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.

By Sarah Brenner, JD
Director of Retirement Education

If you are under age 59½ and you converted your traditional IRA to a Roth IRA, you will need to watch out for the five-year rule for penalty-free distributions of converted funds. Not understanding how the rule works can result in unexpected penalties when you withdraw your Roth IRA funds. Here are five things you need to know:

1. If you make contributions to your Roth IRA, you can always access those funds tax- and penalty-free. You can also always access your converted funds tax-free – even if you are under age 59½. That makes sense because you already paid the tax bill when you did the conversion. There is no five-year rule to worry about with regard to taxation of converted funds.
2. While converted funds are never taxable when distributed from your Roth IRA, it’s a different story when it comes to the 10% early distribution penalty. If you are under age 59½, you must normally satisfy a five-year holding period on funds that were taxable when converted before you can access those funds penalty-free. However, if you qualify for a penalty exception, such as for disability or higher education expenses, the penalty is waived even if the five-year period hasn’t been met.
3. The five-year holding period will restart for each year a conversion is done and is effective as of January 1 of the year of conversion. If a conversion was done any time in 2026, the five-year holding period for that conversion begins on January 1, 2026. If two more conversions are done in 2027, the five-year rule for both those conversions would start January 1, 2027.
4. The best way to understand this five-year rule for penalty-free distributions of converted funds is to know exactly what it is set up to prevent. When you take a distribution from your traditional IRA and convert it to a Roth IRA, that distribution is taxable but not subject to the 10% early distribution penalty. So, soon after Roth IRAs became law, those looking for tax loopholes started advising traditional IRA owners under 59½ that they could get out of the 10% penalty by doing a conversion. IRA owners could just convert their IRA to a Roth IRA and then, the next day, withdraw funds from the Roth IRA tax- and penalty-free.

   Congress quickly shut this loophole and that is why we have this rule. If the converted funds are not held for at least five years or until age 59½, any withdrawal before that time would be subject to the 10% penalty the account owner would have paid if she had withdrawn from her traditional IRA.

5. Don’t confuse this “conversion five-year rule” with the other five-year rule (the “forever five-year rule”) that also applies to Roth IRAs. The forever five-year rule determines whether distributions of earnings from Roth IRAs are tax-free. That rule works differently from the conversion rule. The forever rule for tax-free distributions always applies no matter what your age is. Also, it begins with your first contribution or conversion to any Roth IRA, and it never restarts even if future contributions or conversions are made.

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/five-things-to-know-about-the-five-year-rule-on-converted-roth-funds/

By Sarah Brenner, JD
Director of Retirement Education

Question:

I have a new client who has an old SEP IRA as well as a traditional IRA with funds that were rolled over from his 401(k) plan. Can we combine these two accounts?

Answer:

Yes. These accounts can be combined. A SEP IRA is really just the same as a traditional IRA once the contributions are made. There is no reason to keep these accounts separate.

Question:

I am working with a couple on possible Roth conversions and retirement distribution planning. The husband inherited an IRA from his mother. If the husband passes and the wife inherits this inherited IRA, what are the options available to the surviving spouse on this inherited IRA? Can she do a Roth conversion?

Thanks,

Rick

Answer:

Hi Rick,

A Roth conversion would not be possible in this situation. The IRA was originally inherited by the husband from his mother. The husband is a non-spouse beneficiary, and non-spouse beneficiaries cannot convert inherited IRAs. If the wife inherits this IRA as a successor beneficiary, she would be a non-spouse beneficiary as well because she was not married to the original IRA owner (her husband’s mother). That means conversion is not allowed.

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/combining-retirement-accounts-and-roth-conversions-todays-slott-report-mailbag/

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By Andy Ives, CFP®, AIF®
IRA Analyst

It’s been nearly 3½ years, and still no news. No guidance. No updates.

Background: In December 2022, the SECURE 2.0 Act was signed into law. That legislation contained an extensively discussed provision – allowing excess dollars in a 529 college savings plan to be rolled over to a Roth IRA. However, that provision included a number of significant restrictions. For example:

• The maximum lifetime amount that can be rolled over is $35,000.
• Rollovers are subject to the annual Roth IRA contribution limit. So, for example, since the Roth IRA contribution limit in 2026 is $7,500, then no more than $7,500 can be rolled over from a 529 to a Roth IRA in 2026. Consequently, a full $35,000 529-to-Roth IRA rollover would need to be done over several years.
• The 529 beneficiary doing the rollover must have compensation in the year of the rollover at least equal to the amount being rolled over.
• The Roth IRA must be in the name of the 529 beneficiary – not the 529 owner (if different).

And here’s the big sticking point:

• The 529 plan must have been open for at least 15 years.

That rule in and of itself is not too high of a hurdle. The problem is that, here we are 3½ years later, and we still do not know if changing the beneficiary of the 529 account resets the 15-year clock. Will the existing time period applicable to the initial account opening carry over to the new beneficiary? No one on the planet has that information. Accordingly, advisors and custodians alike have been advising clients to leave the 529 beneficiary as-is until confirmation is received as to how the 15 years will be applied. Jumping the gun could result in a decade-and-a-half additional wait time to roll over excess 529 dollars to a Roth IRA.

In the meantime, while we all anxiously refresh our computers every few minutes to see if the IRS has released any 529 beneficiary change updates (sarcasm), it’s important to recognize additional 529-to-Roth rules we know are in effect:

• Rollover amounts cannot include any 529 contributions (or earnings on those contributions) made in the preceding five-year period.
• Any actual Roth IRA (or traditional IRA) contributions made by the 529 beneficiary will count against the permitted annual rollover amount.
• There are no income limits restricting the 529-to-Roth IRA rollover for either the beneficiary or 529 owner.
• The rollover from the 529 plan to the Roth IRA is a nontaxable transaction.

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-to-roth-still-no-news-on-15-year-clock/

By Andy Ives, CFP®, AIF®
IRA Analyst

QUESTION:

I have a 401(k) plan with a previous employer that is a mix of pre-tax and Roth money. I’m considering a direct rollover of the 401(k) to an IRA. How would that work since it’s a mix of pre-tax and after-tax funds? Would I need to open separate rollover and Roth IRAs?

Thanks,

Greg

ANSWER:

Greg,

If you do not already have any existing IRAs, you will need to open a traditional IRA and a Roth IRA to receive the 401(k) rollover. The pre-tax funds in the 401(k) will be rolled over to the traditional IRA, and the Roth 401(k) dollars will go to the Roth IRA. If you do have existing IRAs (traditional or Roth), the 401(k) dollars can be rolled over to the respective current IRAs. There is no reason to keep the rollover dollars in a different IRA (traditional or Roth) if you don’t want to.

QUESTION:

What options are available for a non-working spouse to contribute to a traditional/Roth IRA, provided her significant other is employed and has compensation?

Respectfully,

Richard

ANSWER:

Richard,

If a married couple files a joint tax return, the spouse with no compensation can make an IRA contribution based on the compensation from the working spouse who has compensation. The same annual contribution limits apply as do the phaseout ranges for Roth IRA eligibility. Other than this being called a “spousal contribution,” there is no difference between a contribution based on one’s own compensation vs. a contribution based on a spouse’s compensation.

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/401k-rollovers-and-spousal-contributions-todays-slott-report-mailbag/

By Ian Berger, JD
IRA Analyst

Most of you are probably familiar with the concept of the “required beginning date” (RBD). The RBD is the deadline for taking the first required minimum distribution (RMD) from an IRA or workplace retirement plan. If you’re a traditional IRA owner, your RBD is April 1 of the year following the year you turn age 73 (if born between 1951 and 1959) or age 75 (if born after 1959). If you’re a retirement plan participant, your RBD is usually the same date. However, if you’re still working beyond the year you reach age 73 and you don’t own more than 5% of the sponsoring employer, you can usually delay your RMD until April 1 of the year following the year you eventually retire. This is called the “still-working exception.”

