By Ian Berger, JD
IRA Analyst

Question:

Hello Ed,

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

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

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

I appreciate your help.

Michael

Answer:

Hi Michael,

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

Question:

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

Thanks,

Ray

Answer:

Hi Ray,

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

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

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

Ian Berger, JD
IRA Analyst

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

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

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

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

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

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

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

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

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

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

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

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

By Sarah Brenner, JD
Director of Retirement Education

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

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

Answers

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

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

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

By Andy Ives, CFP®, AIF®
IRA Analyst

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

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

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

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

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

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

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

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

Happy Thanksgiving from the entire Ed Slott team!

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

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

By Ian Berger, JD
IRA Analyst

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

Retirement Plans

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

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

SEP and SIMPLE IRA Plans

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

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

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

IRA Contributions

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

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

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

Qualified Charitable Distributions

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

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

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

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

By Sarah Brenner, JD
Director of Retirement Education

Question:

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

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

Scott and Linda

Answer:

Hi Scott and Linda,

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

Question:

Good Day,

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

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

Thank you kindly for your help.

Answer:

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

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

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

By Sarah Brenner, JD
Director of Retirement Education

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

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

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

Employer Plan Moves

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

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

IRA Moves

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

Whenever Possible – Avoid 60-Day Rollovers!

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

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

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

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

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

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

By Andy Ives, CFP®, AIF®
IRA Analyst

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

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

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

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

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

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

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

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

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

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

By Andy Ives, CFP®, AIF®
IRA Analyst

QUESTION:

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

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

Thanks in advance for your input.

Geoff

ANSWER:

Geoff,

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

QUESTION:

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

Will

ANSWER:

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

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

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

By Ian Berger, JD
IRA Analyst

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

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

Pre-tax and Roth Elective Deferrals

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

After-tax Contributions

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

Employer Contributions

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

Rollover Contributions

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

SECURE 2.0 Withdrawals

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

Taxation

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

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

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

By Sarah Brenner, JD
Director of Retirement Education

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

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

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

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

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

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

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

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

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

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

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

By Ian Berger, JD
IRA Analyst

Question:

Greetings,

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

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

Chris

Answer:

Hi Chris,

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

Question:

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

Rick

Answer:

Hi Rick,

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

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

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

By Andy Ives, CFP®, AIF®
IRA Analyst

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

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

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

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

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

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

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

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

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

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

By Ian Berger, JD
IRA Analyst

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

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

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

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

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

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

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

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

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

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

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

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

By Sarah Brenner, JD
Director of Retirement Education

Question:

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

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

Thanks,

Jennifer

Answer:

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

Question:

Hello,

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

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

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

Thank you so much!
Steven

Answer:

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

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

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

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

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

By Sarah Brenner, JD
Director of Retirement Education

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

QCDs Basics

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

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

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

Update: Code Y is Optional for 2025 QCDs

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

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

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

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

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

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

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

By Andy Ives, CFP®, AIF®
IRA Analyst

TRIVIA QUESTION:

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

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

B. John’s father, Robert, age 67.

C. John’s brother Jerry, age 42.

D. John’s neighbor Raul, age 35.

E. John’s wife, Joanna, age 39.

F. John’s cousin Michelle, age 31.

G. John’s coworker Doug, age 45.

H. John’s mailman Steve, age 51.

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

J. None of the above.

K. All of the above.

TRIVIA ANSWER:

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

1. Surviving spouses

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

3. Disabled individuals

4. Chronically-ill individuals

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

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

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

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

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

By Andy Ives, CFP®, AIF®
IRA Analyst

QUESTION:

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

Regards,

Brendan

ANSWER:

Brendan,

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

QUESTION:

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

ANSWER:

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

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

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

By Ian Berger, JD
IRA Analyst

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

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

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

Here’s a few examples that illustrate the difference:

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

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

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

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

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

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

By Sarah Brenner, JD
Director of Retirement Education

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

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

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

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

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

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

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

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

Rolling over an employer plan to an IRA – TREAT!

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

Happy Halloween from the Slott Report!

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

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

By Ian Berger, JD
IRA Analyst

Question:

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

Answer:

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

Question:

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

Thanks!

Answer:

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

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

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

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

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

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

Management. A trust could be advisable if an IRA beneficiary is someone who may need help with managing the IRA funds and taking required distributions, even if the beneficiary is an adult. A trust could help provide for someone who is not physically or mentally able to care for themselves or to handle money. A trust could also protect a vulnerable or unsophisticated beneficiary from unscrupulous people who might take advantage of him.

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

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

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

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

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

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

By Ian Berger, JD
IRA Analyst

By now, most of you probably know about the SECURE 2.0 Act provision  permitting 529 funds to be rolled over to Roth IRAs. Because of this new law, parents and grandparents can fund 529 plans without worrying as much about having to pay taxes and penalties if the funds aren’t used for qualified education expenses.

But this rollover opportunity comes with several restrictions. For example, the maximum lifetime amount you can roll over is $35,000; the 529 plan must have been open for at least 15 years; the rollover amount cannot exceed the annual Roth IRA contribution limit; and the rollover must be aggregated with “regular” IRA or Roth IRA contributions made for that year. If all of these requirements are met, the rollover is tax and penalty-free for federal tax purposes.

However, that’s not necessarily true for state tax purposes. States differ in their treatment of 529-to-Roth IRA rollovers. Of course, this isn’t an issue for the 9 states that have no state income tax to begin with: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. (Note that Washington state taxes some long-term capital gains.)

The following information comes from a very useful website run by Paul Curley, CFA: Status Board: State Income Tax Treatment on 529 Distributions to Roth IRAs and is current as of September 17, 2025:

Most states with state income taxes have said they will follow federal law. These 30 states are: Alabama, Arizona, Arkansas, Connecticut, Delaware, Georgia, Hawaii, Iowa, Idaho, Illinois, Kansas, Kentucky, Maine, Maryland, Mississippi, Montana, Nebraska, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Virginia, West Virginia and Wisconsin.

Many states allow residents to take a state tax deduction or credit for 529 plan contributions made to that state (or, in some cases, to any state’s) 529 plan. Of those states, 7 states (and the District of Columbia) have indicated that 529 savers may be subject to state income tax “recapture” if 529 funds are transferred to Roth IRAs. This means residents of these states who took a state tax deduction or credit would have to pay it back if they do a 529 rollover. These states are: Indiana, Louisiana, Massachusetts, Michigan, Minnesota, Utah and Vermont.

California stands alone.Its residents who do a 529-to-IRA rollover will be subject to both state income tax and an additional 2.5% California tax on earnings. (California does not allow a state tax deduction for 529 contributions.)

Finally, in 3 other states, a decision on state tax treatment is still pending: Colorado, Missouri, and New Jersey.

Paul Curley’s website is a great resource, but before doing a 529-to-Roth IRA rollover be sure to consult with a tax specialist about state tax treatment.

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/state-tax-treatment-of-529-to-roth-ira-rollovers/

By Sarah Brenner, JD
Director of Retirement Education

Question:

Hello Ed Slott Team!

I have been doing backdoor Roth IRA conversions for years now. I recently inherited a large traditional IRA from my aunt. Will the inherited IRA affect my ability to do tax-free backdoor Roth IRA conversions?

Answer:

Good news! You can continue to do backdoor Roth IRA conversions without a tax bill. You may be concerned about the pro rata formula that applies when these transactions are done. This is not an issue in your situation. That is because inherited IRAs are not included with your own IRAs when using the pro rata formula.

Question:

Good afternoon! I enjoy reading your content and appreciate your IRA expertise. I was just reading this month’s piece on qualified charitable distributions (QCDs). While you mentioned traditional IRAs, a QCD can be distributed from an inherited IRA, right?

Regards,

John

Answer:

Hi John,

Thanks for the kind words! You are correct. A QCD can be done from an inherited IRA, as long as the beneficiary of the IRA is age 70½ or older.

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

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

By Sarah Brenner, JD
Director of Retirement Education

The benefit of funding a Roth IRA is the availability of tax-free distributions in the future. You pay taxes now on your contribution (or conversion) in exchange for tax-free earnings down the road. The rules can be complicated. Don’t miss out on Roth IRA benefits by making mistakes when you take a distribution. Here are five steps for tax-free Roth IRA distributions.

