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Showing posts with label financial. Show all posts
Showing posts with label financial. Show all posts

What Does Your Will Mean to Your Estate?

Do you have a will? Most people who need one, realize that they need one. Most of those people actually do something about it and put a will in place for their estate. But what is your will really doing for you?

will IRA estate beneficiary formA will determines who gets your probate property, but just how much of your estate is probate property (and to that end, what is probate property)? If you are married, most of your estate is probably NOT probate property. For instance, real estate is often owned jointly with rights of survivorship. If so, it will pass to the surviving spouse and never go through your will. The same is true of your bank accounts and investment accounts if they are titled jointly with rights of survivorship. They will go to the survivor and not through your will.

Your retirement accounts also do not go through your will…or at least they shouldn’t. They pass to whoever you have named on your beneficiary form, so unless you’ve named your estate as the beneficiary on the beneficiary form or you failed to name a beneficiary and the IRA documents default to your estate - both of which are big no-nos - your retirement accounts will not be affected by your will. Other assets with beneficiary forms, such as life insurance policies and annuities also do not pass through your will. The estate is generally not a good choice of beneficiary for any of these assets.

That could leave very little to pass through your will. In many situations, only your personal property, such as a car, jewelry or collectibles will pass through your will. Assets that are titled in your name only also pass through your will.

This means that you need to make sure that you not only have a will in place, but that you also correctly title your other assets so that they go where you want them to go. If someone dies or gets a divorce, you may need to update the names on real estate, bank accounts, investment accounts, and assets with beneficiary forms, such as retirement accounts, life insurance and annuities. Your will may not take care of how these assets transfer after your death or may transfer them to the wrong beneficiaries. There seems to be an app for everything these days, do you suppose there is an app for this?

- By Beverly DeVeny and Jared Trexler

Personal Financial Planning Conference for New York State Society of CPAs

We normally don't take up a chunk of virtual real estate to publicize our outside speaking events, but since 3 members of the Ed Slott and Company team will be in New York City next Tuesday (11/19) at the Personal Financial Planning Conference for the New York State Society of CPAs, and we will be live-tweeting and posting some images and post-conference videos of the event, our readers and those planning on or thinking of being in attendance should know the particulars.

The Personal Financial Planning Conference for the New York State Society of CPAs will be held on Tuesday, November 19 at the Citi Conference Center at 388 Greenwich Street in New York City and will run from 9:00 a.m. to 5:00 p.m. You can register at www.nysscpa.org/pf13 or call 800.537.3635.

Ed Slott, America's IRA Expert, is the keynote speaker. His topic, IRA Horror Stories, will cover case rulings and mistakes you don't want to see happen to your clients.

Jeff Levine, an Ed Slott and Company IRA Technical Consultant, Slott Report staff writer and avid Twitter member (@IRAGuru4EdSlott), will be talking about issues you will have when dealing with trusts as IRA beneficiaries during an afternoon breakout session.

Jared Trexler, Ed Slott and Company Branding and Product Development Manager, will speak to the general session about social media, company branding and provide detailed action plans to grow your contact lists, extend your outreach and gain new business in this competitive marketplace.

The conference also will feature exciting speakers with cutting-edge ideas on marketing with professionals, specials needs planning, economic updates, post-Sandy and post-DOMA (Defense of Marriage Act) planning and much more! Roundtable discussions on the health care exchanges and the risks of longevity are also on the schedule.

We will be live tweeting from the event @theslottreport under the hashtag #PersonalConfFPNY. Also look for updates on Facebook and LinkedIn and a few video teasers at our IRAtv YouTube page in the days following the conference.

Year-End Roth Conversion Question-And-Answer

It's that time of year. The leaves are falling. The holidays are coming. And retirement planning quickly turns to year-end conversion questions. To help the financial advisor-client team with your year-end Roth conversion planning, we have assembled a FAQ list below. Also, read through our latest articles on Roth conversion planning.

Roth IRA conversionQ: What’s the last day I can make a 2013 Roth IRA conversion?
A: The answer to this question is a little tricky. A Roth IRA conversion will be treated as a 2013 Roth IRA conversion provided the funds leave the distributing account by December 31, 2013. If you make your Roth IRA conversion via a direct rollover or trustee-to-trustee transfer - which is generally the best way to convert - then the funds could go into your new Roth IRA the same day they leave your old account.

On the other hand, you can do a Roth IRA conversion via a 60-day rollover, though it’s generally not recommended. In such cases, money might not go into your Roth IRA until well into 2014, but could still be counted as a 2013 Roth IRA conversion. For instance, if you take a distribution from your IRA on December 31, 2013 and deposit the funds into a Roth IRA on February 28, 2014 (within 60 days), you’ve still made a 2013 Roth IRA conversion.

Q: What happens if I make a Roth conversion before the end of the year, but when I meet with my tax preparer to do my 2013 tax return, the tax bill is more than I thought?
A: No problem. A 2013 Roth IRA conversion can be recharacterized - a fancy tax word for undone - up until October 15, 2014. The recharacterization can be made for any reason, including that you simply changed your mind.

Q: If I make a Roth IRA conversion now, when do I have to pay the tax?
A: This depends on a number of factors. Depending on your specific circumstances, you may have to make an estimated tax payment in January 2014. Alternatively, you may be able to square up with IRS anytime before April 15, 2014. Since the answer to this question depends on many variables, it’s best to review this question with a knowledgeable financial advisor or tax professional.

