Question:

Are the rules for a grandchild who inherits an IRA the same as the rules for a child who inherits?

Thank you,

Steven

Answer:

Hi Steven,

No, the rules are very different. An IRA owner’s child who is under age 21 when the owner dies is considered an “eligible designated beneficiary” (EDB). As such, the child can stretch required minimum distributions (RMDs) until the year he turns age 30, but must empty the remaining inherited account by the end of his age-31 year. However, if the IRA owner died before the owner’s required beginning date (RBD) for starting RMDs, the child can elect instead to have the 10-year payment rule apply. In that case, the inherited IRA must be emptied by the 10th year following the year of the IRA owner’s death, but no annual RMDs are required in years 1-9. On the other hand, a grandchild is a “non-eligible designated beneficiary” (NEDB). So, the 10-year payment rule applies and, if the IRA owner died on or after his RBD, the grandchild also must take annual RMDs in years 1-9.

Question:

I have a client who was born on November 27, 1959. Does he need to start RMDs at age 73 or age 75?

Thank you,

Glenn

Answer:

Hi Glenn,

For anyone born after 1950 and before 1960, such as your client, the first RMD year is age 73. The age-75 first RMD year applies to those born in 1960 or later. Note that the RMD for the first RMD year can be delayed until April 1 of the following year, but then two RMDs must be taken in the following year – one for the first RMD year and one for the following 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.

June is PRIDE Month. June also marks the anniversary of the landmark Supreme Court case Obergefell v. Hodges, which legalized same-sex marriage. When it comes to IRA rules, spouses have many advantages, and couples in same-sex marriages are no exception. From enhanced contribution rules to special rules for beneficiaries, marriage has its benefits when it comes to your retirement account.

Here are three IRA tax breaks available for married couples that same-sex couples should know about:

1. Enhanced Contribution Rules

If you are not working, you may think you are ineligible to make an IRA contribution. That might not be the case.  If you are married, you may be able to contribute to your IRA based on your spouse’s taxable compensation for the year. An individual could make spousal IRA contributions in some years and regular IRA contributions in others.

To make a spousal contribution for 2026, you must be legally married on December 31, 2026 and file a joint federal income tax return for 2026. For same-sex couples, this would not include civil unions. If you are divorced or legally separated as of that date, neither is eligible for a spousal contribution, even if they were married earlier in the year.

2. Smaller RMDs for Some

When you reach age 73, you must start taking distributions annually, called required minimum distributions (RMDs). These are calculated by using life expectancy tables provided by the IRS. IRA spouse beneficiaries who are more than ten years younger than the IRA owner may use the Joint Life Expectancy Table. This results in smaller RMDs versus using the Uniform Lifetime Table, which is required to be used to calculate lifetime RMDs for all other IRA owners.

3. Special Rules for Spouse Beneficiaries

Only a spouse beneficiary can roll over or transfer an inherited IRA from her deceased spouse into her own IRA. This is known as a spousal rollover. There is no deadline for a spousal rollover. Once the spousal rollover is done, the funds are treated like any other IRA funds you own. There are no RMDs if you are not yet age 73. Non-spouse beneficiaries do not have this “spousal rollover” option.

Not every spouse beneficiary will want to do a spousal rollover. Sometimes, to avoid early distribution penalties, it can make more sense to keep an inherited IRA. Under the SECURE Act, most beneficiaries will need to empty the inherited IRA by December 31 of the tenth year following the year of death. However, eligible designated beneficiaries (EDBs) will still be able to take RMDs from the inherited IRA based on their own life expectancy. A spouse is one of those EDBs.

As a spouse beneficiary you can take advantage of a special rule unavailable to non-spouse beneficiaries. If you are the sole beneficiary, and if your spouse dies before their required beginning date (RBD), you can delay RMDs from the inherited IRA until the year your spouse would have attained age 73. That can mean a delay of many years before RMDs from the inherited IRA must begin.

Even when spouse beneficiaries are subject to RMDs, they receive a special break when calculating that amount. While non-spouse beneficiaries must use the Single Life Expectancy chart, spouse beneficiaries have the advantage of being able to use the Uniform Lifetime Table to calculate their life expectancy. This results in lower RMDs for spouse EDBs compared to non-spouse EDBs.