1. Follow the ordering rules. For tax purposes, all of your Roth IRAs are considered one Roth account. There is no tax benefit gained by keeping conversions in a separate Roth IRA from your contributions. This is sometimes called the “aggregation rule.” Funds leave your Roth IRAs in a certain order. Contributed amounts are distributed first. Converted amounts are distributed next, first in, first out. Last out would be earnings.

2. Your contributions are always available tax- and penalty-free. Not only do your contributions come out first, they are always available tax- and penalty-free. This means that if you need to tap your Roth IRA, you can easily access contributions without adverse tax consequences.

3. Watch out for the 10% penalty on converted funds. Converted funds are always distributed tax-free. This makes sense since you already paid taxes when you converted them. However, amounts that were taxable at conversion may be subject to the 10% early distribution penalty if you are under the age of 59½ at the time of the distribution and the conversion was less than five years ago. This five-year clock begins separately for each conversion you do. What if you are over age 59½ when you take converted dollars from your Roth IRA? Then, you have no worries about this five-year clock.

4. Know when earnings are tax-free. Earnings are not subject to tax if the distribution is a qualified distribution. Your distribution is “qualified” if it is made after you have owned any Roth IRA account for five years AND you are over the age of 59½, or are dead, disabled, or taking the funds for a first-time home purchase.

5. Understand the five-year clock for qualified (over age 59½) distributions of earnings. The five-year period for qualified distributions of earnings can be confusing. It is different than the five-year period for penalty-free distributions of converted funds discussed above. It does not re-start with each Roth IRA contribution or conversion. If you contributed $1 to your Roth IRA for 2020, and then in 2022 you converted your one-million-dollar traditional IRA to the Roth IRA, then as of January 1, 2025, all the Roth money would be considered to have been held for five years. Your original Roth IRA 5-year clock began on the first day of the year for which the first dollar of Roth contributions was 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/5-steps-for-tax-free-roth-ira-distributions/

By Andy Ives, CFP®, AIF®
IRA Analyst

401(k) custodians are usually pretty good about distributing required minimum distributions (RMDs) from the plans they oversee. This is especially important when a participant is rolling over his plan balance to an IRA. Why must plan custodians to be on their toes in situations like this? Because plan RMDs are not permitted to be rolled over to an IRA. Some people think they can roll their entire 401(k) to an IRA and simply take the plan RMD from the IRA later in the year. No deal. The plan RMD must be taken prior to any rollover. If the plan RMD is erroneously rolled over, it is now an excess contribution in the IRA, and that error must be corrected.

If a retired plan participant is rolling his entire 401(k) balance to an IRA, and if that participant has yet to take his RMD for the year, 401(k) custodians will typically send a check for the RMD, and another check for the plan balance to be rolled over. Even in situations where the original 401(k) owner died years before his required beginning date for starting RMDs (the RBD) and the account has sat dormant as an inherited plan account in the name of a surviving spouse, 401(k) plan custodians are also good at identifying when the RMDs on that account must start for the surviving spouse. (For those plan participants who die before their RBD, the surviving spouse beneficiary does not need to take RMDs on that inherited plan account until the deceased spouse would have reached RMD age – and that could be years down the road.)

But you know what they say about “the best laid plans.” Sometimes things don’t always go as they should. When it comes time to pay out a 401(k) RMD, there are times when the proper handling of that distribution goes off the rails.

The most common problem occurs when a plan participant is leveraging the “still-working exception” to delay his 401(k) plan RMDs until after he retires. The still-working exception allows a worker to delay his RBD until April 1 of the year after the year he separates from service. This means that a 75-year-old who is gainfully employed can avoid RMDs on his 401(k) until after he retires. (The still-working exception does not apply to IRAs, so this same energetic 75-year-old will still have to take an RMD from his IRA, but his 401(k) can remain untouched.)

The stumbling block occurs when a person using the still-working exception rolls over his entire 401(k) early in the year. There is no RMD to worry about, because he is still working. But what if he gets laid off or quits later that same year? Uh-oh. Since he is no longer still working for that company on the last day of that same year, he now DOES HAVE an RMD for that year. Since the entire plan balance was already rolled over earlier that year, that means the RMD was improperly rolled over. It is now an excess contribution in the IRA and must be addressed.

A recent 401(k) RMD situation presented an interesting confluence of events. A gentleman was eligible for the still-working exception, but he intended to retire later in 2025. He was only 72 years old, but was turning 73 in December. As a 72-year-old who was still working, all signs pointed to no plan RMD. He requested a rollover, and the plan sent his entire balance in a single check. Fortunately, this gentleman was wise enough to recognize that he did have an RMD for the year.

Working with his financial advisor, we intercepted the full rollover check before it was deposited into his IRA. The IRA custodian was able to separate out the plan RMD and deposit the net amount into the IRA. The gentleman will receive a 1099-R from the 401(k) showing a full distribution, and a Form 5498 from the IRA custodian showing the net amount rolled over (the full distribution less the RMD). Plan RMD: satisfied! Excess IRA contribution crisis averted.

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-rmd-rollover-problemsand-a-last-minute-save/

By Ian Berger, JD
IRA Analyst

Normally, if you declare bankruptcy, your IRA funds (traditional and Roth) are completely off limits to bankruptcy creditors. But a recent court decision is a good reminder that this isn’t always the case.

Bankruptcy protection for IRAs comes from the federal Bankruptcy Code. Under that law, up to $1,711,975 of annual IRA dollars are safe from bankruptcy creditors. (This maximum amount is effective through March 31, 2028). Importantly, the dollar limit does not take into account amounts you might roll over from company plans like 401(k)s. (The rolled-over plan dollars themselves are always fully protected under the Bankruptcy Code.) This means only IRA contributions and their earnings count towards the $1,711,975 limit.

Since IRAs did not become available until 1975, it would be unusual for someone to have amassed over $1.7 million from IRA contributions and earnings alone. So, in most cases, no IRA funds will need to be turned over to creditors if you file for bankruptcy.

However, there is one important exception to that rule. If your IRA loses its tax-exempt status, bankruptcy protection for that IRA disappears. When would this happen? The most common way is when a person in bankruptcy commits a “prohibited transaction” with his IRA dollars. Generally, a “prohibited transaction” is the improper use of IRA funds by the IRA owner, for example, through self-dealing. If you’re in bankruptcy and have significant IRA assets, you can bet your creditors will scrutinize every one of your IRA transactions in order to claim a prohibited transaction so they can seize your funds.

A recent court decision from the Eastern District of Pennsylvania illustrates another way that a person in bankruptcy can lose IRA creditor protection. In Stephanie Paula Farber v. Lynn E. Feldman, No. 2:22-cv-01817,  Stephanie Farber inherited her father’s IRA worth about $41,000. In 2018, Farber used the $41,000 to open an IRA in her name at Wells Fargo. She subsequently rolled over the IRA to an individual retirement annuity with Allianz. The bankruptcy trustee (representing the creditors) contended that Farber funded her IRA with an amount that exceeded the annual IRA contribution limit in effect for 2018. (That limit was $6,500: $5,500 + $1,000 catch-up for age 50 or older). That caused the IRA to lose its tax-exempt status, according to the trustee.

The judge agreed. He found that, although Farber didn’t commit a prohibited transaction, she clearly made an excess contribution to her IRA. This prevented the IRA from being tax-exempt and prevented Farber from being able to shield those funds from her bankruptcy creditors.

Farber had originally claimed that she had simply transferred over the inherited IRA to Wells Fargo and then to Allianz. She likely changed her story because if she truly had an inherited IRA, it would not be protected from bankruptcy creditors under the unanimous decision of the U.S. Supreme Court inClark v. Rameker, 573 U.S. 122 (2014).

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/another-way-to-lose-ira-bankruptcy-protection/

By Sarah Brenner, JD
Director of Retirement Education

October is almost here. This means fall is in full swing. Along with pumpkin spice lattes, football season, and sweater weather come four important October 15 deadlines you will not want to miss!

