this new savings opportunity. Here is what parents need to know as we count down the days to the arrival of Trump Accounts:

How can I sign up my child for a Trump account?

You can sign your child up for a Trump account by completing IRS Form 4547 and submitting it by hard copy, electronic filing or through the trumpaccounts.gov website. You can also use Form 4547 to sign up for the $1,000 contribution from the federal government for children born between 2025 and 2028.

There is no cost to open an account. Trump accounts must be invested by the custodian in a diversified index fund of U.S. stocks and must minimize fees and expenses.

I’ve signed my child up for a Trump account. What’s next?

Look for an email confirming that your election to open your child’s Trump account was processed and prompting you to complete the account activation.

Follow the instructions in the email to set up your child’s Trump account through the Trump accounts app (available in the Apple App Store and Google Play) or by visiting Trumpaccounts.gov.  If you do not have access to a mobile device, you can access the web version of the official Trump Accounts app through https://trumpaccount.com/

How will the government update me on what is going on with my child’s Trump account?

As Trump account activation begins, concerns about potential scams are growing. Families should know that the initial legitimate communications about Trump Account activation will be sent only by email from no-reply@TrumpAccounts.Treasury.gov.

Future communications will be available in the Trump accounts app. When in doubt, visit the official app. There will be no text messages or phone calls about Trump account activation. If you receive a call or text about a Trump account, do not respond. It is likely a scam.

When will my child receive the $1,000 contribution from the government?

Starting July 4, 2026, eligible children will begin receiving the $1,000 pilot program contribution from the U.S. Department of the Treasury deposited directly into their Trump account.

When can I contribute to my child’s Trump account?

Beginning July 4, 2026, Trump accounts will be able to accept contributions from parents, family members, employers, and other eligible contributors.

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-are-almost-here-what-parents-need-to-know/

By Andy Ives, CFP®, AIF®
IRA Analyst

QUESTION:

Our client has funds left over in her 529 plan. She is not working. Can she roll over the 529 dollars to a Roth IRA? Does she need earned income? Can you do it as a spousal Roth contribution?

Thanks,

Mary

ANSWER:

Mary,

Unused 529 funds can only be rolled over to a Roth IRA if the beneficiary has compensation in the year of the rollover at least up to the amount of the rollover. Also, a rollover must be in the name of the 529 beneficiary (so no rollovers to a spouse). There are a number of other rules to follow, including: the 529 must have been open for at least 15 years; there is a lifetime 529-to-Roth rollover cap of $35,000; and only up to the annual Roth IRA contribution amount can be rolled over in any year.

QUESTION:

What kind of investments will be allowed in the Trump accounts for kids?

Joey

ANSWER:

Joey,

An eligible investment for a Trump account is a low-cost mutual fund or exchange-traded fund (ETF) that tracks the S&P 500 index or any other “qualified index” comprised of stocks in primarily U.S. companies, and that does not use leverage. A mutual fund or ETF will be considered “low-cost” if its expense ratio is less than 0.1%. A “qualified index” does not include any industry or sector-specific index, but may include an index based on market capitalization. An index will be treated as comprised of “primarily” U.S. companies if those companies represent at least 90 percent of the index based on their weighting in the index.

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/529-plan-rollovers-and-investments-in-trump-accounts-todays-slott-report-mailbag/

By Andy Ives, CFP®, AIF®
IRA Analyst

If a person has after-tax (non-deductible) money in any traditional IRA, SEP or SIMPLE IRA, then the pro-rata rule is just something that needs to be dealt with. But pro-rata is not the end-of-days hurdle that many people perceive it to be. In fact, with current tax software doing most of the heavy lifting, pro-rata might be considered a non-issue.

When after-tax (non-Roth) money exists in an IRA, the IRA owner cannot cherry-pick only those dollars for withdrawal or conversion to a Roth IRA. Barring a few exceptions, a proportionate amount of pre-tax (taxable) dollars and after-tax (non-taxable) dollars are required to be included in any withdrawal. That is the pro-rata rule in a nutshell.