The RBD is also important in applying several other RMD rules. For example, if you’re an IRA beneficiary subject to the 10-year payout rule (a “non-eligible designated beneficiary”), you must take RMDs during years 1-9 of the 10-year period if the IRA owner died on or after his RBD. In addition, if you’re a beneficiary eligible to stretch RMDs over your life expectancy (an “eligible designated beneficiary”), you can instead elect the 10-year rule with no annual RMDs if the IRA owner died before his RBD.

However, although the RBD is often the date that dictates whether an RMD rule applies, it’s not always the deciding factor. For some retirement account rules, your “first RMD year” (usually the year you turn age 73) – not the RBD – is what counts. Here’s one common example that causes lots of confusion: Let’s say you retire in the year you turn age 73. If you want to roll over your 401(k) funds to an IRA in the year of retirement, do you have to take an RMD from the 401(k) before doing the rollover?

Since your RBD isn’t until April 1 of the year after your retirement year, you might think that you shouldn’t have to take an RMD if you do a rollover before that April 1. But this is one of those cases where the “first RMD year” controls – not the RBD. The first funds that are distributed out of the plan in your first RMD year (or any subsequent year) are considered part of the RMD. However, RMDs can never be rolled over. This means that if you want to roll over your 401(k) funds in the year you retire (or after) your age-73 year, you must first take your 401(k) RMD.

What if you don’t take the RMD first and instead roll it over? Then, you have an excess IRA contribution. But that’s usually not a problem. As long as the rolled-over amount, along with earnings or losses attributable to the excess (net income attributable, or “NIA”), are withdrawn from the IRA by October 15 of the year after the year of the rollover, you won’t have to pay a penalty.

One way to avoid having to take a 401(k) RMD in the year of retirement is to delay your rollover into the following year (no later than April 1). But then you’d have to take two RMDs in that following year – the year-of-retirement RMD and the following-year RMD – before rolling over the rest of your funds.

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-required-beginning-date-vs-first-rmd-year-confusion/

By Sarah Brenner, JD
Director of Retirement Education

On April 30, 2026, President Trump signed an executive order to promote retirement savings for American workers. In its aftermath, we have had a flurry of questions about a new savings option called a “Trump IRA.” This is, as the saying goes, “fake news.”

Here are three things you need to know to separate fact from fiction about the new presidential order and its impact on retirement savings.

1. There is no such thing yet as a “Trump IRA.” The executive order did not create a new tax-advantaged account to save for retirement. The President cannot, in fact, do this on his own. Only Congress can change the tax code and create a new savings vehicle. The President, however, can establish a website, and that is what happened. The executive order calls for the establishment of a website (TrumpIRA.org) by January 1, 2027.

2. The new website (TrumpIRA.org) will promote the Saver’s Match. The Saver’s Match is not a newly created initiative. It was already in the works. It was enacted in 2022 as part of the SECURE 2.0 Act and is effective starting in 2027.

The Saver’s Match will replace the current Saver’s Credit and will provide a federal matching contribution of 50% on the first $2,000 of annual retirement contributions (up to $1,000 annually) for eligible lower-income savers. This match is deposited directly into a 401(k), 403(b), or IRA. For single filers, the Modified Adjusted Gross Income (MAGI) phaseout range is between $20,500 and $35,500. For those who are married filing jointly, the MAGI phaseout range is between $41,000 and $71,000. Unlike the current Saver’s Credit, the Saver’s Match is available even for eligible savers who don’t owe federal income tax.

The executive order also says that the new website will list financial institutions that offer IRAs that will accept the Saver’s Match and meet certain other criteria to enhance retirement savings. The website will allow users to filter and select IRAs based on their cost and quality.

3. The new order has nothing to do with Trump Accounts. Trump Accounts are tax-deferred investment vehicles for children under 18, created under the One Big Beautiful Bill Act of 2025. Contributions to these new investment accounts are scheduled to be available on July 4, 2026. More guidance is expected to be released soon to explain more about how exactly these accounts will work, but the executive order does not do this.

Another factor making things even more confusing is that while a Trump Account is subject to special rules until the year the child reaches age 18, at that point it then becomes a traditional IRA, subject to all the normal IRA rules. So, while the account does change from being a Trump Account to being a regular traditional IRA, there never is a point where it is a “Trump IRA.”

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

https://irahelp.com/new-trump-ira-is-fake-news/

By Andy Ives, CFP®, AIF®
IRA Analyst

We know that Roth conversions are permanent. Recharacterization of a conversion is no longer allowed. Once the conversion is done, there is no going back. However, recharacterization is still available for IRA contributions. A traditional IRA contribution can be recharacterized to a Roth IRA or vice versa. A contribution can be recharacterized for any reason as long as it can be a valid contribution to the other type of IRA. This means that the person must be eligible to contribute to the type of IRA to which the funds are being recharacterized.

Why recharacterize? There are multiple scenarios where recharacterization could be the proper strategy. For example, an individual who contributed to a traditional IRA and later discovered the contribution was not deductible could recharacterize the contribution to a Roth IRA (assuming Roth IRA eligibility). A person who contributed to a Roth IRA not knowing his income for the year will be above the phaseout limits could recharacterize that contribution to a traditional IRA.

To recharacterize a contribution, the IRA custodian will transfer the funds, along with the earnings or losses (“net income attributable” or NIA), from the first IRA to the second. NIA is determined by a special IRS formula, which is the same formula used to determine NIA when removing an excess IRA contribution. The deadline for recharacterization is October 15 of the year following the year for which the original contribution was made. The recharacterized contribution is treated as if it had always been made to the intended IRA.

While this is a tax-free transaction, both IRAs report the transactions to the account owner and the IRS. The first IRA custodian will report the recharacterized amount, plus NIA, as a distribution on Form 1099-R. The second IRA (the receiving IRA) custodian will generate a Form 5498. On the Form 1099-R, both the recharacterized contribution amount and the NIA (i.e., the current fair market value of the recharacterized amount) are reported in Box 1, Gross distribution, with “0” in Box 2a, Taxable amount. The distribution code will be either an “N” or “R.”

From the Instructions for Form 1099-R for 2025 recharacterizations:

“N—Recharacterized IRA contribution made for 2025. Use Code N for a recharacterization of an IRA contribution made for 2025 and recharacterized in 2025 to another type of IRA by a trustee-to-trustee transfer or with the same trustee.”

“R—Recharacterized IRA contribution made for 2024 or a previous year. Use Code R for a recharacterization of an IRA contribution made for 2024 and recharacterized in 2025 to another type of IRA by a trustee-to-trustee transfer or with the same trustee.”

Form 5498 will report the total amount being recharacterized in Box 4, Recharacterized contributions. Note: If an unwanted (or disallowed) Roth IRA contribution is recharacterized to a non-deductible traditional IRA contribution, be sure to file Form 8606 to claim that basis.

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/reporting-a-recharacterization-2/

By Ian Berger, JD
IRA Analyst

The SECURE Act completely changed the rules for beneficiary IRA (and workplace retirement plan) required minimum distributions (RMDs). It’s now been more than 6 years since the SECURE Act became law and almost 2 years since the IRS finalized its RMD regulations. Yet there’s still plenty of confusion about how these rules work. To help keep things straight, we present our beneficiary RMD cheat sheet.

Keep in mind that these are the rules for retirement accounts inherited after 2019. Pre-SECURE Act rules applied for accounts inherited before 2020, and those old rules were grandfathered and continue to apply for those accounts. Also note that there are separate rules for successor beneficiaries (beneficiaries of beneficiaries).