1. Avoid the Excess Contribution Penalty. Did you contribute too much to your traditional or Roth IRA for 2024? Maybe your income ended up being higher than you expected and it turned out you were ineligible for the Roth IRA contribution you made or maybe you did not have any taxable compensation for the year. If you made an excess contribution to your traditional or Roth IRA for 2024, you will want to fix that mistake by withdrawing the contribution, plus net income or loss attributable. Your deadline for getting this done and avoiding the 6% excess contribution penalty is October 15, 2025.
2. Recharacterize an IRA Contribution. While recharacterization of Roth IRA conversions is long gone, recharacterization of tax year contributions remains an option. Have you changed your mind about which type of 2024 IRA contribution you wanted to make? Maybe you contributed to a Roth and now you think a traditional IRA is a better fit, or vice versa. October 15, 2025, is your last chance to recharacterize that contribution to the other type of IRA.
3. Remove an Unwanted IRA Contribution. While your income does not affect your ability to make a traditional IRA contribution, it may affect your ability to deduct it if you or your spouse are a participant in an employer plan. If you later discovered that your 2024 traditional IRA contribution was not deductible, October 15, 2025, is the deadline to correct this problem by withdrawing the contribution (plus attributable income or loss). If you miss the deadline, the contribution must remain in the IRA as a nondeductible IRA contribution.
4. Make a SEP Contribution. Employers who are interested in establishing and funding a SEP IRA for 2024 may have a little more time to get this done. The deadline for making a SEP contribution is the business’s tax-filing deadline, including extensions. For some businesses, that date is October 15, 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/october-15-deadlines-are-approaching/

By Andy Ives, CFP®, AIF®
IRA Analyst

QUESTION:

My father passed away in November 2021. I became disabled in April 2022. Am I now an eligible designated beneficiary (EDB) that can use the stretch rule for distributions? I receive disability payments, so the SSA knows my disability start date. I have read dozens of articles all with conflicting information. Thank you for any advice.

ANSWER:

The status of an IRA beneficiary is determined on the day of death of the IRA owner. When your father passed away in November of 2021, you were not disabled. Consequently, you were a non-eligible designated beneficiary (NEDB) and are subject to the 10-year rule. Your beneficiary status as an NEDB is locked in for the IRA inherited from your father and cannot be changed. For that specific inherited IRA, you cannot reclassify yourself as an EDB. However, as a disabled individual, you could qualify as an EDB if you were to inherit another IRA in the future.

QUESTION:

Andy,

As a frequent reader of the mailbag and an occasional participant on some of Mr. Slott’s webinars, I wanted to be sure I’m understanding your response to a mailbag question. This relates to the answer you gave to a 9/11/25 mailbag question regarding Roth conversions. The 67-year-old is planning annual Roth conversions prior to reaching RMD age. You stated, “Since you are over age 59½ and have had a Roth IRA for 5 years, you never have to worry about another Roth 5-year clock again.”

My home office, as well as multiple online sources, indicate that each conversion has its own 5-year clock, even if you are over age 59½.

ANSWER:

Based on the specific scenario in that 9/11/2025 mailbag question, my response was accurate. The person was over age 59½ and had owned a Roth IRA for 5 years. As such, there would never be another 5-year conversion clock to worry about. But let’s change the details. Assume a person is over age 59½ and never had a Roth IRA. In such a situation, that person would have to wait 5 years for the earnings on the conversion to be tax free. It is important to recognize that each Roth conversion has its own details that must be considered. However, despite what many on-line sources indicate, I can say with 100% confidence and accuracy that once a person is over age 59½ AND has owned a Roth IRA for 5 years, there will never be another 5-year conversion clock to worry about.

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

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

By Andy Ives, CFP®, AIF®
IRA Analyst

Traditional and Roth IRA owners often get confused about the distributions they take from their IRAs. Mix-ups and misunderstandings are pervasive. With Roth IRAs, there a number of different factors to consider when withdrawing funds. How long has the account been open? How old is the Roth IRA owner? What type of dollars are in the Roth IRA (i.e., contributions, conversions, earnings)? With traditional IRA withdrawals, we must consider the pro-rata rule when after-tax (non-deductible) dollars are present, which dictates how much of the distribution is taxable. Like the flu in winter, on and on the confusion spreads. Here are a some common “distribution confusions” for Roth and traditional IRA owners:

Rental Property in a Roth IRA. It is perfectly acceptable to own real estate in a Roth IRA. Commercial property, a beach house, an apartment building — all are allowed. Of course, the prohibited transaction rules dictate that the IRA owner must keep an arm’s-length distance from these properties. Assuming the underlying property management is set up perfectly within the Roth IRA, how do we treat the rental income that kicks out from these properties?

Anyone who takes these “rental income” payments from their Roth IRA must forget where the dollars originated. For tax purposes, this is not rental income, just like dividends received from a stock held in a Roth IRA are not “dividends.” Any payment from a Roth IRA is some combination of contributory dollars, converted dollars or earnings. And since Roth IRAs follow strict distribution ordering rules, what might be thought of as a “rental income payment” is most likely a return of contributions or converted dollars. There is no special “rental income” tax treatment when these funds are distributed from a Roth IRA.

Multiple Roth IRAs Are Considered One Roth IRA. Continuing with the aforementioned rental property situation, if a person holds their property in one Roth IRA and has all their “standard” investments (like stocks and mutual funds) in a different Roth IRA, the IRS does not care. All it sees is a single Roth IRA account. Within this single account are up to three buckets of money: contributions, converted dollars and earnings, and that is what gets paid out. Any distribution (like “rents”) from any of a person’s Roth IRAs follow that same distribution order. Layer on the 5-year holding period and a person’s age (under or over 59½) and it’s easy to see how “distribution confusion” can make a Roth IRA owner nauseous.

10% Penalty Exception Does NOT Mean Tax-Free. There are currently 20 exceptions to the 10% early withdrawal penalty for IRAs and work plans, with a 21^st coming in 2026. While the penalty could be avoided by leveraging an exception, the taxes cannot! If you qualify for one of the exceptions and need to withdraw traditional pre-tax IRA funds, be aware that a tax bill will be due.

The Pro-Rata Rule. Speaking of taxes due on traditional IRA distributions, it is important to know that the pro-rata rule simultaneously looks at all of a person’s traditional IRAs, SEP and SIMPLE IRAs. If you have after-tax (non-deductible) dollars in any of these accounts, you cannot cherry-pick only those dollars for withdrawal or conversion. What the pro-rata rule does NOT look at are your inherited IRAs, your spouse’s IRA, or work plans like a 401(k).

“IRA Distribution confusion” is a real malady, and it’s as common as a cold.

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

https://irahelp.com/ira-distribution-confusion/

By Ian Berger, JD
IRA Analyst

In final regulations issued on September 15, 2025, the IRS confirmed that company retirement plans must comply with the SECURE 2.0 Act’s mandatory Roth catch-up rule as of January 1, 2026.

That rule requires high-paid employees who wish to make catch-up contributions to have them made as Roth contributions. A high-paid employee is someone who earned more than $145,000, as indexed, in W-2 wages from his current employer in the prior year. The IRS regulations confirm that the rule doesn’t apply to individuals (like the self-employed) who don’t have prior year W-2 “wages,” but instead have earned income.

The Roth catch-up rule is the first mandatory Roth provision ever added to the tax code.

It applies to employees in 401(k), 403(b) and governmental 457(b) plans. It does not apply to non-governmental 457(b) plans (which do not even allow Roth contributions) or to SIMPLE IRA plans (which do allow them). The Roth mandate applies to both “regular” catch-up contributions for employees who turn age 50 or over (for 2025, up to $7,500) and the new “super catch-up” for employees who turn ages 60, 61, 62 or 63 during the year (for 2025, up to $11,250).

The rule was originally effective for plan fiscal years starting on or after January 1, 2024. (The fiscal year for most plans is January 1 – December 31.) However, in response to a flood of complaints by plan recordkeepers, the IRS delayed the effective date two years. In the final rules, the IRS opted not to extend the rule any longer. So, plans must implement the new rule effective for fiscal years beginning in 2026 (January 1, 2026 for most plans).

The IRS did extend the effective date of its final regulations interpreting the new law until January 1, 2027. The IRS’s decision to delay the effective date of its regulations has led some to conclude that plans don’t have to comply with the law itself until 2027. That is incorrect. Plans do have to comply with the Roth catch-up law starting in 2026. It’s just that during 2026, plans have more leeway in how they apply the law and don’t necessarily have to follow the IRS’s guidance.