How does an IRA owner document the after-tax dollars in his IRA and the amount of any withdrawal (or conversion) that is taxable? On IRS Form 8606. When a person makes a non-deductible contribution to a traditional IRA, Form 8606 is required to “claim the basis.” Form 8606 is essentially the IRA owner waving a flag to the IRS and saying, “I am putting after-tax dollars into my IRA.” Often, people intentionally make a non-deductible contribution to initiate a Backdoor Roth IRA transaction. But sometimes non-deductible contributions happen by mistake. Someone will contribute to a traditional IRA, realize later that it is not eligible for a deduction, and then just leave the contribution as-is.

Where people often get sideways with the pro-rata rule is thinking it applies to each IRA individually. Such is not the case. The pro-rata rule considers all of a person’s traditional IRAs, SEP and SIMPLE IRAs as one big bucket of money. If a person with pre-tax (non-Roth) dollars in one IRA makes a non-deductible contribution to another IRA (and the only dollars in that IRA are those after-tax dollars), a subsequent full Roth conversion of just that second IRA does NOT mean that only the after-tax dollars can be converted. As mentioned, the IRS considers all of a person’s IRAs for the pro-rata rule. No cherry picking.

Misunderstandings of the pro-rata rule like this, especially when it comes to the Backdoor Roth strategy, happen all the time. And when the IRA owner realizes that Form 8606 is now involved, along with a potential lifetime of pro-rata math, panic often ensues. How do I unwind this? How can I avoid pro-rata? How can I make this all go away?

To this, we say, “Just breathe. It is not the end of the world.”

Form 8606 is only needed in the year of a non-deductible contribution and in any year when a subsequent withdrawal or conversion is done. So, after a non-deductible IRA contribution is made, if the IRA owner makes no further such contributions, takes no distributions or does no Roth conversions for the next decade, then no Form 8606 is required for those years. Once the original basis is claimed on the form, it is locked in. And if the information on Form 8606 is properly entered into tax prep software, the software should carry that information forward for years to come. When a future distribution is taken or a Roth conversion is done, the tax software will simply compute the pro-rata math for you. Easy peasy.

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/form-8606-and-the-pro-rata-rule-not-the-end-of-the-world/

By Ian Berger, JD
IRA Analyst

If you are faced with expenses that require you to tap into your savings, what are your options? You should always look to non-retirement savings first. Dipping into retirement funds could cause you to lose out on future tax-deferred (or tax-free) growth, and you may have to pay taxes and a penalty on the withdrawal.

But if you must touch your retirement funds, you may be surprised to know that the access rules differ between IRAs and company plans. You can always reach your traditional or Roth IRAs (with possible taxes and penalty) at any age. But tapping into your 401(k), 403(b) or 457(b) plan funds can be more difficult. That’s because Congress has set strict restrictions on withdrawals from those plans. And, to make matters worse, plans are free to impose even more restrictive rules than required by Congress. So, check your plan’s written summary or ask your plan administrator or HR rep for the particular access rules that apply to your plan.

If you leave your employer, you can usually take out all of your plan funds. By contrast, there are barriers to accessing your funds while you’re still working (through an “in-service withdrawal”). The rules are different for each of the various types of contributions within your plan:

• Pre-tax and Roth Elective Deferrals. Generally, 401(k) and other plans cannot by law allow in-service withdrawals of pre-tax and Roth deferrals (and associated earnings) before age 59½. But, if the plan allows, you can access these dollars before that age if you have a financial hardship or for certain other specific reasons. Most plans do allow in-service withdrawals once you reach age 59½.
• After-Tax Contributions. If your plan offers non-Roth after-tax contributions, the plan may allow you to reach those funds (and earnings) at any time, even before age 59½.
• Employer Contributions. Your plan may provide employer contributions, including matches. In that case, it may follow the same withdrawal restrictions for those contributions (and earnings) that apply to pre-tax and Roth elective deferrals. This simplifies plan administration. But some plans are more liberal and allow withdrawals at a specified age (even earlier than 59½), after you’ve been in the plan for at least five years or after the contribution has been in the plan for at least two years.
• Rollover Contributions. Some plans allow you to roll over funds from other plans you previously participated in, or from IRAs, into your current plan. Plans can allow you to access these rolled-in dollars (and earnings) at any time, regardless of your age or service. But this is not mandatory and here again, your plan might apply the same restrictive rules that apply to pre-tax and Roth elective deferrals.

