A Safer Retirement and Environment – What We’re Implementing to Help Keep You Safe: READ MORE

Here at Fortress Financial, we are adhering to state and local guidelines in order to protect both the health and safety of clients and staff. Keeping our clients and staff safe is our highest priority and we’re taking all appropriate measures to ensure a safe environment. Should you prefer to not meet face-to-face, we are continuing to serve our clients through virtual settings such as Zoom or phone calls.

We look forward to continuing to help individuals and families achieve their ideal retirements.

Fortress Financial
208-233-1685

CLOSE

 

INHERITED IRAS AND ROTH CONVERSIONS: TODAY'S SLOTT REPORT MAILBAG

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

QUESTION:

I just inherited my spouse’s inherited IRA (he got it from his father). He (my husband) was already taking required minimum distributions (RMDs) based on his own single life expectancy. My question is, do I have to empty that account in 10 years based on the SECURE Act? (I think this is correct, but if I don’t have to do it, I don’t want to!)

ANSWER:

You may not want to, but I’m sorry to say you have to. Based on the beneficiary rules under the SECURE Act, you are a successor beneficiary in this situation, and successors get the 10-year rule. Since this inherited IRA was being stretched (RMDs were being taken), as a successor you get to start a fresh 10-year period. Also, RMDs cannot be stopped. You will continue the same RMD payment schedule using the same single life expectancy factor that your husband was using, minus-1 each year, for years 1 – 9. At the end of the 10th year, the entire account must be emptied.

QUESTION:

I am a 27-year-old working individual who wants to convert a regular 401(k) into a Roth IRA. In addition to the regular tax imposed, will this transfer incur the 10% penalty usually levied on early withdrawals?

Thanks,

Emile

ANSWER:

Emile,

Roth conversions are not subject to the 10% early withdrawal penalty, no matter how old you are. If you have the 401(k) check paid directly to you, the plan is required to withhold 20% for taxes, but as long as you deposit the money into a Roth IRA within 60 days, it will qualify as a valid conversion and no penalty will apply. A better option would be to do a direct rollover (transfer). Have the 401(k) make the check payable to your Roth IRA custodian “for the benefit of Emile,” and the plan can send the entire balance with no 20% tax withheld. That way you get the full amount into a Roth IRA. Both of these transactions will be taxable, as you mentioned, but no 10% penalty will apply.

New Episodes of the Great Retirement Debate Podcast with Ed Slott and Jeffrey Levine, Airing Every Thursday!

In this week’s episode of the Great Retirement Debate, Ed and Jeffrey debate SECURE Act 2.0 and whether it’s big deal, or not a big deal for you, the consumer, in regards to the provisions affecting required minimum distributions (RMDs), qualified charitable distributions (QCDs) and the new 10% RMD penalty.

You can stream The Great Retirement Debate at greatretirementdebate.com or on all major streaming platforms.

https://www.irahelp.com/slottreport/inherited-iras-and-roth-conversions-todays-slott-report-mailbag

Ready To Take

THE NEXT STEP?

For more information about any of our products and services, schedule a meeting today.

Or give us a call at 208-233-1685