The final rules make some technical administrative changes to the proposed rules that were sought by 401(k) administrators. But, on the big-ticket items, the IRS stuck to its guns. For example, it kept the rule that plans that don’t offer Roth 401(k) contributions cannot allow high-paid employees to make any catch-ups – pre-tax or Roth. Also, the IRS shot down the suggestion that plans should be able to make Roth catch-ups mandatory for all employees as a way of easing the administration of the new rule.

https://irahelp.com/irs-confirms-effective-date-of-mandatory-roth-catch-up-rule/

By Ian Berger, JD
IRA Analyst

Question:

Hi,

If my birthday is in December 2026, when I turn 73 years old, can I take my required minimum distribution (RMD) on January 2, 2026, even though I’m not yet 73 years old then?

Thank you,

Harvey

Answer:

Yes. Your first RMD is for 2026, the calendar year you turn age 73. That first RMD can be taken anytime during calendar year 2026 – even before your 73^rd birthday. (It can even be delayed into 2027, but no later than April 1, 2027.)

Question:

I have a client, age 65, who took multiple distributions from his plan with a company where he used to work. The distributions were deposited into his bank account and from there he put the funds in his IRA account. He says these are rollovers, but I am concerned about the once-per-year rollover rule.

Answer:

Good news for your client! The once-per-year rollover rule doesn’t apply to rollovers of plan funds to IRAs (or to rollovers of IRA dollars to plans). The rule only applies to traditional IRA-to-traditional IRA rollovers and Roth IRA-to-Roth IRA rollovers. So, no problem here.

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/payment-of-the-first-rmd-and-the-once-per-year-rule-todays-slott-report-mailbag/

By Andy Ives, CFP®, AIF®

By Andy Ives, CFP®, AIF®
IRA Analyst

Can a person who works at two different, unrelated companies participate in the retirement plan offered by each of those businesses? Yes.

Can this same person receive the maximum annual contributions into BOTH plans? Yes, under the right circumstances. Also recognize that there are limits on the type of dollars that can flow into plans. For example, some plans, like 401(k)s, can receive salary deferrals made by the worker as well as company contributions, like matching dollars or profit share money. Some plans only allow for employer contributions.

So how does this all work, and what are the restrictions? In this space, we must keep the conversation at a very high level. This article only scratches the surface. Be sure to consult with a knowledgeable advisor before diving into multiple plans. There are clear guidelines that must be followed. For example, a person (or the same ownership group) cannot open multiple businesses and establish a separate retirement plan for each of those businesses. Also, recognize that there is an aggregated cap on employee salary deferrals. For 2025, the regular contribution limit is $23,500, plus $7,500 for those age 50 and over ($11,250 catch-up for those ages 60-63). These limits are per person, NOT per plan.

For those who are fortunate enough to have access to multiple retirement plans, the ability to put away a significant amount of money is there…if the cards are played right. It is important to understand the difference between plans and the type of dollars being contributed.

Example: James, age 55, works for a large company. He participates in the 401(k) where he defers from his salary the maximum amount of $31,000. (This includes the $23,500 regular contribution plus the $7,500 age-50 catch-up.) The 401(k) offers a percentage match AND a profit share. These employer dollars could potentially bring James’ total contributions into the 401(k) up to the 2025 maximum of $77,500. (While the regular maximum for 2025 is $70,000, the age-50 catch-up allows James to go $7,500 over that cap to get to $77,500.)

In his spare time, James runs his own successful consulting business as a sole proprietor. James would like to establish a retirement plan for his own business, but he is unsure which type of plan to install. If James decides to start a Solo 401(k), he cannot make any additional employee salary deferrals this year because he already reached his annual aggregated cap of $31,000 in the other company plan. Employer contributions – like a profit share – could be made to James’ own Solo(k), but that may not be worth the relatively high administrative expense of a Solo 401(k). James decides that the Solo(k) is not for him.

Instead, James opts for a SEP IRA plan, which typically has lower expenses. Employees cannot make contributions to a SEP. Only employer contributions are allowed. Based on the earnings from his small business, James is eligible for the maximum contribution. James puts on his employer hat and makes a $70,000 contribution to his own SEP IRA. (Since employees cannot make contributions to a SEP, there is no option for catch-up contributions, so the maximum 2025 SEP contribution for James is $70K.) By participating in two plans at two unrelated companies, James is able to defer a total of $147,500 into retirement plans in 2025.

The point here is that a person CAN participate in multiple retirement plans and CAN (potentially) defer more than the 2025 annual limit of $70,000. However, we cannot stress this enough: do not play around with multiple plan participation without consulting with a knowledgeable advisor.

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

https://irahelp.com/participation-in-multiple-retirement-plans/

By Ian Berger, JD
IRA Analyst

As the end of the year approaches, you may have plans to retire on December 31.

However, if you are using the “still-working exception” to defer required minimum distributions (RMDs) from your 401(k) (or other company plan), you may want to delay your retirement into 2026.

Normally, you must take the first RMD from a plan by April 1 of the year following the year you turn age 73. (This is the same for IRAs.) But if you are still employed at that time, the still-working exception allows you to put off your first plan RMD until April 1 of the year after the year you retire.

Beware of a few restrictions on using this exception. It’s not available if you own more than 5% of the company maintaining the plan. (The ownership interest of certain family members counts towards your ownership interest.) Also, plans are not required to apply the still-working exception, but most do. Finally, the exception only applies to the funds in the 401(k) plan where you are currently working. It does not apply to dollars in any 401(k) plan of a former employer – unless you roll those dollars over to your current employer’s plan.

Have you “retired” if you go from full-time to part-time employment? The IRS has never said. Most experts believe that, as long as you’re still considered employed by your company, you remain “still-working” – even if you’re just working a few hours periodically. But be careful about abusing this rule.

What is your retirement date if your last day of work is December 31? For example: If you leave work for good on December 31, 2025, have you “retired” in 2025 or 2026? If you’ve retired in 2025, your first RMD year is 2025, and your first RMD is due by April 1, 2026. But, if you’ve retired in 2026, the first RMD can be delayed until April 1, 2027. The IRS has also never answered this question. But the consensus is that a last-day-of-work of December 31, 2025, means you’ve retired in 2025.

Although the still-working exception sounds worthwhile, keep in mind that you (or your beneficiaries) will have to face RMDs sooner or later. So, it might not be such a great idea to kick the RMD can down the road to a time when required distributions will likely be larger and tax rates may be higher. But if you’re thinking about retiring at year end and you’re sure that delaying RMDs makes sense, see if you can put off your actual last day of work into 2026.

One last point: If you want to do a rollover of your 401(k) funds to an IRA in the year you retire, you can’t defer your first RMD until April 1 of the next year. You also can’t roll the plan RMD to the IRA with the intent of taking it from the IRA later. Instead, you must first take that RMD before doing the rollover.

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

https://irahelp.com/the-still-working-exception-and-december-31-retirement/

By Sarah Brenner, JD
Director of Retirement Education

The end of the year always brings a flurry of retirement account deadlines and planning opportunities. This year is no different. And, new for 2025, the One Big Beautiful Bill Act (OBBBA) brings new considerations, especially for Roth conversion planning.

Correcting IRA Contributions. The year 2024 may seem long gone, but for IRA owners who are now discovering they have an excess 2024 IRA contribution, there is still time to correct the contribution and avoid a 6% penalty. This can be done by withdrawing or recharacterizing the 2024 contribution, plus attributable income (or loss), by October 15, 2025. This is also the deadline to remove or recharacterize 2024 IRA contributions that are not actually excess contributions but are, instead, simply unwanted.

Making SEP Contributions. While contributions to a traditional or Roth IRA must be made by the tax-filing deadline, a SEP IRA plan can be established and funded at any time up to the business’s tax-filing deadline, including extensions. The SEP contribution limit for 2024 is 25% of up to $345,000 of compensation, but no greater than $69,000. Some businesses may have extensions for filing 2024 return until October 15, 2025.

Required Minimum Distributions (RMDs). Any IRA owner older than age 73 this year must take a 2025 RMD by December 31, 2025. Roth IRA owners, on the other hand, never have to take RMDs. Employees in 401(k) and other employer plans are not required to take a 2025 RMD if they qualify for the “still-working exception.” Those who do not qualify must take their 2025 RMD from pre-tax accounts (but not Roth 401(k) accounts) by December 31.

Eligible designated beneficiaries and those beneficiaries who inherited before the arrival of the SECURE Act in 2020 can still use the stretch. These beneficiaries must take their 2025 RMDs by the end of the year.