Where to Begin

To begin with, we need to answer two questions:

• Did the IRA owner die before or after the required beginning date (RBD) for starting RMDs? The RBD is April 1 of the year following the year the IRA owner reaches age 73 (if born between 1951 and 1959) or age 75 (if born after 1959). A Roth IRA owner is always considered to have died before the RBD.
• What kind of beneficiary do we have? An eligible designated beneficiary (EDB) is a surviving spouse of the IRA owner; a minor child (under age 21) of the owner; a chronically-ill or disabled person; or someone who is not more than 10 years younger than the account owner. A non-eligible designated beneficiary (NEDB) is an individual beneficiary who’s not an EDB. A non-designated beneficiary (NDB) is a beneficiary who’s not a person, such as an estate, a charity or a non-qualified trust.

Rules That Apply When a Traditional IRA Owner Dies BEFORE the RBD OR a Roth IRA Owner Dies at Any Time

EDB (other than a minor child): An EDB other than a minor child can either (1) take annual RMDs over the EDB’s life expectancy, or (2) use the 10-year payment rule. If the 10-year rule is elected, the inherited account must be emptied by December 31 of the 10th year following the year of death, but annual RMDs aren’t required during the 10-year period. A surviving spouse EDB can also do a rollover to the surviving spouse’s own IRA (usually not recommended until age 59½).

EDB (minor child): A minor child EDB can either (1) take annual RMDs until the year the child turns age 30 and then empty the inherited account by the end of the following year, or (2) have the 10-year payment rule apply. If the 10-year rule is elected, the inherited account must be emptied by December 31 of the 10th year following the year of death, but no annual RMDs are required.

NEDB: The 10-year rule applies, but annual RMDs aren’t required.

NDB: The 5-year rule applies. The entire account must be emptied by December 31 of the 5^th year following the year of death, but no annual RMDs are required during the 5-year period.

Rules That Apply When a Traditional IRA Owner Dies ON OR AFTER the RBD

EDB (other than a minor child): An EDB other than a minor child can take annual RMDs over the EDB’s life expectancy. But if the EDB is older than the deceased IRA owner, the EDB can use the deceased person’s longer life expectancy in calculating RMDs. A surviving spouse EDB can also do a rollover to the surviving spouse’s own IRA (usually not recommended until age 59½).

EDB (minor child): A minor child EDB can take annual RMDs until the year the child turns age 30 and must empty the inherited account by the end of the following year.

NEDB: The 10-year rule applies, and annual RMDs are required during the 10-year period (based on the beneficiary’s single life expectancy starting in the year after the year of death).

NDB: Annual RMDs must continue over the deceased IRA owner’s remaining single life expectancy assuming the owner had lived (the “ghost 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/a-cheat-sheet-for-retirement-account-beneficiary-rmds/

By Sarah Brenner, JD
Director of Retirement Education

Question:

My spouse and I have a combined six-figure required minimum distribution (RMD) from my two IRAs and her smaller IRA. Our CPA suggested that for 2026 we only withdraw 50% of her smaller RMD, and that I should pick up the balance to fulfill her requirement.

I questioned her about this situation. She said that since we are married filing jointly, I should do it. I have some concerns about this approach.

Thank you,

Tom

Answer:

Hi Tom,

You are right to have some concerns. When it comes to RMDs, spouses are not considered together, even if they are married and filing jointly. Aggregation of RMDs with a spouse is not permitted. You must each take your own RMDs.

Question:

An adult son inherited an IRA from his mother in 2016. He has been taking annual RMDs. This year, it will be ten years since he inherited the IRA. Does the SECURE Act require him to empty this inherited IRA in 2026?

Warm regards,

Carolyn Sue

Answer:

Hi Carolyn Sue,

The SECURE Act does impose a 10-year payout rule on most adult children who inherit IRAs from their parents. However, this rule does not apply to accounts inherited prior to 2020 when the SECURE Act was enacted. This IRA was inherited in 2016. Therefore, the 10-year rule does not apply and annual RMDs can continue.

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

https://irahelp.com/required-minimum-distributions-and-inherited-iras-prior-to-2020-todays-slott-report-mailbag/

By Sarah Brenner, JD
Director of Retirement Education

The once-per-year IRA rollover rule sounds easy. However, there are many ways to go wrong. One common confusion with this rule occurs when there are multiple distributions or multiple deposits. These two circumstances have very different outcomes.

How the Once-Per-Year Rollover Rule Works

The once-per-year rollover rule says that an IRA owner cannot roll over an IRA distribution that is received within a 365-day period of a prior distribution that was rolled over. Traditional and Roth IRAs are combined for purposes of the once-per-year rule. So, for example, a distribution and subsequent rollover between your Roth IRAs will prevent another rollover of a distribution from your traditional IRA received within one year of the Roth IRA distribution. The bottom line is that an IRA-to-IRA (or Roth IRA-to-Roth IRA) 60-day rollover may not be done if you received a prior distribution within the last year (365 days) that you also rolled over.

The once-per-year rollover rule does NOT apply to rollovers between plans and IRAs or Roth IRA conversions.

One Distribution and Multiple Rollover Deposits

If an IRA owner takes a distribution, she may split the funds and roll them over to multiple IRAs. This could be done on different days and that would not be a problem. Multiple rollover deposits are acceptable for purposes of the once-per-year rollover rule because only one distribution is received even though there is more than one rollover deposit.

Example: Sophie receives a $100,000 distribution from her IRA on June 15. On June 20, Sophie rolls over $75,000 to an IRA. On June 25, she decides to roll over the remaining $25,000 to another IRA. This is not a violation of the once-per-year rollover rule because Sophie received only one distribution. Even though she did two deposits on two different dates to complete her rollover transaction, there are no issues with these transactions.

Multiple Distributions and One Rollover Deposit

If an IRA owner is permitted to take a distribution on one day and roll it over on multiple different days, is the opposite scenario also allowed? Can an IRA owner take multiple distributions on different days and deposit them at one time as one consolidated rollover? The answer is no. Even if all the distributions were taken from the same IRA, this is still not allowed. The reason is that only one distribution is eligible for rollover within a 60-day period.

Example: James takes a $2,000 distribution from his IRA on January 10 and another $30,000 distribution on January 12. His plan is to roll over both distributions on the same day to a new IRA. Unfortunately for James, only one of his IRA distributions is eligible for rollover. This is because the once-per-year rule limits him to rolling over only one distribution within a 365-day period.

Do Direct Transfers Between Your IRAs

Confusion about the impact of multiple deposits or distributions and the once-per-year rollover rule is just one of many reasons why 60-day rollovers should be avoided. If there is no 60-day rollover, then there is no once-per-year rollover rule to worry about. How, then, can you move your retirement funds? The best advice is to directly transfer the funds from one retirement account to another rather than taking a distribution payable to yourself and then rolling it over to another retirement account. You can do as many direct transfers between IRAs annually as you want.

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-rollover-rule-multiple-deposits-vs-multiple-distributions/

By Andy Ives, CFP®, AIF®
IRA Analyst

Qualified charitable distributions (QCDs) and required minimum distributions (RMDs) are two separate and distinct transactions. Here are some of the basics of each:

QCDs are only available to IRA owners and beneficiaries age 70½ or older. You cannot do a QCD from a 401(k) plan. The QCD limit for 2026 is $111,000. With a QCD, IRA funds are sent directly to a qualifying charity, and no goods or services can be received for the donation. Assuming all the rules are followed, the amount of the QCD is excluded from the IRA owner’s income. And since charities do not pay tax, the result is that no taxes are ever paid on the donated dollars.

RMDs are forced withdrawals from traditional IRAs (and from the pre-tax portion of a company retirement plan). When a person reaches a certain age (currently age 73), IRA RMDs must begin. The purpose of an RMD is to force a taxable distribution from what has been a tax-deferred pot of money. Congress allows IRA owners to shelter funds for decades. At age 73, it is time to pay the piper. Understandably, many IRA owners are not thrilled about forced withdrawals and a potentially elevated tax bill.