Q: If I convert today, how soon can I access my Roth IRA?
A: Right away. As far as the tax code is concerned, there is no waiting period to be able to access your converted funds. If you are younger than age 59 ½, however, distributing converted funds within 5 years of your conversion generally results in a 10% penalty on those amounts. The real benefit of the Roth IRA conversion is in the long-term tax-free compounding, so if you think you will need to tap your Roth IRA funds relatively soon, it’s probably not a good idea to convert in the first place.

Q: I’ve made Roth IRA conversions in the past. Are there any new rules I need to be aware of for 2013?
A: The Roth IRA conversion rules haven’t changed much lately. However, there are always changes and new wrinkles in the tax law that can factor into whether or not a Roth conversion makes sense. For instance, beginning in 2013, there is an additional 3.8% surtax on any net investment income that exceeds your applicable threshold. Although IRA distributions are not considered net investment income, a Roth IRA conversion will increase your total income, and could result in the 3.8% surtax being assessed on greater amounts of other, net investment, income. 2013 Roth conversions could also result in the loss or reduction of your personal exemptions and itemized deductions. This was not the case in recent years.

Q: Can I put my new Roth IRA conversion in my existing Roth IRA account?
A: There is nothing in the tax code that stops you from doing this, but if there is any chance that you might recharacterize this conversion, you should consider putting it in a separate, new Roth IRA. That will make doing a recharacterization easier. Once you have passed the recharacterization deadline, you can combine your Roth IRA accounts with no worries.

- By Jeffrey Levine and Jared Trexler

2014 Gift and Estate Tax Exemption Amounts Released

IRS has released the 2014 inflation adjusted numbers for estate and gift taxes. See the table below for the numbers and the paragraphs following for a more detailed explanation.

2014 Estate and Gift Tax Exemption Amounts IRS.gov
Estate Tax$5,340,000
Gift Tax$5,340,000
Generation Skipping Tax$5,340,000
Annual Gift Tax Exclusion$14,000

The estate tax and the gift tax are portable. Married couples, including same-sex married couples, will have a total exemption amount of $10,680,000 for 2014. At the death of the first spouse, any unused exemption amount will be transferred to the surviving spouse and added to their remaining exemption amount. To make this transfer, a federal estate tax return (IRS Form 706) must be filed for the deceased spouse, even if that return would not normally be required. A surviving spouse cannot collect unused exemption amounts from multiple spouses; special rules will apply if he or she remarries. This could be an important consideration for a wealthy widow or widower who is considering a remarriage.

On the flip side, most states do not have a matching state estate tax exemption. In fact, the exemption amount on the state level generally is far less. This will complicate your estate planning. Your estate could owe state estate tax when it owes no federal estate tax.

The generation skipping tax exemption is not portable. If it is not used by an individual, it will die with them. Wealthy individuals who want to leave assets to grandchildren (a skip generation) need to do the appropriate planning during their lifetime. Even a small Roth IRA left to a young grandchild could pay out millions over the grandchild’s life expectancy when only required distributions are taken each year.

The annual gift tax exclusion amount did not increase for 2014. It remains at $14,000 per gift recipient. An individual with 10 children and grandchildren can gift up to $140,000 at $14,000 per heir. The spouse can gift an additional $140,000 to those same heirs. Those gifts can be used by the recipients to pay the tax on Roth conversions thus allowing them to move their own retirement funds from taxable accounts to income tax free accounts. Also consider the reverse strategy - the child gifts $14,000 to the parent so the parent can convert the IRA to a Roth IRA that the child will later inherit.

If you have not reviewed your estate plan in the last two or three years, now is the time to do it. Most estates will not generate a federal estate tax under the current estate tax rules. You have an unprecedented opportunity to leave assets to your heirs federal estate tax free.

- By Beverly DeVeny and Jared Trexler

Retirement-Related Tax Breaks for Military Members

With Veteran's Day quickly approaching, Ed Slott and Company IRA Technical Consultant Jeffrey Levine detailed 3 retirement-related tax breaks members of the United States armed forces can take advantage of before year-end.

Click here to watch the video if you can't view it below, and subscribe to Ed Slott and Company's IRAtv YouTube page to have the latest video updates sent straight to your inbox.

Revoking Your IRA

When you first open an IRA with a financial institution (custodian), you have to sign the custodian's IRA contract. This IRA contract must contain an IRA agreement and an accompanying disclosure statement. Usually both these documents are contained in one IRA contract, with the disclosure statement attached right behind the IRA agreement. The disclosure statement is the part of the IRA contract that describes the IRA in layman's language. It's also usually where you can find the language about your right to revoke the IRA within a certain period of time.

After signing the custodian's contract to establish the IRA, you must be given the right to revoke the IRA (or change your mind). IRS rules say that the custodian must give you a minimum of seven days to revoke the IRA.

You might want to revoke your IRA for a number of reasons. For example, you may have invested your IRA money in a particular investment that now you are uncomfortable with for some reason or maybe you realized that there are excessive fees you didn’t notice when you first opened the IRA. Whatever the reason, you can revoke the IRA and get all of your money back, but you must follow your custodian's procedures within their revocation time period (usually seven days from when you first opened the IRA).