Non-eligible designated beneficiaries who are subject to annual RMDs within the 10-year period must take their 2025 RMDs by the end of the year. 2025 is the first year that these annual RMDs, required by IRS regulations, will actually need to be taken. Annual RMDs during the 10-year period for years 2021, 2022, 2023, and 2024 were waived by the IRS.

Roth IRA Conversions. To qualify as a 2025 Roth conversion, funds must leave the IRA or company plan by December 31, 2025. (There is no such thing as a prior-year conversion.) It is certainly a good idea to wait until later in the year before converting in order to get a better picture of this year’s tax situation. But do not wait too long because some IRA custodians will not process conversions for the year after a specific date.

Qualified Charitable Distributions (QCDs). QCDs remain a great tax break for charitably-inclined individuals. With a QCD, IRA owners (or beneficiaries) age 70½ or older can make a 2025 charitable contribution up to $108,000 through a tax-free transfer directly from their IRA. There is no such thing as a prior-year QCD, so those looking to take advantage of this tax break for 2025 need to get it done by December 31, 2025.

Net Unrealized Appreciation (NUA). For 401(k) or ESOP participants with highly appreciated company stock, the NUA strategy can potentially produce significant tax savings. One requirement for the NUA strategy is that the participant’s entire account must be emptied within one calendar year. So, individuals planning to use the strategy for 2025 must start the process early enough to ensure the lump sum distribution occurs 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.

By Sarah Brenner, JD
Director of Retirement Education

Question:

Dear IRA Help,

Here is my specific case.

I am 84 years old.

I opened a Roth IRA on March 30, 2020, with a conversion.

I started withdrawing from this conversion on March 10, 2025.

Did I satisfy the requirements to have a qualified distribution?

My brokerage firm is saying that they will not report this distribution on Form 1099-R, using Code Q, for a qualified distribution.

Please clarify this for me. Will be greatly appreciated.

Thanks,

Thakor

Answer:

Hi Thakor,

You did meet the requirements for a qualified distribution. You are over age 59½ and you have satisfied the five-year holding period. The five-year holding period began on January 1, 2020, and ends on January 1, 2025.

The brokerage firm may be using Code T instead of Code Q. According to the instructions for Form 1099-R, Code T is used when the IRA custodian does not know if the 5-year holding period has been met but:

• The participant has reached age 59½,
• The participant died, or
• The participant is disabled.

Some custodians make it a practice to use Code T instead of Code Q. This will not affect the taxation of the distribution. You can handle the Roth IRA distribution as qualified distribution on your tax return.

Question:

We have a client who is the successor beneficiary of an IRA that her late husband had inherited from his deceased mother. The mother died in 2015. The deceased husband had been taking annual required minimum distributions (RMDs) since he inherited the IRA. Now, the wife is the successor beneficiary. Can she do a spousal rollover since she inherited this account from her husband?

Answer:

The wife cannot do a spousal rollover. This is because she is a successor beneficiary of an account inherited by her husband. She would only be able to do a spousal rollover if she inherited his own IRA. Instead, as a successor beneficiary, she will need to continue annual RMDs based on her husband’s life expectancy. In addition, the SECURE Act’s 10-year rule will also apply.

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

https://irahelp.com/qualified-distributions-and-successor-beneficiaries-todays-slott-report-mailbag/

By Andy Ives, CFP®, AIF®
IRA Analyst

It has come to our attention that confusion exists as to how qualified charitable distributions (QCDs) impact one’s taxes. It is said that QCDs can reduce adjusted gross income (AGI). But is this true? Yes, it is true…but there is more to the story. Simply “doing a QCD” is not a magic AGI-reduction bullet.

First, recognize that not everyone is eligible to do a QCD. They are only available to IRA owners who are age 70½ and over. Also, QCDs cannot be done from employer plans like a 401(k) or 403(b). Donations paid directly from an IRA to an eligible charity may be excluded from income, and there can be no benefit back to the taxpayer.

QUESTION: Jack is age 75 and has an IRA. It is late in the year, and Jack has already taken his $20,000 required minimum distribution (RMD) from his IRA. (He used the funds to pay for a lovely European vacation with his family, although he could have easily funded the trip with money from another source.) Jack estimates that his total AGI for the year, including the $20,000 RMD, will be $100,000. Jack would like to reduce his income by $10,000. Will doing a $10,000 QCD now, before the end of the calendar year, reduce Jack’s AGI?

ANSWER: It will not. Why? Jack’s AGI is $100,000. If he does a $10,000 QCD now, that involves processing another distribution from his IRA. The $10,000 QCD is excluded from income, so it is essentially a wash. The $10,000 would come out of the IRA as a QCD, the same $10,000 would be excluded from income, and Jack’s AGI would remain unchanged at $100,000. The extra, unplanned QCD does nothing to help Jack’s immediate desire to reduce his AGI.

Let’s reframe the situation. It is now the following year, and Jack is facing another RMD for about $20,000. When the RMD is added to his other income, Jack projects his total AGI to be, once again, $100,000. Jack would like to minimize this projected AGI. Instead of taking the full $20,000 RMD, Jack will do a QCD to offset half of it. Jack takes a $10,000 taxable distribution from his IRA to make repairs on his home. He then requests a $10,000 QCD to his favorite charity. At the end of the year, Jack’s projected AGI of $100,000 has been reduced to $90,000. Will doing another QCD before year-end reduce Jack’s AGI further? No, it will not. As we saw in the previous scenario, another QCD would be a wash. Money would come out of the IRA, the distribution would be excluded from income, and Jack would still have an AGI of $90,000. Had Jack paid for his home repairs from another source and done a QCD to offset his entire $20,000 RMD, he could have dropped his projected AGI to $80,000.

There are other benefits to doing QCDs. For example, if Jack did proceed with an unplanned large QCD late in the year, it would not reduce the projected AGI he calculated at the beginning of the year, but it would reduce the total value of his IRA. With a lower total IRA balance, Jack would have a lower RMD the following year (vs. if he did not do the large, unplanned QCD).

The point here is that, as mentioned, QCDs are not a magic AGI reducer. One cannot simply do an unplanned QCD to drop AGI. However, what QCDs can do is reduce projected AGI, especially for proactive IRA owners staring a large IRA RMD in the face.

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

https://irahelp.com/do-qcds-actually-reduce-agi/

By Ian Berger, JD
IRA Analyst

Question:

We have two grandchildren. One is 18 years old now, and the other will turn 18 next January (2026).  Can you help me understand what I can do for each under the new Trump account rules?

Ollie

Answer:

Hi Ollie,

You will probably be unable to contribute to Trump accounts for either grandchild. Before a contribution to a Trump account can be made, an account must be opened by either the Federal government or an individual such as a parent or grandparent. However, in either case it appears that a Trump account can only be opened for children who have not turned age 18 before the end of the calendar year. This rules out any contributions for your older grandchild who has already turned age 18. In order for you to contribute for your younger grandchild (who will turn age 18 in 2026), a Trump account would have to be opened before the end of 2025. It’s doubtful that procedures for opening an account will be in place by that deadline.

Question:

Hello,

Is the pro-rata rule applicable when doing a Backdoor Roth IRA conversion if the client has an inherited IRA, but no other IRAs?

Thank you in advance for your assistance!

All the best,

Scott

Answer:

Hi Scott,

The pro-rata rule takes into account all traditional IRAs and pre-tax SEP and SIMPLE IRAs. It does not take into account inherited IRAs (or Roth IRAs and Roth SEP and SIMPLE IRAs). So, your client can do a Backdoor Roth conversion free and clear of the pro-rata rule.

The pro-rata rule treats all of a person’s IRAs as one big account. This includes SEP and SIMPLE IRAs (but not Roth IRAs or inherited IRAs). Even IRAs held at different financial institutions are aggregated.

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

https://irahelp.com/trump-accounts-and-the-pro-rata-rule-todays-slott-report-mailbag/

By Ian Berger, JD
IRA Analyst

Most 401(k) plans (as well as 403(b) and 457(b) plans) offer hardship withdrawals while you are still employed. If the withdrawal comes from a pre-tax account, it will be taxable. And, if you’re under age 59½, it will also be subject to the 10% early distribution penalty – unless one of the exceptions to that penalty applies. For example, hardship withdrawals are allowed for medical expenses. But because medical expense withdrawals are often exempt from the 10% penalty, you usually won’t be hit with a penalty if you take a hardship withdrawal before age 59½ to pay for those expenses.