However, by combining the QCD and RMD rules, a person can satisfy their RMD, avoid any taxes due, and donate to charity all at the same time.

Where people get sideways with QCDs and RMDs is when it comes to timing. A common saying is, “Do your QCD before your RMD.” The purpose of this phrase is to ensure a person does not miss the opportunity to offset RMD income with a QCD. Once a normal (non-QCD) RMD is taken, that income cannot be offset with a future QCD. There is no such thing as a “prior-year” QCD or a “retroactive” QCD. If a person takes their RMD, those funds will be taxable.

But the “do your QCD before your RMD” axiom is misleading. If the goal is to offset all or a portion of an RMD, then the QCD and RMD are done simultaneously. We do not have two separate distributions. There is a single distribution that counts as both a QCD and RMD.

Example: Mike, age 75, has an IRA RMD of $10,000. If Mike’s RMD is distributed directly to him, then $10,000 will be included in his taxable income. Mike wants to avoid paying any tax on his RMD. So, he requests that his IRA custodian process a $10,000 QCD to Mike’s favorite charity. Upon the IRA custodian sending the check to the charity, Mike has killed two birds with one stone. Simultaneously, a QCD was completed, and Mike’s RMD was satisfied.

As mentioned, once a normal RMD is taken, a later QCD cannot offset the income from that earlier distribution. Yes, a person can do a QCD after satisfying their RMD, but that later QCD will just be an additional distribution over and above what was already distributed. Keep in mind that QCDs are not done “before” an RMD. When offsetting the income of an RMD with a QCD, a lone transaction simultaneously satisfies both the RMD as well as delivering funds to a charity as a QCD.

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-simultaneous-qcd-rmd-transaction/

By Andy Ives, CFP®, AIF®
IRA Analyst

QUESTION:

When someone under age 59½ uses the “backdoor” method of making Roth IRA contributions, does the 10% penalty apply to subsequent withdrawals if the IRA contribution was non-deductible?

Thank you,

John

ANSWER:

John,

The “backdoor Roth” contribution method involves making a non-deductible contribution to a traditional IRA, and then converting those dollars to a Roth IRA. Backdoor Roth IRA contributions are necessary for anyone with income that exceeds the annual Roth IRA contribution phase-out ranges. If the non-deductible dollars are then withdrawn from the Roth IRA after the conversion, there is no 10% early withdrawal penalty on those specific funds, regardless of a person’s age. However, any earnings on the non-deductible dollars would be subject to the penalty if they are received before the Roth IRA owner turns age 59½ (assuming no exception exists).

QUESTION:

Hello,

I am looking for some direction on how to title a beneficiary IRA. My mother passed away in March of this year at age 94, and my sister and I are 50/50 beneficiaries. The custodian wants to title the account as: “John R. Doe as beneficiary of Jane C. Doe IRA” (implying that Jane has died, rather than explicitly stating the fact). If I recall, the title should include “for the benefit of” and be something like: “Jane C. Doe deceased (3/28/2026) FBO John R. Doe, Beneficiary.” Please provide guidance on the proper title content and format.

Thank you and keep up the great work!

Jim

ANSWER:

Jim,

Sorry for the loss of your mother. As for the “proper” titling of an inherited IRA, there is no universally required method or set format. The deceased IRA owner’s name must remain on the account, and it must be clear that it is an inherited IRA. This is typically accomplished by using the words “beneficiary,” “beneficiary IRA” or “inherited IRA.” Both examples you provided are acceptable, although we prefer a title similar to what you suggested: “Jane C. Doe IRA (deceased 3/28/2026) F/B/O John R. Doe, 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/backdoor-roth-iras-and-inherited-iras-todays-slott-report-mailbag/

By Ian Berger, JD
IRA Analyst

Contributions to Trump Accounts, the new tax-deferred savings vehicle for children, can’t be made until July 4, 2026. However, the opportunity to open a Trump Account, either through filing Form 4547 or using a dedicated IRS website, forms.trumpaccounts.gov, has been available for several months.

We have heard several reports that grandparents are establishing Trump Accounts for their grandchildren. While grandparents will be able to make contributions on behalf of grandchildren to Trump Accounts, IRS rules appear to strictly limit the circumstances where they can open up those accounts. Making matters worse, grandparents may be committing perjury without even knowing it when signing Form 4547 or using the website.

The IRS proposed regulations say there can only be one Trump Account per child, and the regulations set out two rules for who can establish those accounts. For grandparents, here’s the way the rules work:

• If the grandchild was born since January 1, 2025, a grandparent can only make an election to claim the $1,000 federal government contribution if the grandchild is a dependent of the grandparent’s. In that case, the grandparent can, at the same time as claiming the $1,000, also make an election to open up a Trump Account.
• In any other situation (for example, if the grandchild was born before January 1, 2025), there is a hierarchy as to who can legally open a Trump Account. A grandparent is last in line after a legal guardian, a parent, and an adult sibling. So, a grandparent can’t legally establish a Trump Account for a grandchild born before 2025 unless there is no legal guardian, parent or adult sibling “available” to do so. But neither the IRS regulations nor the Form 4547 instructions specify what not being “available” means. Does it mean deceased? Not legally responsible? Failing to act within a certain period? Something else?

According to the IRS regulations, by making this election, the grandparent must represent, under penalty of perjury, that he is authorized to open the Trump Account and that“there is no other person with a higher priority available to make the election.”The instructions to Form 4547 have similar language. However, the Form 4547 itself and the website only require a grandparent opening a Trump Account to declare, under penalty of perjury, that he has examined the form and “to the best of my knowledge and belief, it is true, correct, and complete.” There’s nothing on Form 4547 or the website warning the grandparent that, by making the election for a grandchild born before 2025, he is also representing to the IRS that no other person with a higher priority is “available” (whatever that means) to make the election. If it turns out that any of these other people are actually “available,” is the election invalid? Or worse, did the grandparent commit perjury by signing the form or completing the website election?

For these reasons, until we get much-needed guidance from the IRS, grandparents should be very careful before making an election to set up Trump Accounts through either Form 4547 or the IRS website. To reiterate: If the grandchild was born since January 1, 2025, the grandparent cannot make the election to claim the $1,000 federal government contribution and elect to open the Trump Account at the same time, unless the grandchild is a dependent of the grandparent’s. And if the grandchild was born before 2025 and has a parent (or legal guardian or adult sibling), the grandparent is not legally authorized to establish the account.

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

https://irahelp.com/grandparents-should-be-very-careful-before-opening-trump-accounts/

By Sarah Brenner, JD
Director of Retirement Education

Spring is here! Now is the time when many people spring-clean their homes. It is an opportunity to get organized, get rid of clutter, and simplify. This year, consider taking the same approach with your retirement savings.

Here are five steps you can take to tidy up your IRA and other retirement accounts this spring.

1. Roll over old employer plans. Things have changed. The era of working at one job for 50 years and getting a pension from that job upon retirement is long gone. Workers change jobs frequently. The result can be multiple retirement accounts. You may have several 401(k) plans still with old employers. Consider rolling 401(k) or other plan assets from old employers to an IRA to consolidate your retirement savings. You might also consider moving funds to your current employer’s plan if it accepts rollovers from other retirement accounts.

2. Consolidate your IRAs. Maybe you have multiple IRAs. While having multiple retirement accounts can sometimes serve a purpose, such as investment diversification, in many cases it can happen by accident. The result is more accounts to keep track of and more paperwork. Why not take the time to tidy up your IRAs?