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.

If a person wants to make a Roth IRA contribution, there are two primary hurdles to get over. First, a person must have taxable compensation to make the contribution. Items like W-2 wages, commissions, professional fees or bonuses all qualify. Income from self-employment also qualifies. What does not qualify as “compensation” for IRA eligibility are things like pension and annuity income, rental income, interest income, dividend income or capital gains.

Assuming a person has taxable compensation, the next hurdle is to make sure their income level isn’t too high. Roth IRAs have income phaseout ranges. Individuals with income over the phaseout level are precluded from making a direct Roth IRA contribution. Those within the phaseout range can make a reduced Roth IRA contribution, and those below the phaseout range can make a full Roth IRA contribution. The 2026 Roth IRA phaseout ranges are $242,000 – $252,000 for those married filing jointly, and $153,000 – $168,000 for single or head-of-household filers. Note that these are modified adjusted gross income (MAGI) numbers. (For anyone married/filing separate – be careful! Your phaseout range is $0 – $10,000.)

Now that we know the basic requirements for Roth IRA eligibility, do Roth IRA conversions have any impact? After all, a Roth conversion is a taxable event that adds to a person’s income. Answer: Roth conversions are excluded from MAGI when considering the phaseout ranges. This is clearly stated in IRS Publication 590-A, “Contributions to Individual Retirement Arrangements (IRAs).”

On page 41 of the 2025 version of Publication 590-A, we find “Worksheet 2-1. Modified Adjusted Gross Income for Roth IRA Purposes.” This worksheet helps a taxpayer pinpoint exactly what their MAGI is so they can determine if they can proceed with a full Roth IRA contribution, a partial contribution, or none at all.

• Line 1 of the worksheet is for the tax filer’s adjusted gross income (line 11a, Form 1040).
• Line 2 is for any income resulting from the conversion of an IRA to a Roth IRA.
• Line 3 says to subtract Line 2 from Line 1.

There are additional lines on the worksheet, but for this Slott Report™ entry we only need the first three to confirm the title of this article: Roth conversions do not count for Roth IRA contribution eligibility.

Example: Jim and Jane file a married/filing joint tax return. Jim and Jane’s combined W-2 income in 2026 is $200,000. Jim did a Roth conversion in January of 2026 for $100,000. With $300,000 of total income for the year, the couple thinks they are ineligible to make direct Roth IRA contributions. Jim and Jane have an astute financial advisor who tells them that Jim’s Roth conversion does not count when considering Roth IRA eligibility. Since they are under the phaseout range, both Jim and Jane proceed with full Roth IRA contributions in 2026.

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.

Question:

Hello,

Last December 15, I withdrew $10,000 from my traditional IRA.  Thirty days later, I deposited $4,000 in a Roth IRA and $6,000 in a different traditional IRA.  Can I treat the $4,000 Roth IRA deposit as a taxable Roth IRA conversion, and treat the $6,000 traditional IRA deposit as a non-taxable IRA rollover? Or, have I violated the once-per-year IRA rollover rule?

Thank you,

Jeffrey

Answer:

Hi Jeffrey,

There is no problem here with the once-per-year rollover rule. The rule limits you to rolling over one distribution received from your IRAs within a 365-day period. Here you only have one distribution. It does not matter if that distribution is split and rolled over to multiple IRAs. Also, one of your rollovers was a Roth IRA conversion, and the once-per-year rollover rule never applies to Roth IRA conversions.

Question:

I am both the owner and beneficiary of a 529 plan, and my wife is owner and beneficiary of another one. If we have $20,000 in earned income in 2026, what is the total that my wife and I are allowed to roll over from our 529 plans to make contributions to our Roth IRAs?

Thanks,

Mike and Becky

Answer:

Hi Mike and Becky,

The SECURE 2.0 Act allows up to $35,000 total to be moved from a 529 plan to a Roth IRA. The rollover counts towards the annual Roth IRA contribution limit, and you must have earned income to be eligible. However, the Roth IRA contribution income limits do not apply. For 2026, if you have $20,000 in earned income you can each contribute $7,500 ($8,600 if you are age 50 or over) to a Roth IRA from the 529 plan of which you are the beneficiary.