If you decide to revoke the IRA during the revocation period, the custodian cannot charge you fees of any kind, including sales commissions, administrative fees, or any investment fees such as a CD penalty. Even if you invested your IRA money in an investment that lost value during the revocation period, the custodian must return your original deposit amount. Because of this rule, most custodians won’t allow you to invest your IRA funds in an investment that could drop in value during that time, and will likely make you first invest your money in something stable, like a money market account, until after their revocation period has ended. The custodian has the option to pay you interest during the revocation period, but they don’t have to as long as they give you back all of your principal.

Ideally, it’s better to carefully read the custodian’s IRA contract before you invest, but it’s good to know you have at least seven days afterwards to change your mind and get your money back.

- By Joe Cicchinelli and Jared Trexler

IRS Releases 2014 Retirement Plan Limits

Many of the retirement plan annual limits are indexed for inflation. IRS has just released the plan limits for 2014. We look at those limits in some detail below.

Contribution Limits
IRA contributions are unchanged at $5,500. Catch-up contributions remain at $1,000.
Plan deferral limits are unchanged at $17,500. Catch-up contributions remain at $5,500.
The SEP contribution limit is now 25% of $260,000.
SIMPLE deferrals are unchanged at $12,000. Catch-up contributions remain at $2,500.

IRA Deductibility
Any individual with earned income who has not reached the year they turn 70 ½ can make an IRA contribution. However, if they are covered by an employer plan or if their spouse is covered by a plan, they may not be able to deduct that IRA contribution.

Single - The ability to deduct a contribution now phases out between $60,000 - $70,000.
Married filing jointly - Deductibility now phases out between $96,000 - $116,000 when the contributor is the one covered by the plan. Deductibility now phases out between $181,000 - $191,000 when the spouse of the contributor is the one covered by the plan.
Married filing separate - The limit remains between $0 - $10,000.

Roth IRA Contribution Income Limits
Not everyone can make a Roth IRA contribution. Unlike an IRA, a Roth contribution can be made at any age. However, the individual must have earned income, but that income cannot exceed certain limits.

Single - The ability to make a Roth contribution now phases out between $114,000 - $129,000.
Married filing jointly - The ability to make a Roth contribution now phases out between $181,000 - $191,000.
Married filing separate - The limit remains between $0 - $10,000.

- By Beverly DeVeny and Jared Trexler

Age 55 Exception to the 10% Early Distribution Penalty

Think of The Slott Report as your retirement planning problem solver. With over 1,000 articles on IRA, tax and retirement planning, you are bound to find answers to most, if not all, of your pressing questions. From time to time, we like to package a popular topic's frequently asked questions into one article for easy viewing.

age 55 exception to 10 percent penaltyMost of us know about the 10% early distribution penalty, and still many of us know there are certain ways to avoid it. One of those ways is the "age 55 exception." We look at the "age 55 exception" FAQs in the question-and-answer segment below.

Question: What is the "age 55 exception?"

Answer: The age 55 exception is one of the exceptions to the 10% early distribution penalty for retirement plan distributions taken prior to 59 1/2. It allows certain individuals to take distributions from their retirement plans at 55 or later (instead of 59 ½) without being subject to the 10% penalty.

Question: Is the age 55 exception available for all retirement plans?

Answer: No. The age 55 exception is only available for distributions from company plans, such as 401(k)s and 403(b)s. It DOES NOT apply to distributions from IRAs or IRA based plans, like SEP and SIMPLE IRAs.

Question: Are all distributions from plans exempt from the 10% penalty after you turn 55?

Answer: No. The age 55 exception to the 10% penalty only applies to distributions made from a plan if you separate from service in the year you turn 55 or older. Furthermore, the exception would only apply to distributions from that company's plan, not other plans of a different company.

Question: What if I separate from service on January 1st, but turn 55 in December of the same year? Can I use the age 55 exception?

Answer: Yes, because you would be turning 55 in the same year you separated from service. The year, in this case, is the same calendar year.

Question: What if I separate from service after at 55 or later and rollover my plan balance to an IRA?

Answer: Any distributions taken from your IRA before you reach age 59 1/2 will be subject to the 10% penalty (unless another exception applies). Remember, this penalty exception only applies to distributions from company plans. Once you roll money over to an IRA, the ability to use the exception is lost.

Question: If I qualify for the exception and need to take money out of my retirement before I reach age 59 1/2, but want to roll money over to my IRA, can I leave some money in my plan and roll over the rest to my IRA?

Answer: Yes, at least from the tax code's perspective. You will have to double check with your company plan, however, and make sure they will allow you to do so.

- By Jeffrey Levine and Jared Trexler

Buying Life Insurance in Employer Retirement Plans

You are allowed to buy life insurance inside your employer retirement plan, such as a 401(k) or profit sharing plan. While many plans don't offer life insurance as an investment, some in fact do.

There are limits on how much you can buy based on the amount of contributions made to your plan on your behalf. In a 401(k) or profit sharing plan, the general rule is that the total premiums must be less than 50% of the total employer contributions to the plan for whole life insurance. For term life insurance, the total premiums must be less than 25%.

buying life insurance in employer retirement planYou have to pay income tax each year on the part of the premiums attributed to the value of the pure life insurance protection. This amount you pay taxes on each year is known as your “basis in the contract.” It’s also considered a deemed distribution from the plan that’s taxable to you, but there’s no 10% early distribution penalty if you are under age 59 ½.