3. Reevaluate your investments. You may have an IRA that you established years ago. At the time the investment lineup made sense, but does it now? It is always a good idea to reevaluate your investment strategy in terms of current market conditions. Why not tidy up by getting rid of old investments that are no longer working? You might even consider moving your IRA to a different custodian. If you do, keep in mind the best way to move your IRA money is to do a trustee-to-trustee transfer. This avoids all the complications that can come with a 60-day rollover.

4. Review your account information. Your retirement accounts produce a lot of paperwork. Tidy it up! Now is the time to get rid of old records you no longer need. While you’re at it, check the correspondence you are receiving. Is all the information accurate? Mistakes can happen and it is better to discover them sooner rather than later.

5. Update your beneficiary form. When you are tidying up your IRA or other retirement account, do not forget about your beneficiary form. You may have completed this form years ago and not given it another thought. Check it now. Does it still reflect your intent as to who will inherit your retirement assets? Many times, things change over the years. There are divorces, marriages, and births of children and grandchildren. Your beneficiary form should be updated to reflect all these changes.

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-steps-to-spring-clean-your-ira/

By Ian Berger, JD
IRA Analyst

Question:

Hello,

I’ve run into someone who is retired, age 77, and therefore taking required minimum distributions (RMDs) from his Caterpillar 401(k) plan. He has approximately $5M in Caterpillar stock within the plan. It seems murky as to whether he would be eligible for the net unrealized appreciation (NUA) strategy. I have seen that taking RMDs will likely prevent eligibility for NUA treatment due to the lack of distribution of the entire balance in one taxable year. Any thoughts?

Thanks,

Derek

Answer:

Hi Derek,

Eligibility for the NUA strategy requires a triggering event and a lump sum distribution. A lump sum distribution means that the entire 401(k) account balance must be emptied all in one calendar year. The calendar year must be the same year in which the triggering event occurs or a later calendar year. After hitting a trigger, certain distributions (such as taking an RMD) require the entire remaining account balance to also be taken that same year, or else the trigger is lost and the NUA treatment is no longer available.

This person had a triggering event when he retired, so, if he started RMDs before 2026, then he would have needed to complete the lump sum distribution in that first RMD year. Failing to do that means the NUA strategy cannot be used.

Question:

Can a person, age 73, who is now required to take a traditional IRA RMD, still contribute to a Roth IRA if he is still working and has earned income?

Thank you,

Michael

Answer:

Hi Michael,

Yes, someone can make a Roth IRA contribution as long as he (or, if married, his spouse) has earned income at least as high as the contribution, and he meets the Roth IRA income limits. Taking RMDs from the traditional IRA does not affect eligibility for the Roth IRA contribution. However, the RMDs cannot count as earned income for Roth IRA contribution purposes.

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

https://irahelp.com/the-net-unrealized-appreciation-nua-strategy-and-roth-ira-contribution-eligibility-todays-slott-report-mailbag/

By Andy Ives, CFP®, AIF®
IRA Analyst

1. When did the decedent die? The SECURE Act impacts beneficiaries of decedents who died in 2020 or later. Anyone who passed away prior to 2020 falls under the old rules. Prior to the SECURE Act, all living, breathing beneficiaries were able to stretch annual required minimum distributions (RMDs) from their inherited IRA over their single life expectancy. For deaths in 2020 or later, the SECURE Act grandfathered certain beneficiaries under the old rules and introduced a 10-year rule for “non-eligible designated beneficiaries” (NEDBs). The year of death of the IRA owner must be identified so we know which path to take – old rules or new rules.

2. What was the date of birth (DOB) of the decedent? If the beneficiary is an NEDB, we must know the DOB of the decedent. Did he die before or after his required beginning date (RBD)? For IRAs, the RBD is April 1 of the year after the year a person turns age 73. For NEDBs, death before the RBD means no RMDs within the 10-year rule. Death on or after the RBD dictates that the beneficiary must take annual RMDs during the 10-year period.

3. Who (or what) is the beneficiary? Of course, we need to know who the beneficiary is. But is the beneficiary a person or a non-living entity like an estate? A non-living beneficiary means the 5-year rule applies for deaths before the RBD, and the “ghost rule” applies for deaths on or after the RBD. The type of beneficiary decides which direction we go.

4. What is the relationship between the decedent and beneficiary? This question is necessary to determine if the beneficiary is a spouse or a non-spouse. Spouse beneficiaries have a set of options available only to them – like a spousal rollover. Identifying whether the beneficiary is a spouse or not further narrows the path toward the proper payout.

5. What was the DOB of the beneficiary? Knowing the age of the beneficiary is crucial. For example, a spouse beneficiary under age 59½ could elect an inherited IRA to have penalty-free access to the inherited funds, and then do a spousal rollover at age 59½. For non-spouse beneficiaries, identifying the age of the beneficiary is just as important. Is this a minor child of the IRA owner? Is the beneficiary “not more than 10 years younger” than the decedent? Both would qualify the beneficiary as an eligible designated beneficiary (EDB) and allow for annual RMDs over the single life expectancy of that beneficiary (for a minor child, only up to age 31).

6. What type of IRA is this? Whether the IRA being passed to the beneficiary is a Roth or traditional matters. Roth IRA owners are always deemed to die prior to the RBD. That means there are never RMDs within the 10-year rule for Roth IRAs inherited by an NEDB. For non-person beneficiaries of Roth IRAs (like an estate), the 5-year rule will always apply.

By layering these six questions on top of each other, we can identify the applicable beneficiary payout structure. Yes, there are additional clarifying questions to help winnow down the final answer, but without answering these foundational questions, the correct path forward is impossible to determine.

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/6-required-questions-to-determine-an-ira-beneficiary-payout-structure/

By Ian Berger, JD
IRA Analyst

Trump Account contributions can be made as early as this July 4. But before making a contribution on behalf of a child, you should understand that the way these contributions are treated under federal tax law may be different than the way they are treated under state law.

As a reminder, four types of Trump Account contributions will be 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 in 2026;

(3) Contributions by employers for teenage employees and dependents of employees; 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 IRA contributions. This means that taxation of those contributions and their earnings can be deferred until distribution. Individual contributions (category (2)) are considered after-tax IRA contributions. Taxation of earnings is deferred until distribution.

But that’s only half the story. There is also the question of how states will tax Trump Account contributions. Nine states (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming) don’t have state income tax, so that isn’t an issue if you reside there. And, 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? According to a March 2, 2026 story by Julie Z. Weil of The Washington Post, they are handling Trump Account contributions in different ways:

• Three states (Arkansas, Idaho and Virginia) specifically say they will follow federal law.
• Georgia, Indiana and Maine have legislation pending to coordinate state law with federal law. (Although Vermont normally follows federal law, Ms. Weil reports that it also has pending legislation.)
• Three states (Minnesota, Mississippi and North Carolina) say they will take up the issue at a later date.
• Seven states (California, Hawaii, Kentucky, Massachusetts, Pennsylvania, South Carolina and Wisconsin) say they won’t recognize the federal tax treatment of Trump Accounts. In other words, they won’t treat Trump Accounts as IRAs. This means that earnings on all types of contributions will be taxed annually. (In California and possibly others of the seven states, contributions from employers and tax-exempt organizations will be taxed in the year made.)
• The remaining states did not respond to Ms. Weil.

If you live in one of the undecided states or a state that didn’t respond to the reporter, you should check with your state tax office.

Just because a state has said it won’t follow the federal tax treatment of Trump Account contributions doesn’t necessarily mean that a contribution is unwise. It just adds another factor that you must consider before pulling the trigger. Seeking help from a competent financial advisor is highly recommended.

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-will-states-tax-trump-account-contributions/

By Sarah Brenner, JD
Director of Retirement Education

QUESTION:

Hi,

I was wondering if my Roth account that is a part of my Thrift Savings Plan (TSP) through federal employment counts toward my five-year rule for a Roth IRA? If I wanted to transfer the money from my workplace Roth account to a Roth IRA outside of my employment. Does the clock for the five-year rule start with my workplace Roth or with the Roth IRA I open separately?

