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

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

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

Senior Tax & Insurance Advisors, PLLC
(512) 833-6557

CLOSE

ELIGIBLE DESIGNATED BENEFICIARIES AND DISTRIBUTIONS OF ROTH CONVERSIONS: TODAY’S SLOTT REPORT MAILBAG

By Ian Berger, JD
IRA Analyst
Follow Us on Twitter: 
@theslottreport

Question:

Hello,

I inherited an IRA from my brother who passed away on January 6, 2022. His DOB was 12/31/1952. He had just turned age 69. I am 75 years old. My DOB is 6/26/1947.

I understand the rules have changed regarding inherited RMDs recently, and some accounts need to be depleted within a 10-year period. I watched a video recently on YouTube that said there were some exceptions to the rule. One exception is that you could use the stretch rule (meaning your life expectancy) if the beneficiary is not more than 10 years younger. I am 5½ years older than my brother. Would that stretch rule apply to me?

Thank you.

Answer:

Yes, it would. The SECURE Act requires that most individual beneficiaries who inherit a retirement account after 2019 empty the account by 12/31 of the 10th year following the year of death. But, as you note, certain beneficiaries, called “eligible designated beneficiaries” or “EDBs,” can still stretch out required minimum distributions (RMDs) over their single life expectancy. EDBs include a beneficiary who is not more than 10 years younger than the deceased IRA owner – or (like you) is older than the deceased owner.

Question:

Good day, sir. I hope all is well. I have taken your seminars and found them totally enlightening.

I am confused on the rules on an IRA conversion and the 5-year holding period. If an IRA was converted to a Roth IRA at age 57, I thought the 5-year rule meant you could not take your principal out on a conversion without paying the 10 percent penalty (of course, the principal would be income tax free). But if you take it out in three years, when age 60, would you still owe the 10% penalty, or is that waived because you are over age 59½?

Thank you.

Todd

Answer:

Hi Todd,

Thank you for the nice compliment!

At age 60, the 10% penalty is waived. Converted amounts can always be distributed penalty-free at or after age 59½ regardless of whether the 5-year holding period has been satisfied. But if the converted amounts are withdrawn before age 59½, then the 5-year conversion clock must be met to avoid the 10% penalty. The 5-year holding period begins on January 1 of the year the conversion was done, and there is a separate holding period for each conversion.

https://www.irahelp.com/slottreport/eligible-designated-beneficiaries-and-distributions-roth-conversions-today%E2%80%99s-slott

Ready To Take

THE NEXT STEP?

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

Or give us a call at (512) 833-6557