facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog search brokercheck brokercheck Play Pause
Highlights from the Ed Slott Elite IRA Advisor Group Spring Meeting Thumbnail

Highlights from the Ed Slott Elite IRA Advisor Group Spring Meeting

Articles

Highlights from the Ed Slott Elite IRA Spring Conference, National Harbor, Maryland

I just attended the Spring Conference for the Ed Slott Elite IRA Advisor, which was two riveting days of tax updates.  Following are the highlights:

Now is the time to enact a three-year plan to convert traditional retirement funds to Roth.  2023-2025 still have the lower tax rates enacted by the TCJA.  Congress only has to do nothing (something it’s quite good at) for rates to go up in 2026.   Taxes are on sale!  Pay them now.  (Obviously, everyone’s situation is different, but this is certainly worth considering.)  Tax rates are historically low.  Given record government deficits, we should not expect them to stay low.   Roth conversions allow taxpayers to pay taxes today while rates are on sale and not be exposed to potentially higher rates later.

Leaving an IRA to a trust can allow for greater control, but the problem is trust’s tax rates are much higher than individuals.  

 

Questions to ask on inherited IRAs:

When did the death occur – pre or post SECURE?

Who is the beneficiary?

  • Eligible Designated Beneficiaries (just five categories) are exempt from the ten-year rule.  In the case of a minor, the ten-year rule starts at age of majority.
  • Non-Eligible Designated Beneficiaries follow the ten-year rule.   These are named beneficiaries that do not fall into one of the five exempt categories.
  • Non-designated beneficiaries – follow the five-year rule if the decedent died before the Required Beginning Date (RBD) or the Ghost Rule if death was after RBD.  The ghost rule applies what the Required Minimum Distribution (RMD) would have been for the first year and then subtracts one year of life expectancy thereafter.

If there is no named beneficiary, the Executor must set up an Estate-owned inherited IRA which pays distributions of at least the RMD to the Estate each year.  This means the estate must remain open until the account is drained.   A workaround is to split the estate to the beneficiaries and open separate Inherited IRA accounts for each.  This give each heir more control and reduces administrative burden. If a trust is the beneficiary, the IRA RMD must either be passed through to the beneficiary or get taxed at the Trust rate.

 

SECURE 2.0 allows a one-year QCD to a CRAT, CRUT or CGA for up to $50,000 per person.  The trust is probably not worth setting up for this small amount.  The CGA could work, but is not a big deal.

 

Successor beneficiaries get the 10 year payout, regardless of what the initial beneficiary had.  If there is a successor to the successor, the original successor’s ten year period continues.

 

If you are married, your RMDs are governed by the Uniform Life Table.  If your spouse dies, you continue on this table.  Don’t switch to the Single table if you already started RMDs.

Use joint table when IRA owner’s spouse is sole beneficiary at more than 10 years younger.  Otherwise, use Uniform table.

“An IRA is an IOU to the IRS.”

Still-working exception applies the 5% rule.  If the plan participant is a 5% owner of the company as of the RBD, the exception doesn’t apply.  If the person changes companies, it still applies to the balance in the old plan, but not the new plan (regardless of ownership.)

Delaying RMDs may not be the best thing to do.  People generally want to, but this just compresses the taxable distributions into fewer years, likely pushing the rate higher.  There are many variables, but often it is better to pay taxes now.

RMDs missed in ’23 or later subject to a 25% penalty instead of the 50% penalty, which was usually waived if you asked nicely.  It’s now as low as 10% if the funds are withdrawn during the correction window.   Now that the penalty is no longer onerous, will the IRS be less lenient?

There is now a 3 year statute of limitations on the missed RMD.  It used to have no statute of limitations. It is unclear with this only applies to ’23 and newer or to all RMDs.

Unlike the excess contribution penalty, the RMD penalty only gets applied 1x per missed RMD.

When correcting an excess contribution, the earnings must also be removed.  The IRS has a formula for this.  Earnings used to be subject to a 10% penalty when withdrawn if the account holder was less than 59.5 years old.  Not anymore.  Make sure this gets coded correctly on the 1099 (8 for current year, P for prior year.)

Remember that a Contemporaneous Written Acknowledgement (CWA) is required for QCDs.  There is no reason to wait until YE to take a QCD.  Doing it early ensures it gets done and goes toward the RMD.  


A QLAC – Qualified Longevity Annuity Contract – can be purchased from an IRA, and the amount use for the contract is not subject to RMDs, but payments on the contract are all RMD once they start.  In a bond to the insurance industry, the amounts allowed were raised.  These are terrible investment products that people get into to protect themselves against longevity.  In most cases, taxpayers are better off with a conservative investment portfolio that actually earns a return.

 

You can’t convert an inherited IRA to a Roth IRA, but you can convert an inherited 401(k) to Roth.

 

There are new exceptions for accessing IRA money without penalty.  One is a disaster exception.  To get this, you must live in an area for at least 180 days during the year in which it is declared a disaster area.  Funds withdrawn can be repaid over three years, or the income spread over three years.  There is a new terminal illness exception.  This one has no income spread, but does have a three year payback option.  Repayment does not reduce the taxable income, it just creates basis in the account, so it’s not that useful.

 

529 Plan to Roth IRA Rollover: this is a new provision in SECURE 2.0, but is not a big deal.  There is a lifetime limit of $35K, and a person converting can’t also contribute to a Roth in the year of the Rollover.  The account must be open for 15 years.  It is possible the $35K gets raised at some point.

Interesting tidbit: a Coverdell account can’t remain open after age 30, but a 529 can.

 

Starting next year, there is no RMD on plan Roths.  

 

Catchup limit is $7500, regular limit is $22,500, so $30,000 can be contributed to a retirement plan for people 50 or older.  For people with income >$145K, the catch up must be in a Roth.