The SECURE 2.0 Act expanded the list of exceptions to the 10% penalty. The new exceptions include withdrawals for:

• Victims of federally-declared disasters (effective January 26, 2021)
• Terminally-ill persons (effective in 2023)
• Victims of domestic abuse (effective in 2024)
• Emergency expenses (effective in 2024)

For plans, these exceptions are also new distribution events allowing you access to your accounts before age 59½. However, SECURE 2.0 is clear that allowing access in each of these situations is optional. There is no requirement for a plan to allow these new distribution events, and many plans do not because of administrative concerns. But plans that don’t allow these new SECURE 2.0 distributions often still allow you to take hardship withdrawals for expenses that would have been covered if the plan did offer the new distribution. In that case, the hardship withdrawal will likely be taxable. But will it also subject you to the 10% penalty if you’re under 59½?

Fortunately, the answer is “no.” The IRS has said that if you take a hardship withdrawal before age 59½ and you are a victim of a federally-declared disaster, are terminally ill, are a victim of domestic abuse, or have an emergency expense, you are exempt from penalty as long as you would have qualified for the SECURE 2.0 distribution event if the plan offered it.

Example: Hannah participates in a 401(k) plan that allows hardship withdrawals but doesn’t permit the new penalty-free distribution event for emergency expenses. In 2025, at age 50, Hannah incurs an emergency expense and she qualifies for a hardship withdrawal for those expenses from a pre-tax account. The emergency expense exception allows only one penalty-free withdrawal per calendar year, and each distribution is limited to $1,000. So, if Hannah’s hardship withdrawal is no more than $1,000, and it is the first one she takes in 2025 for emergency expenses, she would qualify for the emergency expense distribution if the plan offered it. This means that although her hardship withdrawal will be taxable, Hannah will not have to pay the 10% penalty on it.

How does Hannah claim the emergency expense exception? She files Form 5329 and attaches it to her 2025 Form 1040. On line 2 of Part I of the 5329, she uses Code 23 for an emergency expense. Code 20 is used for terminal illness, and Code 22 is used for domestic abuse. If you are claiming the exception for a federally-declared disaster, you must use Form 8915-F instead of Form 5329.

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/avoiding-the-10-early-distribution-penalty-for-certain-hardship-withdrawals/

By Sarah Brenner, JD
Director of Retirement Education

It’s August and that means it is back-to-school time! The 2025-2026 school year is upon us. Kids are already back in the classroom and ready to learn.

Any parent will tell you that back-to-school time is an expensive time of the year. You cannot afford to miss out on any possible option that may help you save to cover education costs. There are often discussions about tax credits and 529 plans savings plans, but one tool that that you might overlook is the Coverdell Education Savings Account (ESA). Here is what you need to know.

ESA Contributions

You may establish an ESA with the custodian of your choice. The paperwork you complete is very similar to the paperwork necessary to establish an IRA. Contributions are made to the account to help save for education expenses of a designated beneficiary. The designated beneficiary is a child under the age of 18. You can make a contribution for your child, grandchild, or any other child under the age of 18. Contributions may be made for designated beneficiaries older than 18 if they have special needs. Your ESA contribution is not deductible, but the earnings will be tax-free if the funds are used to pay for qualified education expenses.

The maximum ESA contribution amount is $2,000 per year for each child, but you may contribute that amount to ESAs for multiple beneficiaries. For example, if you have three grandchildren, you could contribute $2,000 each year to each of their ESAs. There is no earned income or taxable compensation requirement to contribute to an ESA. There are no age limits either. There are income limits. If your income is above them, you might consider giving the funds to the child or another person with income under the limits and having them make the contribution to avoid those restrictions.

The contribution deadline is generally the tax-filing deadline, April 15. ESA funds are even eligible to be rolled over to qualified tuition plans.

ESA Distributions

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

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

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

ESA Benefits

Sometimes the benefit of ESAs is overlooked due to the relatively low contribution amounts, but this is short-sighted. With the costs of education, you will need every strategy and tax break that is available! Don’t miss out on ESA benefits. If you are already funding a qualified tuition plan or 529 plan, you can still fund an ESA as well.

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/tapping-an-esa-for-back-to-school-expenses/

By Sarah Brenner, JD
Director of Retirement Education

Question:

I recently retired in January and rolled over a lump sum pension from my previous employer into my IRA. Next month, I’m planning to roll over my 401(k) from the same employer into the same IRA as well. Would these two actions run afoul of the once-per-year rollover rule? Thanks.

Answer:

Good news! You have nothing to worry about with regard to the once-per-year rollover rule. This rule only applies to 60-day rollovers between traditional IRAs or between Roth IRAs. It does not apply to rollovers from plans to IRAs.

Question:

We have a client who has a SEP IRA plan for their small business. They are having difficulty making SEP IRA contributions for eligible employees. They are under the impression that if they send notification to employees but don’t hear back, they would not have to worry about funding the SEP IRA. Is this correct?

Answer:

Unfortunately, it is not that easy. The rules say that any employee who is eligible to receive a SEP contribution must get one. Under the regulations, an employer is even allowed to establish a SEP IRA on behalf of an employee if the employee is unable or unwilling to do so.

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-and-sep-contributions-todays-slott-report-mailbag/

By Ian Berger, JD
IRA Analyst

At Ed Slott and Company, we continually stress how important the beneficiary designation form is. Because it’s that form – and not the retirement account owner’s will or other estate planning documents – that usually dictates who will receive the owner’s IRA or 401(k) account after death.

But, as a recent case shows, for ERISA plans, there is one rule that trumps the beneficiary designation form: The spousal beneficiary rule. That rule says that a married ERISA plan participant’s 401(k) balance must automatically be paid to his surviving spouse after death – unless the participant names another beneficiary and the spouse consents to the non-spouse beneficiary.

In LeBoeuf vs. Entergy, No. 24-30583 (5th Cir. 2025), Alvin Martinez started working for Entergy Corporation in 1967 and participated in the company’s ERISA 401(k) plan. In 2002, Martinez’s wife died. In 2010, he named their four children as beneficiaries on his 401(k) plan beneficiary designation form. The form clearly spelled out the ERISA spousal beneficiary rule. It also warned participants to update the form and get spousal consent if they get married after submitting it. The form noted that a later marriage automatically revokes a prior beneficiary designation without spousal consent. There was similar language in the official plan document and written plan summaries that Martinez received.

Martinez retired in 2003 and kept his 401(k) funds in the plan. In 2014, he married Kathleen Mire. Martinez received quarterly statements from T. Rowe Price, the plan’s trustee, that told him how his plan investments were doing. Even after his second marriage, these statements listed the four children as his beneficiaries and did not mention the ERISA spousal beneficiary rule.

Martinez died in 2021, with a whopping $3.0 million in his 401(k) account. Martinez never updated his beneficiary designation form, and Mire (the second wife) never signed a waiver of her spousal rights. So, as required by ERISA, the plan paid the $3.0 million to Mire.

Naturally, the children sued, and the case was appealed to the Fifth Circuit Court of Appeals, which covers Louisiana, Mississippi and Texas.

The Court of Appeals said that the plan had acted properly. The children argued that Entergy Corporation, the plan’s administrative committee, and T. Rowe Price were all plan fiduciaries under ERISA, and they breached their fiduciary duty by issuing those quarterly statements to Martinez (which listed the children as beneficiaries but did not mention the spousal beneficiary rule). But the Court found that Entergy and T. Rowe Price were not ERISA fiduciaries. Even though the committee was a fiduciary, it hadn’t breached its duty.

We don’t know whether Martinez intended for his four children or his second wife to receive the $3.0 million. But, in either case, this case shows how important it is to periodically review and, if necessary, update beneficiary designation forms. That’s especially true after life events like a second marriage. Yet, if a spouse refuses to consent to another person being named as beneficiary, there’s nothing that can be done to prevent the spouse from receiving the money after the 401(k) owner dies.

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/in-erisa-retirement-plans-spouse-beneficiaries-rule/

By Andy Ives, CFP®, AIF®
IRA Analyst

QUESTION:

I turn age 73 on December 1, 2026. I would like to do a Roth IRA conversion on January 1, 2026, prior to turning 73 years old. Does my first required minimum distribution (RMD) begin January 1, 2026, the year that I turn age 73? Am I correct that my RMD must be satisfied before a conversion?