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.

Some of you may have come across the term “modified adjusted gross income” (MAGI) and figured it has something to do with “adjusted gross income” (AGI). But, unless you’re a tax geek, that may be all you know.

That’s a shame because when it comes to tax breaks, MAGI is a very important number. It determines eligibility for many federal income tax deductions and exclusions. In the IRA world, MAGI determines eligibility for deductible traditional IRA contributions and eligibility for annual Roth IRA contributions. 

So, what exactly is MAGI? MAGI always starts with AGI. AGI is your total income subject to taxes. This includes things like wages, interest and dividends, capital gains, and retirement plan and IRA income. For most people, total income is exactly the same as AGI. But in some cases, total income must be adjusted before you get to AGI. (AGI can be found on line 11a of your Form 1040.)

Often, MAGI will be the same as AGI. But sometimes certain items must be added back, or can be subtracted from AGI to get to MAGI. What’s really confusing is that there isn’t one uniform definition of MAGI in the tax law. Instead, the specific required adjustments to AGI are completely different, depending on the specific tax rule using MAGI. In fact, there are over a dozen different versions of MAGI! (And none of those definitions are reported on your 1040.)

The version of MAGI used for IRA deductibility and for Roth IRA eligibility requires you to add several items to AGI, the most common of which is student loan interest. For Roth IRA eligibility only, you also get to subtract out income generated if you converted an IRA or a pre-tax retirement plan to a Roth IRA in the same year. IRS Publication 590-A includes helpful worksheets for IRA deductibility and Roth IRA eligibility.

Here’s one last point that trips up some people: On your tax return, you can reduce your AGI by either taking a flat dollar amount deduction (the standard deduction) or itemizing deductions. You can further reduce AGI by claiming other deductions, such as those under the One Big Beautiful Bill Act (OBBBA). Reducing AGI by these deductions produces your total taxable income – the amount you owe federal taxes on. But taxable income is a totally different calculation than any definition of MAGI. No matter which MAGI definition is used, MAGI is always determined before the standard deduction or itemized deductions are taken. So, taxable income has nothing to do with any definition of MAGI.

Example: Zoe, age 45 and single, had a total income of $150,000 in 2025. That year, Zoe made $3,000 of health savings account (HSA) contributions directly to the HSA provider (rather than through payroll deduction). She can subtract that $3,000 from total income, bringing her 2025 AGI down to $147,000. Zoe wanted to make a 2025 Roth IRA contribution. The MAGI used for Roth IRA eligibility requires that certain tax items be added back to AGI, but Zoe didn’t have any of those items. So, her MAGI was also $147,000. For 2025, single taxpayers could make a full Roth IRA contribution if MAGI was below $150,000. So, Zoe qualified for a full $7,000 2025 contribution. Meanwhile, in doing her taxes, Zoe elected to use the standard deduction ($15,000) to reduce her AGI from $147,000 to $132,000. That $132,000 was her 2025 taxable income, the amount that she had to pay taxes on. But Zoe’s MAGI of $147,000, used to determine her Roth IRA eligibility, was determined before the $15,000 standard deduction. So, her $132,000 of taxable income had nothing to do with her MAGI of $147,000.

Still confused? A knowledgeable financial advisor or tax professional can help.

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.

If you are under age 59½ and you converted your traditional IRA to a Roth IRA, you will need to watch out for the five-year rule for penalty-free distributions of converted funds. Not understanding how the rule works can result in unexpected penalties when you withdraw your Roth IRA funds. Here are five things you need to know:

1. If you make contributions to your Roth IRA, you can always access those funds tax- and penalty-free. You can also always access your converted funds tax-free – even if you are under age 59½. That makes sense because you already paid the tax bill when you did the conversion. There is no five-year rule to worry about with regard to taxation of converted funds.
   
2. While converted funds are never taxable when distributed from your Roth IRA, it’s a different story when it comes to the 10% early distribution penalty. If you are under age 59½, you must normally satisfy a five-year holding period on funds that were taxable when converted before you can access those funds penalty-free. However, if you qualify for a penalty exception, such as for disability or higher education expenses, the penalty is waived even if the five-year period hasn’t been met.
   