After you die, distribution of cash proceeds from life insurance inside the plan to your beneficiary may be taxable. While the life insurance portion of the policy is tax-free, the cash surrender value minus your basis in the contract is taxable when it is withdrawn from the plan.

But when you retire, know that the life insurance policy can’t be put into your IRA. Life insurance in an employer plan cannot be rolled over to an IRA because the tax code says it’s a prohibited investment inside an IRA.

Generally, when you retire, you will have three choices on what to do with that insurance policy. Option 1 is to have the plan distribute the policy to you. You will pay taxes on the fair market value of the policy (generally the cash value of the policy minus your total investment in the contract).

Option 2 is to surrender the policy to the insurance company for cash. You will lose the life insurance protection and your investment in the contract, but the cash proceeds can be rolled over to your IRA.

Option 3 is to buy the policy from the plan at its fair market value. While this purchase isn’t taxable to you, nonetheless you have to come up with the money buy it.

- By Joe Cicchinelli and Jared Trexler

Ed Slott's Elite and Master Elite IRA Advisor Group Workshop (LIVE UPDATES)

The nation's top financial advisors are in Dallas, Texas at the Westin Galleria for Ed Slott's Elite and Master Elite IRA Advisor Group Workshop, which began on Thursday, October, 24 and runs through Saturday, October, 26.

The banner is in its position.

The Slott Report is live blogging the educational experience for the first time to give financial professionals a taste of the level of education, networking, sponsorship opportunities and more they can receive at a live Elite IRA Advisor Group training event, while also providing current members an online tool to show current clients and prospects the level of training they are committed to receiving on a continuous basis.

Just scroll down this page throughout the three days for images, videos, interviews, analysis and more from the workshop. We hope this brings you closer to the educational experience.

Thursday, October 24, 2013

An image from the meet-and-greet cocktail reception.
6:15 a.m. CT: Here are a few images from the preparation phase of the workshop. Everything doesn't just magically appear in Dallas - but the hard work behind the scenes of the Ed Slott team in coordination with those at the Westin Galleria get the Dallas Ballroom and all adjoining meal and breakout rooms ready for the event.

Ed Slott also met with all new members during a meet-and-greet cocktail hour, where those members had a professional photo with Ed and received a hand-signed welcome letter. We are less than three hours from the beginning of the workshop for Elite members (Master Elite members join the workshop later in the day).

7:35 a.m. CT: A workshop like this is driven by its network of financial advisors and sponsors. Our network of sponsors has grown each year, and during this workshop, we have some of the best from all areas of expertise, including media, seminar marketing, insurance marketing, advisor public relations and more. Click here and scroll down to see a full list of sponsors for this workshop and click on a corresponding company for more information. 

8:45 a.m. CT: So, the question comes, What is an Elite advisor?
  • Professionals who have been in the business for an average of 20 years
  • Presidents, Managing Partners, and/or Owners of their companies
  • High-level producers averaging over $50,000,000 in assets under management
  • Advisors that have an average GDC of over $500,000
  • 88% have either a Series 6 or Series 7 license
  • 90% are independent agents
  • 87% offer life insurance
  • 81% are Investment Advisor Representatives (IARs)
Click here to find an Ed Slott trained advisor in your area. Ed Slott's Elite and Master Elite IRA Advisor Workshop starts in 15 minutes.

10:57 a.m. CT: Just back from our first break, Ed and our IRA Technical team spent the first 90 minutes in large part on the RMD calculations module, one of 35 custom-designed modules available to our Elite and Master Elite IRA Advisors. Each module is written to evoke dialogue between a financial advisor and a client or prospect. The modules cover beneficiary forms, stretch distributions, estate planning, spouse and non-spouse beneficiaries, divorces, early beneficiaries, Roth IRAs, minors as beneficiaries, trusts as beneficiaries, schemes and scams, and more.

The modules are part of an extensive Elite-section of www.IRAhelp.com, which is a comprehensive marketing and educational portal for our Elite and Master Elite IRA Advisors.

1:11 p.m. CT: Our Elite and Master Elite IRA Advisors are always talking about their educational experience. Elite IRA Advisor Terry Prather discussed his specific educational experience in the video presentation below:

2:40 p.m. CT: The first afternoon session kicks off with a Panel Discussion, a conversation that includes 5 members of Ed Slott's Elite IRA Advisor Group discussing outflow opportunities they have discovered through Ed Slott and Company's educational outlets. The panel discussion's theme is education = outflow = income. The session is the first with all 300+ members and is sponsored by AllPro Direct Marketing.

4:48 p.m. CT: While breakout sessions on using charitable remainder trusts to attract new business and utilizing public relations to reach out to the media and leverage yourself as a financial authority are going on in the Dallas and Forth Worth rooms, we wanted to share several of the great outflow ideas from the Elite Panel Discussion earlier this afternoon. There were many more detailed outflow presentations on beneficiary forms, connecting with centers of influence and tax-leveraging with current clients and prospects, but these tweets are a tip of the iceberg.