Best regards,

Terry

ANSWER:

Terry,

You are correct that you must satisfy your full IRA RMD from all of your traditional IRAs (assuming you have more than one) before doing any Roth IRA conversions in 2026. The first withdrawals taken from an IRA are deemed to count toward the RMD. Since you will turn age 73 in calendar year 2026, and since RMDs cannot be converted, the full 2026 RMD amount must be satisfied before you can do a conversion later that same year.

QUESTION:

I have a client who is RMD age and does not have an existing Roth IRA. If he converts his traditional IRA to a Roth IRA and dies before his 5-year clock holding period is satisfied, can the beneficiaries satisfy the 5-year clock? Are the earnings taxable?

-Elena

ANSWER:

Elena,

Once your client satisfies his RMD for the year, he can then convert all or a portion of his IRA to a Roth IRA. If he has never had a Roth IRA before, the conversion starts his 5-year clock for tax-free earnings. If he were to die prior to satisfying this clock, his beneficiaries would have to wait out your client’s full 5 years before the earnings in the inherited Roth IRA would be tax-free. This is true even if a beneficiary held his own (not inherited) Roth IRA for more than 5 years.

Fortunately, based on strict Roth IRA distribution ordering rules, the beneficiaries can draw down all the converted dollars prior to even reaching the earnings. If they needed a little cash, that could buy them some time to wait out the clock. If, however, the earnings were withdrawn by a beneficiary prior to the 5 years, those dollars would be taxable, but there would be no 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/required-minimum-distributions-and-ira-beneficiaries-todays-slott-report-mailbag/

By Sarah Brenner, JD
Director of Retirement Education

From a tax perspective, a Health Savings Account (HSA) can offer the best of all worlds. Like traditional IRA contributions, HSA contributions are made by the individual with pre-tax dollars. Contributions made by an employer are excluded from income, like with a 401(k) plan. And, distributions are tax- and penalty-free, similar to Roth IRA earnings, if they are used for qualified medical expenses. HSA contributions are only available for those covered by a High Deductible Health Plan (HDHP).

The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, makes some changes to the HSA rules.

The changes include the following:

• Telehealth Safe Harbor. The OBBBA permanently extends the rule allowing plans to be considered HDHPs, despite not having a deductible for telehealth services. This provision is effective retroactively to January 1, 2025.
• Expanded HSA Eligibility. The OBBBA expands HSA eligibility to include those enrolled in Bronze and Catastrophic plans available on state and federal insurance exchanges under the Affordable Care Act. This provision is effective January 1, 2026.
• Direct Primary Care (DPC). The OBBBA allows individuals with HDHPs to enroll in DPC arrangements (sometimes referred to as “concierge medical care”) while remaining HSA eligible, provided the monthly fee for DPC services does not exceed $150 for individuals or $300 for families (both adjusted for inflation). DPC fees are also considered qualified medical expenses that can be paid with HSA funds. This provision is effective January 1, 2026.

Future Changes Possible

While the impact of OBBBA on HSAs is relatively minor, earlier drafts of the new legislation included much more sweeping changes, such as much higher contribution limits and allowing HSA contributions while on Medicare. Just because these provisions were left out of the final bill does not mean they will be abandoned. It is likely that provisions expanding HSAs will reemerge in future legislative proposals. Stay tuned to The Slott Report for updates!

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/obbba-impact-on-hsas/

By Ian Berger, JD
IRA Analyst

Question:

I am 70 years old and do not have to start taking required minimum distributions (RMDs) for three years. Can I do a qualified charitable distribution (QCD) from my IRA now? Or, do I have to wait until age 73 when I have to start taking RMDs?

Elaine

Answer:

Hi Elaine,

You do not have to wait until age 73 to do a QCD, but you do have to wait until you reach 70½ (the date six calendar months after your 70^th birthday).

Question:

Does the beneficiary of a 529 plan have to have earned income in order to transfer funds from his 529 account to his Roth IRA account? The 529 plan told me it is not required, but my son did some research that says that it is. I would appreciate some clarification.

Thanks,

Ray

Answer:

Hi Ray,

Your son is correct. A 529 beneficiary doing a Roth IRA rollover must have compensation in the year of the rollover that is at least equal to the amount being rolled over. The confusion may be because the income limitations on Roth IRA contributions don’t apply to these rollovers. A 529 beneficiary could do a 529-to-Roth IRA rollover even if she earns too much to make a Roth IRA contribution for that 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/qcds-and-529-to-roth-ira-rollovers-todays-slott-report-mailbag/

By Ian Berger, JD
IRA Analyst

A recent Slott Report article discussed “Trump accounts,” the new savings vehicle for children created by the One Big Beautiful Bill Act (OBBBA). As with most new laws, there are a number of unanswered questions about Trump accounts that need to be addressed by the IRS. Fortunately, since Trump account contributions can’t be made before July 4, 2026, the IRS should have enough time to issue guidance. Here are the some of the outstanding questions:

1. How will Trump accounts be established? OBBBA says that a Trump account can be established by the Federal government or by any person. However, if a person opens up a Trump account, it must be funded by a direct transfer of 100% of the funds from another Trump account. This seems to require that a child’s first Trump account must be established by the Federal government, but the IRS must clarify this. Also, the IRS must tell us how a person can establish a Trump account.

2. How will elections be made? OBBBA calls for an election to be made by an individual to accept the $1,000 Federal government contribution on behalf of an eligible child. However, there are no details as to how this election will be made. There has been speculation that it can be made as part of the parents’ federal tax return, but official guidance is needed.

3. Will Roth conversions be allowed starting in the age-18 year? OBBBA is clear that beginning in the year the child turns age 18, Trump account contributions made before the age-18 year (and earnings) automatically assume the normal traditional IRA rules. (Those rules also apply to any contributions made to a Trump account in the calendar year the child turns 18 or later years.) This would suggest that Trump account funds can be converted to a Roth IRA starting in the age-18 year. A Roth conversion would be a great opportunity since it would allow for decades of tax-free growth on the Trump account funds. Hopefully, the IRS will confirm that a Roth conversion is possible.

4. Will Trump account funds be subject to required minimum distribution (RMD) rules? If Trump account funds take on the usual IRA rules in the age-18 year, it would stand to reason that they become subject to the RMD rules if the account owner holds it until later in life. Yet, there has been some uncertainty over whether the RMD rules do apply.

5. Is the employer Trump account contribution limit a lifetime limit or an annual limit? OBBBA also allows for employer-provided contributions to Trump accounts for teenage employees and dependents of employees before the year they turn age 18. There is a $2,500 limit on these contributions. Read literally, OBBBA says that this is a lifetime limit per employee – not an annual limit (like the $5,000 limit on Trump account contributions made by parents, grandparents or others). However, some commentators have described this as an annual limit.

6. Do employer contributions count towards the $5,000 limit? OBBBA specifically says that the $1,000 Federal government contribution doesn’t count towards the $5,000 annual maximum. The same is true for any contribution made by a tax-exempt organization. But OBBBA does not say that employer contributions don’t count. We think Congress may have made a drafting error and really intended that employer contributions also don’t count towards the $5,000. It would be an administrative nightmare for employer contributions to be coordinated with contributions from parents and others. We hope to hear more from Congress or the IRS on this.

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/six-unanswered-questions-on-trump-accounts/

By Sarah Brenner, JD
Director of Retirement Education

Laurence Tureaud, born May 21, 1952, is better known as Mr. T. He is an actor and a retired professional wrestler. He is famous for his roles as B. A. Baracus in the 1980s television series “The A-Team” and as boxer Clubber Lang in the 1982 film Rocky III.

Time catches up with all of us, and this year Mr. T is celebrating his 73^rd birthday. That means it is now time for him to take required minimum distributions (RMDs) from his IRA. Here are five easy steps Mr. T can take to make sure he gets his first RMD right.

Step 1. Determine the distribution year

Mr. T turned age 73 back in May, so the RMD we are calculating is his 2025 RMD. This is his first RMD, so he will have until April 1, 2026, to take it. Every year thereafter he will need to take his RMD by December 31. So, Mr. T could delay his 2025 RMD until next year, but if he does that, he will need to take two RMDs in 2026.