Even if your plan doesn’t usually permit in-service withdrawals before age 59½, you still may be able to dip into your plan funds if you have a financial hardship or on account of another specified reason. Or, you may qualify for a plan loan. We’ll cover those options in a future Slott Report article.

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/accessing-401k-funds-while-youre-still-working/

By Ian Berger, JD
IRA Analyst

Question:

Are the rules for a grandchild who inherits an IRA the same as the rules for a child who inherits?

Thank you,

Steven

Answer:

Hi Steven,

No, the rules are very different. An IRA owner’s child who is under age 21 when the owner dies is considered an “eligible designated beneficiary” (EDB). As such, the child can stretch required minimum distributions (RMDs) until the year he turns age 30, but must empty the remaining inherited account by the end of his age-31 year. However, if the IRA owner died before the owner’s required beginning date (RBD) for starting RMDs, the child can elect instead to have the 10-year payment rule apply. In that case, the inherited IRA must be emptied by the 10th year following the year of the IRA owner’s death, but no annual RMDs are required in years 1-9. On the other hand, a grandchild is a “non-eligible designated beneficiary” (NEDB). So, the 10-year payment rule applies and, if the IRA owner died on or after his RBD, the grandchild also must take annual RMDs in years 1-9.

Question:

I have a client who was born on November 27, 1959. Does he need to start RMDs at age 73 or age 75?

Thank you,

Glenn

Answer:

Hi Glenn,

For anyone born after 1950 and before 1960, such as your client, the first RMD year is age 73. The age-75 first RMD year applies to those born in 1960 or later. Note that the RMD for the first RMD year can be delayed until April 1 of the following year, but then two RMDs must be taken in the following year – one for the first RMD year and one for the following 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/children-vs-grandchildren-beneficiaries-and-the-first-required-minimum-distribution-year-todays-slott-report-mailbag/

By Sarah Brenner, JD
Director of Retirement Education

June is PRIDE Month. June also marks the anniversary of the landmark Supreme Court case Obergefell v. Hodges, which legalized same-sex marriage. When it comes to IRA rules, spouses have many advantages, and couples in same-sex marriages are no exception. From enhanced contribution rules to special rules for beneficiaries, marriage has its benefits when it comes to your retirement account.

Here are three IRA tax breaks available for married couples that same-sex couples should know about:

1. Enhanced Contribution Rules

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

To make a spousal contribution for 2026, you must be legally married on December 31, 2026 and file a joint federal income tax return for 2026. For same-sex couples, this would not include civil unions. If you are divorced or legally separated as of that date, neither is eligible for a spousal contribution, even if they were married earlier in the year.

2. Smaller RMDs for Some

When you reach age 73, you must start taking distributions annually, called required minimum distributions (RMDs). These are calculated by using life expectancy tables provided by the IRS. IRA spouse beneficiaries who are more than ten years younger than the IRA owner may use the Joint Life Expectancy Table. This results in smaller RMDs versus using the Uniform Lifetime Table, which is required to be used to calculate lifetime RMDs for all other IRA owners.

3. Special Rules for Spouse Beneficiaries

Only a spouse beneficiary can roll over or transfer an inherited IRA from her deceased spouse into her own IRA. This is known as a spousal rollover. There is no deadline for a spousal rollover. Once the spousal rollover is done, the funds are treated like any other IRA funds you own. There are no RMDs if you are not yet age 73. Non-spouse beneficiaries do not have this “spousal rollover” option.

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

As a spouse beneficiary you can take advantage of a special rule unavailable to non-spouse beneficiaries. If you are the sole beneficiary, and if your spouse dies before their required beginning date (RBD), you can delay RMDs from the inherited IRA until the year your spouse would have attained age 73. That can mean a delay of many years before RMDs from the inherited IRA must begin.