Friday, October 25, 2013

7:35 a.m. CT: Day 1 transitioned from day to night with seven roundtable discussions for Ed Slott and Company's IRAtv YouTube page. We offer these video discussions to our advisors as video links and embedded files for their use on their websites and in email campaigns to clients and prospects to showcase their association with the group and their expertise in a complicated subject matter. We also utilize these videos as overall brand management for the company, and IRAtv has already grown to well over 100 videos with a newly-defined graphics brand behind a closely-supported mission. Every retirement success story started with a plan, and in turn, that plan likely grew from a discussion with a competent, educated financial advisor. We train those advisors. These roundtable discussions should be on our YouTube page within the month - so make sure to subscribe and check back often!

Day 2 is just under an hour from commencing with a busy morning ahead. As mentioned yesterday, a key theme of this meeting is education = outflow = income. We have been building a resource portal with Clarity 2 Prosperity Mastermind Group for the last several months, and that project will be rolled out to our Elite and Master Elite IRA Advisors this morning -- and it's something we are very excited about! We will share a few photos when we can.

10:01 a.m. CT:

1:50 p.m. CT: Ty Bennett's empowering presentation deserved the standing ovation it was afforded. Below we share some of the valuable lessons Ty left our Elite and Master Elite IRA Advisors after his 90-minute presentation this afternoon. Ty speaks over 100 times per year to major corporations and entrepreneurial groups and is the CEO of Leadership, Inc.

Saturday, October 26

12:05 p.m. CT: Last night, Ed Slott and Company hosted the "Master Elite Night Out" at famous Gilley's in Dallas with great food, rocking music, country line dancing, a comedian/magician, mechanical bull-riding, picture taking with a country-themed backdrop and the setting for great fun and networking. Special thanks again to Clarity 2 Prosperity Mastermind Group for sponsoring the night-out.

We just wrapped up a morning session filled with modules and case studies specifically for our Master Elite IRA advisors on self-directed IRAs, life insurance and more.

We thank all of our Elite and Master Elite IRA Advisors for attending the workshop, and we thank all of you for following along with our first live blog. We will be back here to walk you through another live event at Ed Slott and Company's next training program, the 2-Day IRA Workshop, Instant IRA Success, on January 30-31, 2014 at the Hilton Riverside New Orleans.

Simple Questions to Make Sure You Are Eligible to Make a 2013 IRA or Roth IRA Contribution

If you put money into an IRA or Roth IRA earlier this year for 2013 or plan to do so before the April 15, 2014 contribution deadline, it’s important to double check and make sure you are actually able to do so. Any amount you contribute to an IRA/Roth IRA that isn’t allowed to be there will cost you a 6% penalty if it is not timely removed by October 15, 2014. Worse yet, that 6% penalty is not a one-time penalty. Every year the errant contribution remains in the account, the 6% penalty is assessed.

Traditional IRA Contributions
If you have already made/plan to make a traditional IRA contribution for 2013, there are two important questions you need to ask yourself.

First, ask yourself, “Will I have any compensation for 2013?” The answer to this question must be “yes” in order for you to make a traditional IRA contribution. Compensation is a term used to describe only certain types of income. If you have compensation, chances are it’s from earned income, such as W-2 wages or self-employment income, but it can also be from other sources, such as taxable alimony.

The second question to ask yourself to make sure you can make a 2013 traditional IRA contribution is, “Will I be younger than age 70 ½ on December 31, 2013?” Again, the answer must be “yes.” If you are 70 ½ or older at the end of this year, you are prohibited from making a traditional IRA contribution for 2013. However, if you answered yes to question one, but no to question two, all may not be lost. You may be able to make a Roth IRA contribution.

Roth IRA Contributions
There are also two important questions to ask yourself if you have already made/plan to make a Roth IRA contribution for 2013. The first question, which should sound familiar is, “Will I have any compensation for 2013?” Note that this question is exactly the same as the first question to verify you can make a traditional IRA contribution. And just as is the case for traditional IRAs, the answer to this question must be “yes” if you want to make a Roth IRA contribution.

The second question to ask yourself if you want to make sure you can make a valid 2013 Roth IRA contribution is, “Will my income be below the applicable income threshold?” Here again, the answer must be “yes.” The precise threshold you must be under in order to make a 2013 Roth IRA contribution varies depending on your filing status. To see what your applicable threshold is, use the chart below. Also note that income, for this purpose, is modified adjusted gross income (MAGI). To see how MAGI is calculated you can click here and go to page 62 of IRS Publication 590.

Tax Filing Status2013 MAGI
Married Filing Jointly$178,000 - $188,000
Married Filing Separately*$0 - $10,000

*Married couples filing separately can determine their Roth IRA contribution eligibility using the “single” status, but ONLY if they did not live together for the ENTIRE year.

- By Jeffrey Levine and Jared Trexler

Slott Report Mailbag: What Happens If I Name a Minor as My IRA Beneficiary?

This week's Slott Report Mailbag looks at naming minors as IRA beneficiaries, something we cover in some depth in other articles, as well as the RMD (required minimum distribution) rules around annuities. As always, we stress the importance of working with a competent, educated financial advisor to keep your retirement nest egg safe and secure. Find one in your area at this link.