Thank you!

Judy

ANSWER:

Hi Judy,

This is a good question and one we hear frequently. When it comes to tax-free distributions of qualified earnings, the Roth IRA will have its own five-year holding period. You do not get credit for the time the Roth plan account has been open. Instead, the clock for tax-free earnings starts with your first contribution or conversion to a Roth IRA. If you are looking to roll over the funds from your TSP to a Roth IRA, you may benefit by getting a jump-start on the five-year clock by doing a conversion or Roth IRA contribution as soon as you can.

QUESTION:

Hello!

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

I have a traditional IRA account. To avoid taking required minimum distributions (RMDs) from the IRA account, I am considering rolling over that account to my 401(k) account. Please let me know if I can do it and avoid RMDs. If that is fine, what is the deadline for the rollover from IRA to 401(k) plan?

Jay

ANSWER:

Hi Jay,

The rules do allow rollovers of pre-tax funds to employer plans. The rules also allow a delay for RMDs on funds in an employer plan if the “still-working” exception is available. There is no deadline for doing this rollover. However, because you reach age 73 in 2026, you must take your RMD for 2026 from your IRA prior to the rollover. The RMD is not eligible for rollover to 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/the-five-year-rule-and-rollovers-to-employer-plans-todays-slott-report-mailbag/

By Sarah Brenner, JD
Director of Retirement Education

Not all funds in an IRA belong there. When a contribution is not permitted in an IRA, it is considered an excess contribution and needs to be fixed to avoid penalties. Some excess contributions are easy to understand. Others may surprise you.

Here are some ways an excess IRA contribution can happen to you:

Your income is too high to make a Roth IRA contribution.

A common cause of excess Roth IRA contributions is contributing in a year when income is too high. If your income fluctuates or you have unexpected income in the year, you are particularly vulnerable. Watch out for the annual income limits. For traditional IRAs, there are no income limits for eligibility to contribute, so this is never a problem.

You do not have enough earned income or taxable compensation.

A more frequent occurrence is an IRA owner not having sufficient earned income or taxable compensation to fund an IRA contribution for the year. While you can use a spouse’s taxable compensation to fund your IRA, a multitude of different income sources do not qualify for an IRA contribution, including Social Security, rental income and investment income. You may have a high income, but still not be eligible to fund an IRA. If you go ahead anyway, the result is an excess IRA contribution.

You contribute more than the annual limit.

If you contribute more than the annual limit to an IRA for the year, that will be an excess contribution. This may seem like an easy rule to follow. You may wonder who is going around contributing tens of thousands of dollars to IRAs in violation of the contribution limits. In fact, most IRA custodians will not accept contributions over the yearly limit. However, an individual with multiple IRAs with different custodians could exceed the limit by contributing to each of them.

You violate the 60-day or once-per-year rollover rule.

You may be surprised to know that a failed rollover attempt can result in an excess contribution. How can this happen? Well, there are a variety of ways you can end up in this position. One possibility would be a violation of one of the rollover rules. If you mistakenly roll over after the 60-day rollover period has already expired, or if you violate the once-per-year rollover rule, you will end up with an excess contribution instead of a rollover in your IRA.

You roll over your RMD.

If you are older, you may be at greater risk of excess contribution due to rollover mistakes. Older clients can be at a higher risk for excess contributions due to rollover mistakes. This is because of the rule that says that the required minimum distribution (RMD) for the year cannot be rolled over. In fact, the RMD for the IRA must be taken before any of the funds in the IRA are eligible for rollover. For example, an RMD must be taken before doing a Roth IRA conversion. If you mistakenly roll over your RMD, you will end up with an excess contribution.

You make a contribution to an inherited IRA.

If you inherit an IRA from someone who is not your spouse, you may not contribute to that inherited IRA or combine it with your own IRA. If you do, you will have an excess contribution.

The Fix for Excess Contributions

Now you know what can cause excess IRA contributions. That is the first step in avoiding them. If, despite your best efforts, an excess contribution occurs, the bad news is that the problem will not go away or fix itself. An excess contribution can be subject to penalties each year it remains in the IRA. The good news is that excess contributions can be corrected and often without penalty. For the right fix for your situation, be sure to talk to a knowledgeable 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/how-an-excess-ira-contribution-can-happen-to-you/

By Andy Ives, CFP®, AIF®
IRA Analyst

April 15 is fast approaching. Not only is this the standard tax filing deadline, but it is also the deadline to complete some IRA transactions. But there is a common misconception that certain other IRA transactions can also be done up until mid-April. Such is not the case. Here are a few IRA moves that can be done by April 15, and a few that are already well past their deadline.

Prior-year traditional IRA contributions CAN be made up until April 15. So, if an IRA owner still wants to make a 2025 traditional IRA contribution, there is still time (as of this publication date). Prior-year contributions can be deductible or not. But be forewarned, even if a taxpayer files for an extension to submit his return, that extension does not extend the IRA contribution deadline. It remains April 15.

Prior-year Roth IRA contributions CAN ALSO be made up to April 15. The same extension rules mentioned above apply to Roth IRAs as well. But not all benefits are the same. For example, Roth IRAs have 5-year clocks to consider for tax-free earnings. No such clocks apply to traditional IRAs. A person who opens his very first Roth IRA (via either contribution or conversion) will receive a January 1 start date of that year for his “5-year forever” clock. What if a person who never had a Roth IRA before makes a prior-year Roth IRA contribution in early 2026 for 2025? Since the contribution was for 2025, that person receives a January 1, 2025 start date. A prior-year contribution can shave over 15 months off an initial 5-year Roth IRA clock.

What CANNOT be done up to April 15 is a “prior-year Roth IRA conversion.” There is no such thing. All Roth IRA conversions count for the year of the conversion. For a conversion to be applicable for the 2025 tax return, the dollars must have left the traditional IRA by December 31, 2025. So, a person can make a prior-year (2025) traditional IRA contribution, but if those contributory dollars are then promptly converted, the conversion will count for 2026. This is an important distinction when a person is completing a “backdoor Roth IRA” by making a non-deductible traditional IRA contribution and then converting it.

Example: On April 15, John, age 55, makes a prior-year (2025) traditional IRA contribution for $8,000 and, at the same time, makes a current year (2026) traditional IRA contribution for $8,600. John then converts all $16,600 to a Roth IRA. While the $8,000 contribution will count for 2025, the entire $16,600 conversion is documented and taxed on his 2026 return.

Another transaction that CANNOT be extended to the following year is a qualified charitable distribution (QCD). Like Roth conversions, there is also no such thing as a “prior-year” or “retroactive” QCD. When executed properly by an eligible traditional IRA owner, a QCD can exclude income that would otherwise be taxable if a person just took a normal distribution. However, once a standard withdrawal is paid out to a traditional IRA owner, the deed is done. Yes, you can subsequently give that money to charity, but you cannot claim “QCD.” A charitable deduction could work, but the opportunity to offset that income with a QCD is lost. If the goal was to exclude income in 2025 with a QCD, that QCD must have been processed by December 31, 2025.

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

https://irahelp.com/april-15-the-deadline-for-some-ira-transaction-but-not-all/

By Andy Ives, CFP®, AIF®

By Ian Berger, JD
IRA Analyst

“Qualified domestic relations orders” (QDROs) are court orders used to divide ERISA retirement plan assets after a divorce. Normally, after a QDRO is approved by a defined contribution plan like a 401(k), the plan will establish a separate account within the plan in the name of the ex-spouse.

Since the ex-spouse has her own separate account within the plan, you might think that required minimum distributions (RMDs) for her would be based on her age. In other words, you might think that the ex-spouse doesn’t have to start RMDs until the year she turns age 73 (or 75 if born after 1959) – regardless of the 401(k) participant’s age.