Step 2. Find the IRA balance

To calculate Mr. T’s 2025 RMD, we will need to know his December 31, 2024, balance. This is the balance that is used even if Mr. T waits until sometime in 2026 (by April 1) to take his 2025 RMD. We will need to adjust this 12/31 balance for any outstanding rollovers or transfers.

Step 3. Look up the life expectancy factor

To determine the RMD, we will need a life expectancy factor. Most IRA owners will use a factor from the Uniform Lifetime Table . We will simply take Mr. T’s age (73) and find the factor that corresponds (26.5). Those who have named a spouse who is more than ten years younger as their sole beneficiary may use the Joint Life Expectancy Table.

Step 4. Divide the account balance by the life expectancy factor

The next step is doing the math. We simply divide the December 31, 2024, balance of the IRA by the life expectancy factor (26.5).

Step 5. Take the RMD

The final step is making sure the RMD is taken by the deadline. If the RMD is missed there is a 25% penalty. Mr. T should be sure to take his 2025 RMD by April 1, 2026, to avoid any penalties. “I pity the fool” who misses this date.

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/mr-t-i-pity-the-fool-who-misses-their-rmd/

By Sarah Brenner, JD
Director of Retirement Education

Question:

Can I satisfy my required minimum distribution (RMD) from my 401(k) by taking it from my IRA instead?

Answer:

No, that is not allowed. You may aggregate RMDs from your IRAs if you have multiple accounts, but you are not permitted to aggregate your IRA and 401(k) RMDs. You will need to take your 401(k) RMD from that plan.

Question:

I have multiple IRAs.  Do I have to take the total RMD from these accounts before I do an IRA transfer, as opposed to a rollover?

-Dave

Answer:

Hi Dave,

You must take all of your IRA RMDs prior to completing a 60-day rollover or a Roth conversion. However, the rules are different for transfers. If you are doing a direct transfer between IRAs, there is no requirement that the RMD must be taken prior to the transfer. You can wait until later in the year but just be sure you remember to take it.

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

https://irahelp.com/required-minimum-distributions-and-ira-transfers-todays-slott-report-mailbag/

By Andy Ives, CFP®, AIF®
IRA Analyst

While the ability to recharacterize Roth conversions was eliminated years ago, Roth contributions can still be reversed. A Roth IRA contribution can be recharacterized to a traditional IRA, or vice versa. To recharacterize an IRA contribution, the IRA custodian will transfer the funds, along with the earnings or loss attributable (“net income attributable” or NIA), from the first IRA to the second IRA. The IRA custodian may be willing to calculate the NIA, or that responsibility could fall on the IRA owner.

NIA must be determined by a special IRS formula, which is the same formula used to determine NIA when removing an excess IRA contribution. IRS Publication 590-A includes a worksheet titled “Determining the Amount of Net Income Due to an IRA Contribution and Total Amount to Be Recharacterized.” The inputs needed for the worksheet include the amount of the contribution, the fair market value (FMV) of the IRA immediately prior to the contribution being made, and the FMV immediately before the recharacterization. (Note that NIA is not specific to the investment where the soon-to-be-recharacterized contribution was made, but it is rather based on the overall performance of the entire IRA.)

The deadline for recharacterization is October 15 of the year following the year for which the contribution was made. The recharacterized contribution is treated as if it had always been made to the intended IRA. While recharacterization is a tax-free transaction, both IRAs report the transactions to the account owner and the IRS. How so?

A recharacterized contribution will generate both a 1099-R and a Form 5498. The first IRA will report the recharacterized amount, plus NIA, as a distribution on Form 1099-R. The second IRA (the receiving IRA) will generate a Form 5498. On the 1099-R, both the recharacterized contribution amount and the NIA (i.e., the current FMV 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.” The Form 1099-R instructions read as follows:

“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. Be sure that if you recharacterize an unwanted traditional IRA contribution to a Roth IRA, you are otherwise eligible to contribute to a Roth IRA (i.e., You are not over the Roth IRA contribution phase-out limits.).

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/

By Ian Berger, JD
IRA Analyst

Many of you are familiar with the tax advantages that Roth retirement accounts can bring. Although Roth contributions are made with after-tax dollars, the contributions grow tax-free, and earnings also come out tax-free after age 59½ if a five-year holding period has been satisfied.

A recent survey by the Plan Sponsor Council of America showed that 93% of 401(k) plans offer employees the option of making Roth 401(k) salary deferrals. Let’s say your plan allows Roth contributions, but you don’t have the funds to maximize both those contributions and Roth IRA contributions. Which one should you contribute to? It turns out that each option has its own advantages.

Here are the reasons why Roth IRAs are more attractive than Roth 401(k)s:

• Roth IRAs offer unlimited investment choices, but Roth 401(k)s are limited to whatever investment options the plan offers.
• You usually can’t withdraw your Roth 401(k) account until you turn age 59½ (or leave your job). By contrast, Roth IRAs are always available (although earnings may be taxable and subject to penalty).
• The rules for determining whether a Roth distribution is a “qualified distribution” (that is, whether earnings come out tax-free) is easier to satisfy for Roth IRAs than it is for Roth 401(k)s. For Roth IRAs, the five-year holding period begins with the first contribution or conversion to any Roth IRA. For Roth 401(k)s, the five-year period begins with the first contributions to that particular 401(k) plan.
• Roth IRA distributions that don’t meet the conditions for a “qualified distribution” are subject to favorable ordering rules allowing you to withdraw all of your tax-free contributions and conversions before your taxable earnings. On the other hand, Roth 401(k) distributions that are not qualified must meet a pro-rata rule that causes a part of the distribution to be taxable.
• Before 2024, Roth IRAs had an advantage over Roth 401(k)s when it came to lifetime required minimum distributions (RMDs). Roth IRA owners have never been required to take RMDs, but up until 2024, Roth 401(k) owners were required to take them. Now, neither is subject to lifetime RMDs.

On the other side of the coin, Roth 401(k)s may be a better option for the following reasons:

• Roth 401(k) funds may offer you more protection from creditors than Roth IRAs if you wind up on the losing end of a lawsuit. If the Roth 401(k) is part of an ERISA plan, you have an unlimited shield from creditors’ claims. By contrast, Roth IRAs only give you the creditor protection available in the state where you live. State law can provide less protection than ERISA does.
• Most plans allow employees to borrow against their Roth contributions, but Roth IRA owners are not allowed to take loans against those funds.
• Many 401(k) plans will match Roth 401(k) employee contributions, but your custodian won’t match your Roth IRA.
• Unlike Roth IRA contributions, Roth 401(k) contributions are not subject to annual income limits (although the plan may restrict contributions made by highly-paid employees).

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-vs-roth-401k-which-is-better/

By Andy Ives, CFP®, AIF®
IRA Analyst

QUESTION:

Does the new $6,000 additional deduction for seniors under the One Big Beautiful Bill Act (OBBBA) also apply if the senior itemizes their taxes?

Thanks,

Robert

ANSWER:

Robert,

The new $6,000 addition to the standard deduction is for seniors aged 65 and older for years 2025-2028. This is per person, so a married couple could deduct up to $12,000 if each spouse is aged 65 or over. This is in addition to the regular standard deduction AND the extra deduction for those aged 65 or blind. This new deduction will also be available to seniors who itemize.

Note that the deduction phases out beginning with modified adjusted gross incomes of $75,000 for individuals and $150,000 for married filing jointly. It phases out completely at $175,000/$250,000, respectively.

QUESTION:

Hello,

I have a SEP-IRA annuity which was opened in 2011. I am age 74. I am considering doing a full conversion of the total SEP annuity balance to a Roth annuity, while keeping all of the particulars of the annuity policy the same. After paying the tax on that total conversion amount, do I have to wait 5 years after that conversion for the monies to become totally tax free? I have established a Roth already and I am over age 59½.

Duane

ANSWER:

Duane,

I am operating on the assumption that the Roth IRA you already established has been open for 5 years. Since you are over age 59½ AND you have already owned a Roth IRA for 5 years, then you never have to wait out another 5-year clock. Upon converting your SEP IRA annuity to a Roth IRA, any and all future earnings with be immediately available for withdrawal tax- and penalty-free. (Just be sure you take your required minimum distribution before doing the conversion.)

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

https://irahelp.com/the-one-big-beautiful-bill-act-obbba-and-sep-iras-todays-slott-report-mailbag/