1. If you make a non-deductible IRA contribution, can that amount be converted to a Roth IRA tax-free if you have a 401(k)?

ed slott IRA questions
Send your questions to [email protected]
Having a 401(k) plan doesn’t affect the taxation of an IRA conversion. The taxation depends on whether or not you have any other IRA funds, including SEP and SIMPLE IRA funds. The pro-rata tax rule applies, which means if you do have other IRA funds that contain pre-tax money, then the conversion of the non-deductible IRA contribution amount won’t be tax free. It will be partially taxable and partially tax free using the percentage of your pre-tax funds in all your IRAs to all your after-tax tax amounts (such as nondeductible contributions). You will have to file Form 8606 with your income tax return to report the conversion and to do the pro-rata calculation. You can find the form on the IRS website, www.irs.gov. Click on “Forms and Publications.”

2. If I were to purchase an immediate annuity with all the funds in my only taxable IRA, what impact does that have on RMDs (required minimum distributions) when I'm age 70 1/2?

IRA annuities must meet the RMD rules; however, depending on the type of annuity you buy, the RMD amount may be larger than the RMD if you didn’t buy an annuity. When an IRA annuity starts paying out, (“annuitizes”) the annual distributions are the RMD for the annuity.

3. In your books you talk about leaving a Roth IRA to grandchildren to stretch the IRA. Are minor grandchildren permitted to inherit assets from a Roth IRA? If the IRA were invested in mutual funds, what would happen to them if I die while the grandchildren are minors?

Thank you for your assistance.


Martha Willis

Minors can be the beneficiaries of any IRA, including a Roth IRA. Regardless of what the IRA is invested in, upon your death, your grandchildren will need to take death distributions, typically over their own single life expectancies. Those Roth IRA distributions generally will be tax free to them. However, there is a problem. Minors cannot sign IRA agreements, manage investments, or manage the distributions that come out of the IRA. You will need to have a guardian or a trust in place to do this for the minors. You should check with your IRA custodian to see what their procedures are when a minor inherits an IRA, and you may need to consult with an attorney about setting up a trust. Be sure to ask an attorney about their IRA knowledge and how or where they acquired that knowledge. An improperly drafted trust or the wrong moves after your death can mean the end of the IRA with income tax being due all at once.

- By Joe Cicchinelli and Jared Trexler

3 Things You Should Do Right Away If You Missed Extended Tax Filing Deadline

Did you miss the October 15th extended tax filing deadline? Ed Slott and Company IRA Technical Consultant Jeffrey Levine details 3 things you should do right away if you missed this important tax date.

If you can't view the video below, click here to get the 3 things to do if you missed the deadline. And make sure you subscribe to our YouTube Channel, IRAtv, to get the latest IRA, tax and retirement planning videos sent straight to your email inbox.

By Jeffrey Levine and Jared Trexler

Don't Rely on the Financial Organization (IRA Custodian) to Track Your 60-Day IRA Rollover Period

When you receive an IRA distribution that is payable to yourself (a rollover), you have 60 days after you receive the distribution to complete a tax-free rollover. If you don't complete the rollover within that 60-day period, the IRA distribution is not rollover eligible, which means it’s taxable to you. Furthermore, if you are under age 59 ½ when you took the IRA withdrawal, you will also be hit with an IRS 10% early distribution penalty, unless an exception applies, such as disability, excessive medical expenses, first-time home purchase, and some others. So, keeping track of the 60-day IRA rollover period is important to keep your IRA nest egg growing on a tax-deferred basis and to avoid an unnecessary tax bill.
60-day IRA rollover window

It’s your job to monitor the 60-day period, not the financial organization that’s holding your IRA funds (known as the IRA custodian). Certainly some IRA custodians, as a customer service, will try to monitor the 60-day period for you, but technically it’s not its job to do that. In fact, not only does the custodian not have to monitor that, it also doesn't have to tell you about the consequences of not doing a timely rollover (i.e., that you will owe taxes on your IRA distribution).

Some people have learned this rule the hard way. In the process of asking the IRS for more time to do a rollover due to extenuating circumstances (known as a hardship waiver of the 60-day rollover rule), some taxpayers have tried to blame the custodian for failing to tell them about the rule or the tax consequences of not doing the rollover. Unfortunately, the IRS typically has denied their requests because the custodian was under no obligation to tell them about the 60-day rule or the tax consequences of not timely doing a rollover.

However, in some situations, the IRS has waived the 60-day rollover rule due to “custodian error.” In these situations, if the custodian took on the responsibility to inform IRA owners of the rollover rules and didn’t meet that responsibility or gave wrong information, then in some cases, IRS ruled that the custodian’s error warranted extending the 60-day rollover period. But getting a 60-day waiver from the IRS is time consuming and expensive. For you to claim custodian error and get a waiver, the custodian will generally have to admit it made a mistake; which oftentimes it won’t do.

You are really on your own to complete a rollover within 60 days; better yet, use IRA trustee-to-trustee transfers to move your IRA funds, because transfers aren’t subject to the 60-day rule.

- By Joe Cicchinelli and Jared Trexler

Ruling to Remember: 60-Day IRA Rollover Requirement

IRS ruling 60-day IRA rollovers
In this month's Ruling to Remember, we take a look at Private Letter Ruling 201339002, submitted in late September 2012 as a waiver request to the 60-day IRA rollover requirement.