Strangely, that’s not what the IRS regulations say. Those rules say that, even though an ex-spouse has a separate account, she must start taking RMDs when the participant reaches age 73 (or 75). The IRS rules go on to say that when RMDs start for the ex-spouse, she gets to use her own single life expectancy factor to calculate RMDs. Unfortunately, it’s not clear which IRS life expectancy table should be used. Although it would seem that the more favorable Uniform Lifetime Table (usually used for lifetime RMDs) is the correct table, some large plan administrators base RMDs on the Single Life Table (usually used only for post-death RMDs).

Example: Harrison is a participant in a 401(k) plan. He and his wife, Calista, are divorced in 2026 when Harrison is 72 and Calista is 54. They agree to a QDRO in which Harrison assigns 50% of his 401(k) account balance to Calista. The plan establishes a separate account for Calista’s benefit. Harrison turns age 73 in 2027. Even though Calista will only turn age 55 in 2027, she must start taking RMDs for that year. Her RMD for 2027 would be based on a life expectancy factor of 31.6 if she uses the IRS Single Life Table, but would be 43.6 if she uses the Uniform Lifetime Table.

There is a workaround if an ex-spouse who is younger than her ex-spouse, doesn’t want to be saddled with RMDs. Most plans allow ex-spouses to roll over their separate account to their own IRA at any time. Once she does that, the ex-spouse won’t be required to start RMDs until she turns age 73 (or 75 if born after 1959). (However, if the ex-spouse does the rollover in a year in which she is subject to RMDs, she would have to take the RMD out first.)

A distribution out of a QDRO separate account is neversubject to the 10% early distribution penalty, regardless of age. The downside to the rollover strategy is that the rolled-over funds become subject to the standard IRA early distribution rules. Therefore, if the ex-spouse must tap into the rolled-over IRA funds before age 59½, that withdrawal is subject to 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/the-strange-rmd-rules-for-ex-spouses-after-a-divorce/

By Sarah Brenner, JD
Director of Retirement Education

The tax-filing deadline is almost here. Are you thinking about making a 2025 IRA (traditional or Roth) contribution? Time is quickly running out. Here are some last-minute tips to keep in mind as you make your IRA contribution.

1. Watch the Deadline. The deadline for making your 2025 IRA contribution is the tax-filing deadline, Wednesday, April 15, 2026. Do you have an extension? That won’t buy you more time. Even if you have an extension for filing your 2025 federal income taxes, your deadline for making a traditional or Roth IRA contribution is still April 15, 2026.

• Know Your Limits. The maximum contribution that you can make to an IRA for 2025 if you were under 50 is $7,000. If you reached age 50 (or older) in 2025, the maximum contribution limit is $8,000. The annual limit is aggregated for traditional and Roth IRAs. You cannot contribute $7,000 to your traditional IRA and $7,000 to your Roth IRA for 2025.

• Have Taxable Compensation. Your IRA contribution generally may not exceed your taxable compensation (or earned income) for 2025. However, if you are married, you may be able to use your spouse’s compensation or earned income to make your IRA contribution.

• Check Your Income. When your modified adjusted gross income (MAGI) exceeds $150,000, if you are single, or $236,000, if you are married filing jointly, your ability to contribute to a Roth IRA begins to be phased out for 2025. There are no income limits for traditional IRA contributions.

• Maximize Your Benefits. Many people miss out on the benefits of IRA contributions simply because they do not understand the rules. This is particularly true when it comes to how participation in a company plan affects your IRA contribution.

Here is some good news: Your participation in your company plan does not affect your eligibility to make a Roth IRA contribution at all! More good news: If you and your spouse, if married, are not active participants in a company plan, you can fully deduct your traditional IRA contribution, regardless of how high your income is. However, if you are an active participant in your company’s retirement plan, and your MAGI exceeds $79,000 if you are single, or $126,000 if married, your ability to deduct your 2025 traditional IRA contribution begins to phase out. If you are not an active participant, but your spouse is, your ability to deduct phases out when MAGI reaches $236,000.

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/five-last-minute-tips-for-2025-ira-contributions/

By Ian Berger, JD
IRA Analyst

Question:

I had my IRA custodian send my required minimum distribution (RMD) from my IRA to our church, but had 20% federal taxes withheld. Subsequently, I received two Form 1099-Rs from the custodian. One showed the withheld amount as a taxable amount and had a “7” code. The second showed the balance and had a “7Y” code. Then, when doing my taxes, the tax software also says that the amount withheld is taxable. Is there any way to correct this? Please help.

Bernie

Answer:

Hi Bernie,

You did a qualified charitable distribution (QCD), which is a direct transfer from a tax-free IRA to a charity. (A QCD can be used to offset an RMD for a year if the QCD is done first during the year.) Since QCDs are tax-free, you should not have had taxes withheld. Since the taxes withheld went to the IRS and not to your church, that amount was not a QCD and is therefore taxable to you. That explains why the custodian reported the withheld amount as taxable on the first Form 1099-R. The custodian properly used Code “7Y” for the balance on the second Form 1099-R, since the balance was a tax-free QCD. The mistake of withholding on the QCD cannot be corrected, but you can take a credit for the withholding on your tax return.

Question:

If you’re under age 59½, do a Roth conversion, and withhold from the conversion, are you subject to a 10% early distribution penalty?

Best,

Nick

Answer:

Hi Nick,

Normally, you are not subject to the 10% penalty if you do a conversion before age 59½. However, you will have to pay the penalty on any taxes withheld. That’s because the withheld amounts are not being converted and are considered a standard withdrawal that is being sent to the IRS. This is why we advise paying the taxes on a Roth IRA conversion with other, nonqualified assets – like money from your checking account.

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

https://irahelp.com/tax-withholding-from-a-qualified-charitable-distribution-qcd-and-from-a-roth-conversion-todays-slott-report-mailbag/

By Andy Ives, CFP®, AIF®
IRA Analyst

Today is April 1, and that’s a big day! No, not because it’s April Fool’s Day, but because today is the required beginning date (RBD) for any traditional IRA owner who turned age 73 in 2025. Based on census data, that could be a few million Americans.

What is the RBD? It is the day when required minimum distributions (RMDs) are officially “turned on” within a traditional IRA. Regarding the RBD on company plans, older employees who do not own more than 5% of the business and whose workplace retirement plan offers the still-working exception can delay the RBD on that plan until April 1 of the year after the year of separation from service. As for Roth IRAs, they never have lifetime RMDs, so all Roth IRA owners are deemed to die prior to their RBD – even if they live to be 100. For this article, we will focus solely on the age 73 traditional IRA RBD.

For any IRA owner who turned age 73 in 2025, their first RMD is for 2025. This first RMD is taken in anticipation of reaching the RBD. The 2025 RMD is calculated by dividing the prior year-end balance (December 31, 2024) by the appropriate life expectancy factor. Most IRA owners will use the Uniform Lifetime Table to identify their applicable factor. For a 73-year-old, that factor is 26.5.

Example 1: Jim turned age 73 in 2025. His IRA balance on December 31, 2024, was $875,000. Jim divides $875,000 by 26.5 and correctly determines his 2025 RMD to be $33,019. Jim must take his first RMD by April 1, 2026.

A traditional IRA owner is only allowed to delay his very first RMD until April 1 of the following year. This grace period allows those who are new to RMDs a few extra months to get into a rhythm of taking annual mandatory distributions. If the first RMD is delayed to the following year, that does not change the original calculation amount. Also, if the first RMD is delayed, the IRA owner will ultimately have to take two RMDs that next year – the delayed first RMD, and the second RMD by December 31 of that same year.