3. The five-year holding period will restart for each year a conversion is done and is effective as of January 1 of the year of conversion. If a conversion was done any time in 2026, the five-year holding period for that conversion begins on January 1, 2026. If two more conversions are done in 2027, the five-year rule for both those conversions would start January 1, 2027.
   
4. The best way to understand this five-year rule for penalty-free distributions of converted funds is to know exactly what it is set up to prevent. When you take a distribution from your traditional IRA and convert it to a Roth IRA, that distribution is taxable but not subject to the 10% early distribution penalty. So, soon after Roth IRAs became law, those looking for tax loopholes started advising traditional IRA owners under 59½ that they could get out of the 10% penalty by doing a conversion. IRA owners could just convert their IRA to a Roth IRA and then, the next day, withdraw funds from the Roth IRA tax- and penalty-free.
   
   Congress quickly shut this loophole and that is why we have this rule. If the converted funds are not held for at least five years or until age 59½, any withdrawal before that time would be subject to the 10% penalty the account owner would have paid if she had withdrawn from her traditional IRA.
   
5. Don’t confuse this “conversion five-year rule” with the other five-year rule (the “forever five-year rule”) that also applies to Roth IRAs. The forever five-year rule determines whether distributions of earnings from Roth IRAs are tax-free. That rule works differently from the conversion rule. The forever rule for tax-free distributions always applies no matter what your age is. Also, it begins with your first contribution or conversion to any Roth IRA, and it never restarts even if future contributions or conversions are 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.

Question:

I have a new client who has an old SEP IRA as well as a traditional IRA with funds that were rolled over from his 401(k) plan. Can we combine these two accounts?

Answer:

Yes. These accounts can be combined. A SEP IRA is really just the same as a traditional IRA once the contributions are made. There is no reason to keep these accounts separate.

Question:

I am working with a couple on possible Roth conversions and retirement distribution planning. The husband inherited an IRA from his mother. If the husband passes and the wife inherits this inherited IRA, what are the options available to the surviving spouse on this inherited IRA? Can she do a Roth conversion?

Thanks,

Rick

Answer:

Hi Rick,

A Roth conversion would not be possible in this situation. The IRA was originally inherited by the husband from his mother. The husband is a non-spouse beneficiary, and non-spouse beneficiaries cannot convert inherited IRAs. If the wife inherits this IRA as a successor beneficiary, she would be a non-spouse beneficiary as well because she was not married to the original IRA owner (her husband’s mother). That means conversion is not allowed.

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.

It’s been nearly 3½ years, and still no news. No guidance. No updates.

Background: In December 2022, the SECURE 2.0 Act was signed into law. That legislation contained an extensively discussed provision – allowing excess dollars in a 529 college savings plan to be rolled over to a Roth IRA. However, that provision included a number of significant restrictions. For example:

• The maximum lifetime amount that can be rolled over is $35,000.
• Rollovers are subject to the annual Roth IRA contribution limit. So, for example, since the Roth IRA contribution limit in 2026 is $7,500, then no more than $7,500 can be rolled over from a 529 to a Roth IRA in 2026. Consequently, a full $35,000 529-to-Roth IRA rollover would need to be done over several years.
• The 529 beneficiary doing the rollover must have compensation in the year of the rollover at least equal to the amount being rolled over.
• The Roth IRA must be in the name of the 529 beneficiary – not the 529 owner (if different).

And here’s the big sticking point:

• The 529 plan must have been open for at least 15 years.

That rule in and of itself is not too high of a hurdle. The problem is that, here we are 3½ years later, and we still do not know if changing the beneficiary of the 529 account resets the 15-year clock. Will the existing time period applicable to the initial account opening carry over to the new beneficiary? No one on the planet has that information. Accordingly, advisors and custodians alike have been advising clients to leave the 529 beneficiary as-is until confirmation is received as to how the 15 years will be applied. Jumping the gun could result in a decade-and-a-half additional wait time to roll over excess 529 dollars to a Roth IRA.