Taxpayer A, who we will call Joan, received a distribution from three separate IRAs then decided to shop around at different financial institutions for more favorable interest rates. She finally settled on a new bank, but was informed that her rollover contribution could NOT be accepted because it was past the 60-day IRA rollover window.

IRS rules that the information presented and the documentation presented by Joan indicated that she withdrew an IRA distribution with intent to redeposit the funds at a later time into another IRA that would yield a better rate of return. However, she did NOT demonstrate that her former bank had a duty to inform her of her 60-day IRA rollover requirement.

Her waiver was denied.

What You Should Learn:
A financial institution does NOT have an obligation to give advice (i.e. you better roll over the funds you are taking away from us to another financial institution within 60 days). If they are silent, they have no liability. They only have liability when they say things in error. YOYO, as Ed Slott says - you are own your own.

Government Shutdown: Are You on Furlough and Thinking About Taking an IRA Distribution?

If you are on furlough thanks to the government shutdown and thinking about taking a distribution from your IRA, here are some things you need to know.

government shutdown furlough IRA distributionThere is no such thing as a hardship distribution from an IRA. Generally, funds you take from your IRA will be subject to income tax and the 10% early distribution penalty, if applicable. If there are after-tax funds in any of your IRAs, your distribution will include some of your after-tax amounts. You must file IRS Form 8606 with your tax return to calculate the amount of any distributions that are income tax free.

Distributions can be rolled over within 60 days. You have 60 days from the date you receive IRA funds to replace them in the same IRA or a different IRA. However, you can only make such a rollover IF you have not done another 60-day rollover in the past 12 months either into or out of the IRA making the distribution. IRS can grant an extension of the 60-day rollover period under certain circumstances. There is a fee of $500 - $3,000 to apply for an extension. That is just the IRS fee. If you use a professional to prepare the waiver request, there will be additional fees. If you miss the rollover deadline, the distribution will be taxable and, if applicable, the 10% early distribution penalty will apply.

Exceptions to the 10% Early Distribution Penalty for IRAs:
72(t) (substantially equal periodic payments)
Medical Expenses
IRS Levy
Active Reservists
Higher Education Expenses
First-Time Home Buyer
Health Insurance if you are Unemployed

If your distribution from the IRA qualifies for any of these exceptions and you are under age 59 ½, you will not have to pay the 10% early distribution penalty. Income tax will still be owed on the distribution. You can find more information on all of these exceptions to the penalty in IRS Publication 590. It is available on the IRS website, www.irs.gov. The website continues to be available during the government shutdown. To claim most of these exceptions, the IRA owner must file IRS Form 5329 with their tax return.

- By Beverly DeVeny and Jared Trexler

Slott Report Mailbag: Can I Open and Convert a Non-Deductible IRA to a Roth IRA?

This week's Slott Report Mailbag includes information on opening non-deductible IRAs for the purpose of a backdoor Roth IRA, 401(k) beneficiary issues and if RMDs (required minimum distributions) can be converted to a Roth IRA.  As always, we stress the importance of working with a competent, educated financial advisor to keep your retirement nest egg safe and secure. Find one in your area at this link.


ed slott IRA questions
Send questions to [email protected]
Can a person over 50 years old, who has made $215,000 year-to-date in 2013, has already put $23,000 into a 401(k) plan in 2013, open a non-deductible IRA in 2013 and convert it to a Roth IRA? If so, how much can be put into the IRA? The person may not have earned income in 2014.


You are allowed to contribute $6,500 to an IRA if you have earned income this year and are age 50 or older. If you make a non-deductible IRA contribution, that amount can be converted to a Roth IRA tax-free as long as you have no other IRAs, including SIMPLE or SEP IRAs. All distributions and conversions from IRAs must use the pro-rata rule. The calculation is done on IRS Form 8606, which is filed with your tax return.


If there is no beneficiary listed on a 401(k) who does the account default to when the person passes away?

You have to check the 401(k) document to see who the default beneficiary is in this case. However, if the deceased 401(k) participant was married, federal law (ERISA) generally requires the surviving spouse to be the beneficiary.


Hi Staff-

Can IRA RMDs (required minimum distributions) be converted into Roth IRAs? Also, can IRA distributions, in excess of RMDs, be converted into Roth IRAs?


H Gomez

IRA RMDs cannot be converted to a Roth IRA, even though the RMD is taxable. However, after having first received your IRA RMD, any amounts above that amount can be converted. The conversion will be taxable to you.

- By Joe Cicchinelli and Jared Trexler

The Government Shutdown Could Cause You Tax Problems

For over a week now, the federal government has been partially shut down - what some news outlets have called a slim down - thanks to Congress' inability to come together on any sort of agreement that would have prevented, or at least delayed the issue at hand.

For some, the government shutdown has been little more than an afterthought and fodder for the talking heads on TV. For many, however, the government shutdown couldn't have come at a more inconvenient time and could lead to problems. That's because the October 15, 2013 extended due date for tax returns is now less than a week away and one government agency that has been significantly impacted by the shutdown is the Internal Revenue Service. In case, you didn't know it, IRS is actually an arm of the U.S. Treasury Department and, thanks to the shutdown, has less than 10% of its staff reporting for work.

Although you wouldn't be alone if the first thought to go through your mind was, "Awesome, no one's there to collect my tax!" you might want to temper your enthusiasm. In fact, the IRS' forced scale back means you still have all the responsibilities of filing your return (if you have not done so already), without much of the help. Here's why...