Example 2: If Jim (from Example 1) delayed his 2025 RMD to the first part of 2026, he will have two RMDs to take in 2026 – the delayed 2025 RMD (by April 1) and his 2026 RMD (by December 31). Note that Jim will use his full IRA balance on December 31, 2025 to calculate his 2026 RMD. He does not get to reduce the balance by the delayed 2025 RMD amount.

The RBD is also important for determining the payout structure for IRA beneficiaries. If an IRA owner dies before his RBD, then there are no RMDs within the 10-year period for a non-eligible designated beneficiary (NEDB). Had death been on or after the RBD, then RMDs would apply in years 1-9 of that window. For non-designated (non-person) beneficiaries (NDBs – like an estate), death before or on/after the RBD is the difference between the 5-year rule and the “ghost” rule.

April 1 is not just for pranks. Missing an RMD could result in a substantial penalty. When it comes to lifetime RMDs and beneficiary payout rules, the RBD is nothing to joke about.

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

https://irahelp.com/no-joke-today-is-a-required-beginning-date/

Ian Berger, JD
IRA Analyst

More and more Americans are taking on “side gigs” or switching jobs. When that happens, they often wind up participating in two different employer retirement plans at the same time or in the same year. Here are 8 rules to help you understand how the plan contribution limits apply in those cases:

1. There are two different plan contribution limits – the “deferral limit” and the “overall limit.”
2. For 2026, the regular deferral limit for combined pre-tax and Roth contributions is $24,500. However, two catch-up contributions are available. If you’re age 50 or older by the end of the year, you can defer up to an additional $8,000, for a total of $32,500. And if you’re age 60–63 by year end, you can defer up to an additional $11,250, for a total of $35,750.
3. Non-Roth after-tax contributions, if allowed by the plan, do not count toward the annual deferral limit. (But they do count toward the overall limit, discussed later.)
4. The deferral limit is a per-employee limit. It’s based on the total pre-tax and Roth contributions you make to all your plans in one calendar year. Contributions to all plans are aggregated even if the plans are sponsored by companies that aren’t related under the tax rules.

   Example 1: Mira, age 48, participates in a company 401(k) plan through her regular job with Alpha Solutions and also has a solo 401(k) through a computer repair side business. Alpha and her side business are not related entities. By October 2026, Mira has contributed $20,500 of Roth elective deferrals to Alpha’s 401(k) and $4,000 of pre-tax deferrals to her solo 401(k). Even though the companies aren’t related, Mira can’t make any additional deferrals to either plan because her combined 2026 deferral total has already reached the $24,500 limit.

5. There’s one instance where contributions to all plans are not aggregated: If you’re eligible for both a 457(b) plan and either a 401(k) or a 403(b) plan, you can defer up to the maximum limit to each plan.
6. For 2026, the overall limit (also known as the “annual additions limit” or “415 limit”) is $72,000, or higher if you make catch-up contributions.
7. The overall limit sets the maximum amount of all contributions that can be allocated to your plan account in any year. This includes pre-tax and Roth elective deferrals, after-tax employee contributions, employer contributions, and forfeitures.
8. Normally, the overall limit applies on a per-plan basis. However, if your company has more than one plan, contributions to all plans are combined for the overall limit. That’s also the case for contributions to separate plans sponsored by two or more companies that are related under the tax rules. But, if you’re in two plans sponsored by unrelated companies, you get the benefit of a separate overall limit for each plan.

   Example 2: Alpha Solutions and Mira’s computer business (from Example 1) are considered unrelated businesses. So, for 2026, Mira has a separate overall limit for each 401(k) plan and could theoretically have a total of $144,000 ($72,000 x 2) of combined contributions made between the two plans. However, to achieve that result, she would have to make a large amount of after-tax employee contributions and/or receive a large amount of employer contributions. In any case, Mira’s total combined 2026 pre-tax and Roth elective deferrals between the two plans is still capped at $24,500.

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

https://irahelp.com/8-rules-to-help-navigate-the-multiple-plan-contribution-limits/

By Sarah Brenner, JD
Director of Retirement Education

Question:

Hi Ed and team,

If a parent, age 86, inherited their son’s 401(k) after the son passed at age 58, does the parent still have 10 years to withdraw the funds? A lot is discussed about beneficiaries younger than the deceased, but not really beneficiaries that are older.

Thanks!

Janet

Answer:

Hi Janet,

Under the SECURE Act, a beneficiary who is “not more than ten years younger” than the deceased is considered an eligible designated beneficiary (EDB) and can still use the stretch. A beneficiary who is older than the account owner would fit into this category of EDB. If the IRA owner died before required minimum distributions (RMDs) would have had to start, the 10-year rule would also be an option.

In this situation, the parent beneficiary could therefore choose to use the stretch and take annual RMDs over their life expectancy, or use the 10-year rule with no annual RMDs. In this case, going with the 10-year rule may be the better option because the beneficiary is age 86, and their life expectancy would be less than ten years. Additionally, because the account owner was only age 58, no annual RMDs would be required during the 10-year period, which would allow more flexibility in distribution planning.

Question:

Hello!

Can a Roth conversion happen in April for the prior year? For example, could I convert my IRA in April of 2026 and consider it a prior-year conversion for 2025?

As always, thank you!

Calvin

Answer:

Hi Calvin,

While prior-year Roth IRA contributions are permitted, prior-year conversions are not allowed. A conversion done in April of 2026 would be taxable for 2026. For the conversion to be taxable for 2025, it would have to have been done by December 31, 2025.

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

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

By Sarah Brenner, JD
Director of Retirement Education

Here at the Slott Report, we get a lot of questions on all sorts of different IRA topics. However, one area where we consistently get the most inquiries is the five-year rules for Roth IRA distributions.

Here are 5 things every Roth IRA owner needs to know about the five-year rules.

1. Yes, there are two five-year rules. One thing that makes the Roth IRA distribution rules so confusing is the fact that there are actually two five-year rules you need to understand to properly execute tax- and penalty-free Roth IRA distributions. One five-year rule applies for tax-free distributions of earnings, and another applies for penalty-free distributions of converted funds.

2. The five-year rule for tax-free distributions of earnings starts with your first Roth IRA conversion or contribution and it never restarts. This rule applies in the aggregate to all your Roth IRAs. It also is not necessarily five full years. For example, if you make a prior-year Roth IRA contribution in March of 2026 for 2025, your five-year clock for tax-free distributions of Roth IRA earnings starts January 1, 2025.

3. The five-year rule for penalty-free distributions of converted funds applies separately for each conversion. While a distribution of converted funds is never taxable, the 10% early distribution penalty can apply if a five-year holding period is not satisfied. This five-year rule is only an issue if you are under age 59½. It applies separately to each conversion that you do. It also may not be five full years. For example, if you convert on December 31, 2025, you can take penalty-free distributions on January 1, 2030.

4. Beneficiaries are subject to the five-year holding period for tax-free distributions of Roth IRA earnings. If a Roth IRA owner has not satisfied this five-year rule, the beneficiary must finish it out. A spouse beneficiary can use the more favorable of their own or their deceased spouse’s five-year holding period. The five-year rule for penalty-free distributions of converted funds is never an issue for beneficiaries because all IRA distributions due to death are penalty-free.

5. The Roth IRA owner must track the five-year rules. Ultimately, it is up to the Roth IRA owner to keep good records and ensure that they are not violating either of the Roth IRA five-year rules. The taxation of Roth IRA distributions is determined in the aggregate, with all of an individual’s Roth IRAs being considered and ordering rules applied. Contributions come out first, then conversions, and finally earnings. Custodians do not necessarily have all the information to determine if the Roth five-year rules are satisfied. Roth IRA owners must understand the rules. A knowledgeable advisor 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.

https://irahelp.com/5-things-you-need-to-know-about-the-roth-ira-five-year-rules/