Even when spouse beneficiaries are subject to RMDs, they receive a special break when calculating that amount. While non-spouse beneficiaries must use the Single Life Expectancy chart, spouse beneficiaries have the advantage of being able to use the Uniform Lifetime Table to calculate their life expectancy. This results in lower RMDs for spouse EDBs compared to non-spouse EDBs.

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/3-ira-tax-breaks-for-same-sex-couples/

By Andy Ives, CFP®, AIF®
IRA Analyst

If a person wants to make a Roth IRA contribution, there are two primary hurdles to get over. First, a person must have taxable compensation to make the contribution. Items like W-2 wages, commissions, professional fees or bonuses all qualify. Income from self-employment also qualifies. What does not qualify as “compensation” for IRA eligibility are things like pension and annuity income, rental income, interest income, dividend income or capital gains.

Assuming a person has taxable compensation, the next hurdle is to make sure their income level isn’t too high. Roth IRAs have income phaseout ranges. Individuals with income over the phaseout level are precluded from making a direct Roth IRA contribution. Those within the phaseout range can make a reduced Roth IRA contribution, and those below the phaseout range can make a full Roth IRA contribution. The 2026 Roth IRA phaseout ranges are $242,000 – $252,000 for those married filing jointly, and $153,000 – $168,000 for single or head-of-household filers. Note that these are modified adjusted gross income (MAGI) numbers. (For anyone married/filing separate – be careful! Your phaseout range is $0 – $10,000.)

Now that we know the basic requirements for Roth IRA eligibility, do Roth IRA conversions have any impact? After all, a Roth conversion is a taxable event that adds to a person’s income. Answer: Roth conversions are excluded from MAGI when considering the phaseout ranges. This is clearly stated in IRS Publication 590-A, “Contributions to Individual Retirement Arrangements (IRAs).”

On page 41 of the 2025 version of Publication 590-A, we find “Worksheet 2-1. Modified Adjusted Gross Income for Roth IRA Purposes.” This worksheet helps a taxpayer pinpoint exactly what their MAGI is so they can determine if they can proceed with a full Roth IRA contribution, a partial contribution, or none at all.

• Line 1 of the worksheet is for the tax filer’s adjusted gross income (line 11a, Form 1040).
• Line 2 is for any income resulting from the conversion of an IRA to a Roth IRA.
• Line 3 says to subtract Line 2 from Line 1.

There are additional lines on the worksheet, but for this Slott Report™ entry we only need the first three to confirm the title of this article: Roth conversions do not count for Roth IRA contribution eligibility.

Example: Jim and Jane file a married/filing joint tax return. Jim and Jane’s combined W-2 income in 2026 is $200,000. Jim did a Roth conversion in January of 2026 for $100,000. With $300,000 of total income for the year, the couple thinks they are ineligible to make direct Roth IRA contributions. Jim and Jane have an astute financial advisor who tells them that Jim’s Roth conversion does not count when considering Roth IRA eligibility. Since they are under the phaseout range, both Jim and Jane proceed with full Roth IRA contributions in 2026.

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-conversions-do-not-count-for-roth-ira-contribution-eligibility/

By Sarah Brenner, JD
Director of Retirement Education

Question:

Hello,

Last December 15, I withdrew $10,000 from my traditional IRA.  Thirty days later, I deposited $4,000 in a Roth IRA and $6,000 in a different traditional IRA.  Can I treat the $4,000 Roth IRA deposit as a taxable Roth IRA conversion, and treat the $6,000 traditional IRA deposit as a non-taxable IRA rollover? Or, have I violated the once-per-year IRA rollover rule?

Thank you,

Jeffrey

Answer:

Hi Jeffrey,

There is no problem here with the once-per-year rollover rule. The rule limits you to rolling over one distribution received from your IRAs within a 365-day period. Here you only have one distribution. It does not matter if that distribution is split and rolled over to multiple IRAs. Also, one of your rollovers was a Roth IRA conversion, and the once-per-year rollover rule never applies to Roth IRA conversions.