The government shutdown has no impact on when you must file your tax return. If you filed a timely extension earlier this year and have until the October 15th extended deadline to file your 2012 tax return, you must still file it by that deadline in order to avoid possible penalties. And even though the IRS will be operating with a skeleton crew of sorts, they will still cash your check promptly, if you owe any taxes. On the flip side though, if you've overpaid your taxes and, after filing your return, you're entitled to a refund, that refund could very well be delayed. How long? That's a good question without a definite answer, but needless to say, the longer this shutdown drags on, the longer it may take to get your refund.

Need help filing that return? That might be a lot more problematic too. If you call an IRS hotline with a question on a "normal" day, it can be challenging to get a timely answer, if you can even get an answer at all. But now? Simply put, impossible. In response to having its workforce slashed by over 90%, IRS has closed its hotlines. Walk-in assistance centers are also closed.

In addition to your refund being delayed, if you happen to be waiting for IRS to respond to a private letter ruling (PLR) request, be prepared to continue to do so. Worse yet, if you're waiting on IRS to respond to a PLR related to a retirement account issue, you can probably all but forget about getting a response until IRS is able to expand its workforce again. Out of the nearly 9,000 IRS workers still reporting for duty, only about 20 work in the Tax Exempt and Government Entities Division, which, despite its unrelated name, is actually the division of IRS primarily responsible for issuing rulings related to retirement accounts. Here is the Internal Revenue Service's full 2014 government shutdown contingency plan.

As if that's not enough of a kick in the pants, here's the "best" part of the whole situation. Although Congress can't agree on much, they already decided that when they finally come to an agreement - whenever that might be - they will incorporate retroactive pay for furloughed government workers into that agreement. Think about that for a second. That means that, at the end of the day, the IRS professionals who could be answering your questions by phone, timely processing your refund or performing other tasks to assist you will,
instead of doing those jobs, be paid to sit at home on the couch and watch TV. Nice. But don't blame the IRS or its workforce for this one. This is a mess that was created by, is being perpetuated by, and will eventually be resolved by Congress.

If you're wondering if there's any good news - anything at all - to come from the IRS' bare bones workforce... yes, there is. IRS has announced that during the shutdown, audits will be suspended. This may be of some benefit for a few individuals, but if you file your tax returns on time, accurately and completely, the chance of being audited is minimal anyway.

The government shutdown is, of course, a fluid situation and it’s possible that at some point, even without an agreement in Congress, IRS could find ways to expand its workforce, or be forced to reduce it further. Stay tuned to the Slott Report for any major changes.

- By Jeffrey Levine and Jared Trexler

When NOT to Roll Over Your Company Retirement Plan Money to an IRA

IRA rollover creditor protectionWhen you switch jobs or retire, you are generally entitled to a full distribution from your company retirement plan funds such as a 401(k). You must be given the option to roll over those funds to an IRA. Certainly, a rollover to an IRA is a great decision most of the time. A direct rollover to an IRA is tax-free and keeps your retirement funds intact and growing on a tax-deferred basis.

Another advantage to the IRA rollover is that you can create a stretch IRA for your beneficiaries. So when you do the IRA rollover and then name your children or whomever as the beneficiary of your IRA, your beneficiaries won’t be forced to take a total distribution of the funds. They will be allowed to stretch the IRA distributions over their own single life expectancy.

But in some cases you may not want to roll over your company retirement plan funds to an IRA. One potential reason to leave the assets in your employer retirement plan is for federal creditor protection. Federal law protects your funds from your creditors while it’s inside the company plan. If, for example, you have creditor problems or are a business owner or physician who is worried about lawsuits, you may want to leave the funds in the company plan to shield them from creditors (note: to qualify for federal creditor protection the plan must have employees other than the business owner).

If you roll over company retirements funds to an IRA, federal law does NOT protect your IRA from creditors. Your IRA might be protected by state law, but this protection, if any, varies from state to state. So, before you do the rollover, you may want to find out if your state protects IRAs from creditors.

Federal law does protect your IRA in bankruptcy up to $1,245,475. Employer plan funds in an IRA receive unlimited protection. This is for bankruptcy only; not for other types of judgments such as lawsuits and creditors.

- By Joe Cicchinelli and Jared Trexler

Roth IRA 5-Year Rules, Same-Sex Marriage Retirement Plan Guidance, Paying for a 2010 Roth Conversion

ed slott IRA information
The Roth IRA 5-year rules. The Department of Labor's recent guidance on how to treat same-sex marriage for employer retirement plans. Ways you could STILL be paying for a 2010 Roth IRA conversion.

Last week, America's IRA Experts descended on San Diego, California for our 2-Day IRA Workshop, Instant IRA Success. While we were in San Diego, we took the time to record some interactive, informational roundtables from the 30th floor overlooking the bay at the beautiful Grand Manchester Hyatt.

Below are 3 videos with our IRA Technical Experts and Slott Report staff writers. Enjoy this look at just a touch of the information covered over 2 days in San Diego. And if you are looking to gain a step on the competition and take your education to the next level, join us for our next 2-Day IRA Workshop in New Orleans on January 30-31, 2014.

And make sure to enter the Optional Registration Code "EARLY BIRD" to Save $500 off the full price.