In the meantime, while we all anxiously refresh our computers every few minutes to see if the IRS has released any 529 beneficiary change updates (sarcasm), it’s important to recognize additional 529-to-Roth rules we know are in effect:

• Rollover amounts cannot include any 529 contributions (or earnings on those contributions) made in the preceding five-year period.
• Any actual Roth IRA (or traditional IRA) contributions made by the 529 beneficiary will count against the permitted annual rollover amount.
• There are no income limits restricting the 529-to-Roth IRA rollover for either the beneficiary or 529 owner.
• The rollover from the 529 plan to the Roth IRA is a nontaxable transaction.

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.

QUESTION:

I have a 401(k) plan with a previous employer that is a mix of pre-tax and Roth money. I’m considering a direct rollover of the 401(k) to an IRA. How would that work since it’s a mix of pre-tax and after-tax funds? Would I need to open separate rollover and Roth IRAs?

Thanks,

Greg

ANSWER:

Greg,

If you do not already have any existing IRAs, you will need to open a traditional IRA and a Roth IRA to receive the 401(k) rollover. The pre-tax funds in the 401(k) will be rolled over to the traditional IRA, and the Roth 401(k) dollars will go to the Roth IRA. If you do have existing IRAs (traditional or Roth), the 401(k) dollars can be rolled over to the respective current IRAs. There is no reason to keep the rollover dollars in a different IRA (traditional or Roth) if you don’t want to.

QUESTION:

What options are available for a non-working spouse to contribute to a traditional/Roth IRA, provided her significant other is employed and has compensation?

Respectfully,

Richard

ANSWER:

Richard,

If a married couple files a joint tax return, the spouse with no compensation can make an IRA contribution based on the compensation from the working spouse who has compensation. The same annual contribution limits apply as do the phaseout ranges for Roth IRA eligibility. Other than this being called a “spousal contribution,” there is no difference between a contribution based on one’s own compensation vs. a contribution based on a spouse’s compensation.

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.

Most of you are probably familiar with the concept of the “required beginning date” (RBD). The RBD is the deadline for taking the first required minimum distribution (RMD) from an IRA or workplace retirement plan. If you’re a traditional IRA owner, your RBD is April 1 of the year following the year you turn age 73 (if born between 1951 and 1959) or age 75 (if born after 1959). If you’re a retirement plan participant, your RBD is usually the same date. However, if you’re still working beyond the year you reach age 73 and you don’t own more than 5% of the sponsoring employer, you can usually delay your RMD until April 1 of the year following the year you eventually retire. This is called the “still-working exception.”

The RBD is also important in applying several other RMD rules. For example, if you’re an IRA beneficiary subject to the 10-year payout rule (a “non-eligible designated beneficiary”), you must take RMDs during years 1-9 of the 10-year period if the IRA owner died on or after his RBD. In addition, if you’re a beneficiary eligible to stretch RMDs over your life expectancy (an “eligible designated beneficiary”), you can instead elect the 10-year rule with no annual RMDs if the IRA owner died before his RBD.

However, although the RBD is often the date that dictates whether an RMD rule applies, it’s not always the deciding factor. For some retirement account rules, your “first RMD year” (usually the year you turn age 73) – not the RBD – is what counts. Here’s one common example that causes lots of confusion: Let’s say you retire in the year you turn age 73. If you want to roll over your 401(k) funds to an IRA in the year of retirement, do you have to take an RMD from the 401(k) before doing the rollover?

Since your RBD isn’t until April 1 of the year after your retirement year, you might think that you shouldn’t have to take an RMD if you do a rollover before that April 1. But this is one of those cases where the “first RMD year” controls – not the RBD. The first funds that are distributed out of the plan in your first RMD year (or any subsequent year) are considered part of the RMD. However, RMDs can never be rolled over. This means that if you want to roll over your 401(k) funds in the year you retire (or after) your age-73 year, you must first take your 401(k) RMD. 

What if you don’t take the RMD first and instead roll it over? Then, you have an excess IRA contribution. But that’s usually not a problem. As long as the rolled-over amount, along with earnings or losses attributable to the excess (net income attributable, or “NIA”), are withdrawn from the IRA by October 15 of the year after the year of the rollover, you won’t have to pay a penalty.

One way to avoid having to take a 401(k) RMD in the year of retirement is to delay your rollover into the following year (no later than April 1). But then you’d have to take two RMDs in that following year – the year-of-retirement RMD and the following-year RMD – before rolling over the rest of your funds.

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.