Question:

I am both the owner and beneficiary of a 529 plan, and my wife is owner and beneficiary of another one. If we have $20,000 in earned income in 2026, what is the total that my wife and I are allowed to roll over from our 529 plans to make contributions to our Roth IRAs?

Thanks,

Mike and Becky

Answer:

Hi Mike and Becky,

The SECURE 2.0 Act allows up to $35,000 total to be moved from a 529 plan to a Roth IRA. The rollover counts towards the annual Roth IRA contribution limit, and you must have earned income to be eligible. However, the Roth IRA contribution income limits do not apply. For 2026, if you have $20,000 in earned income you can each contribute $7,500 ($8,600 if you are age 50 or over) to a Roth IRA from the 529 plan of which you are the beneficiary.

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-once-per-year-ira-rollover-rule-and-529-to-roth-transfers-todays-slott-report-mailbag/

By Ian Berger, JD
IRA Analyst

Some of you may have come across the term “modified adjusted gross income” (MAGI) and figured it has something to do with “adjusted gross income” (AGI). But, unless you’re a tax geek, that may be all you know.

That’s a shame because when it comes to tax breaks, MAGI is a very important number. It determines eligibility for many federal income tax deductions and exclusions. In the IRA world, MAGI determines eligibility for deductible traditional IRA contributions and eligibility for annual Roth IRA contributions.

So, what exactly is MAGI? MAGI always starts with AGI. AGI is your total income subject to taxes. This includes things like wages, interest and dividends, capital gains, and retirement plan and IRA income. For most people, total income is exactly the same as AGI. But in some cases, total income must be adjusted before you get to AGI. (AGI can be found on line 11a of your Form 1040.)

Often, MAGI will be the same as AGI. But sometimes certain items must be added back, or can be subtracted from AGI to get to MAGI. What’s really confusing is that there isn’t one uniform definition of MAGI in the tax law. Instead, the specific required adjustments to AGI are completely different, depending on the specific tax rule using MAGI. In fact, there are over a dozen different versions of MAGI! (And none of those definitions are reported on your 1040.)

The version of MAGI used for IRA deductibility and for Roth IRA eligibility requires you to add several items to AGI, the most common of which is student loan interest. For Roth IRA eligibility only, you also get to subtract out income generated if you converted an IRA or a pre-tax retirement plan to a Roth IRA in the same year. IRS Publication 590-A includes helpful worksheets for IRA deductibility and Roth IRA eligibility.

Here’s one last point that trips up some people: On your tax return, you can reduce your AGI by either taking a flat dollar amount deduction (the standard deduction) or itemizing deductions. You can further reduce AGI by claiming other deductions, such as those under the One Big Beautiful Bill Act (OBBBA). Reducing AGI by these deductions produces your total taxable income – the amount you owe federal taxes on. But taxable income is a totally different calculation than any definition of MAGI. No matter which MAGI definition is used, MAGI is always determined before the standard deduction or itemized deductions are taken. So, taxable income has nothing to do with any definition of MAGI.

Example: Zoe, age 45 and single, had a total income of $150,000 in 2025. That year, Zoe made $3,000 of health savings account (HSA) contributions directly to the HSA provider (rather than through payroll deduction). She can subtract that $3,000 from total income, bringing her 2025 AGI down to $147,000. Zoe wanted to make a 2025 Roth IRA contribution. The MAGI used for Roth IRA eligibility requires that certain tax items be added back to AGI, but Zoe didn’t have any of those items. So, her MAGI was also $147,000. For 2025, single taxpayers could make a full Roth IRA contribution if MAGI was below $150,000. So, Zoe qualified for a full $7,000 2025 contribution. Meanwhile, in doing her taxes, Zoe elected to use the standard deduction ($15,000) to reduce her AGI from $147,000 to $132,000. That $132,000 was her 2025 taxable income, the amount that she had to pay taxes on. But Zoe’s MAGI of $147,000, used to determine her Roth IRA eligibility, was determined before the $15,000 standard deduction. So, her $132,000 of taxable income had nothing to do with her MAGI of $147,000.

Still confused? A knowledgeable financial advisor or tax professional can help.

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.