QUESTION:

My dad died in December 2025, at age 95. I am the sole beneficiary of his traditional IRA. I just discovered that he never took his required minimum distribution (RMD) for 2025. Will his estate be subject to a penalty?

ANSWER:

Good news! The IRS has extended the deadline for a beneficiary to take an IRA owner’s RMD for the year of death if it’s not taken before death. The beneficiary has until December 31 of the year following the year of death, so December 31, 2026 in your father’s case. It is up to you as the IRA beneficiary – not your father’s estate – to take his 2025 RMD, and you will be taxed on it.

QUESTION:

I have a client who made a contribution to his Roth IRA on April 15, 2026, for tax year 2025. He was over the income limit to make a Roth contribution. Our custodian told us it was too late to recharacterize the contribution. I know we need to remove the excess amount with the earnings. Could you provide guidance on how to go about this? I believe there’s going to be a penalty as well.

ANSWER:

The custodian was correct. The deadline for recharacterizing the 2025 Roth IRA contribution was October 15, 2026. So, the Roth IRA contribution was an excess contribution. October 15, 2026 was also the deadline for withdrawing the excess contribution, plus attributable earnings, without penalty. Since that deadline has passed, your client will be subject to a penalty equal to 6% of the excess contribution for 2025. That penalty must be reported on IRS Form 5329. There will be no 6% penalty for 2026 as long as the excess contribution is removed by December 31, 2026. The distributed excess contribution is not taxable because it was a Roth IRA contribution. Note that attributable earnings do not have to be withdrawn if the deadline for a timely corrective distribution has passed. Another way to fix the excess contribution after the deadline is to leave it there and carry it forward to use as a future-year IRA 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.

In the October 26 Slott Report entry (“Beneficiary RMDs: Calculation Basics”), we discussed the required minimum distribution (RMD) calculation rules for non-spouse IRA beneficiaries. Spouses, on the other hand, are a special type of beneficiary with different options available. Here, we discuss the basic RMD rules governing spouse beneficiaries.

Year-of-Death RMD. It does not matter who an IRA beneficiary is. When an IRA owner is subject to lifetime RMDs, the year-of-death RMD cannot be avoided. This is true whether the IRA owner died on the first day of the year or the last. If any portion of the year-of-death RMD was not taken prior to death, it is the responsibility of the beneficiary to take whatever remains by December 31 of the year AFTER the year of death. This is also true for spouse beneficiaries. There is no special calculation using any of the beneficiary’s information for the year-of-death RMD. It is simply the RMD amount (or whatever remains) that the deceased IRA owner would have taken had he survived.

Spousal Rollover. The ability to move inherited IRA funds from a deceased spouse’s IRA into the surviving spouse’s own IRA is only available to spouse beneficiaries. After a spousal rollover, the assets are treated as if they belonged to the surviving spouse from the very beginning. Yes, the year-of-death RMD must still be taken, but it can be taken after the spousal rollover from the surviving spouse’s own IRA. Going forward, any RMD calculations are based on the surviving spouse’s own age using the Uniform Lifetime Table. Like normal, the surviving spouse recalculates the annual RMD each year by going back to the Uniform Lifetime Table and using her own age to determine the applicable factor. Caution: a spousal rollover cannot be reversed. For young spouses who may need access to the inherited funds, a better choice would be to do an inherited IRA first (discussed next) to avoid a 10% early withdrawal penalty.

Inherited IRA. When a surviving spouse is under age 59½ and needs access to the inherited IRA dollars, choosing to do an inherited IRA is recommended. Dollars from the inherited IRA can be withdrawn for any reason, and the 10% penalty will not apply. Then, after the surviving spouse turns age 59½, she can do a spousal rollover with the inherited IRA. This is true even if the surviving spouse does not turn 59½ for decades.

An additional benefit to a spouse who chooses an inherited IRA is that RMDs do not apply to the account until the deceased spouse would have been RMD age. While non-spouse eligible designated beneficiaries (EDBs) must start taking distributions in the year after the year of death, spouses can delay those withdrawals. This rule can benefit young spouses whose partner died many years before RMDs were to begin. It can also benefit older surviving spouses who lost a young spouse and want to delay RMDs on the inherited funds for as long as possible. And when those RMDs do begin, there are certain situations when a surviving spouse could use the Uniform Lifetime Table on the inherited IRA, which can result in a lower RMD. Ultimately, the RMD rules try to be as favorable as possible to spouse beneficiaries.

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.

A recently announced IRS program gives you new ways to fix certain IRA errors. Unfortunately, it won’t be as helpful as it seems.

In the 2022 SECURE 2.0 legislation, Congress gave the IRS two years – until December 29, 2024 – to come up with rules allowing IRA owners and custodians to correct mistakes through self-correction. (The IRS already has a correction program for employers to correct retirement plan mistakes.) Well, almost 22 months after that deadline, the IRS has finally published those rules.

The new program – the IRA Compliance Resolution System (ICRS) – permits IRA owners (including beneficiaries of inherited IRAs) and custodians to fix certain IRA failures by submitting their proposed correction to the IRS for approval and paying a fee. ICRS will become available on May 1, 2027.

At least for now, ICRS does not allow IRA owners or custodians to self-correct errors on their own, without going to the IRS, as the correction program for retirement plans does. But there are already several self-correction programs in place for IRA owners to use, and they can still be used after May 1. (More details below.)

An ICRS submission will require an IRA owner to pay a filing fee of $3,500. The submission looks to be fairly complicated, so payment of additional fees to a CPA or attorney to do the paperwork will also likely be necessary.

Unfortunately, ICRS is limited to correction of only four IRA mistakes (although the IRS says it may expand the list):

• Missed Required Minimum Distributions (RMDs). There’s a 25% penalty for missing an RMD, but that is reduced to 10% if the missed RMD is corrected in a timely manner. However, the IRS will usually waive the penalty entirely if the IRA owner withdraws the missed RMD and files Form 5329 with a reasonable-cause statement. The IRS says that this reasonable-cause correction method will continue to be available. So, ICRS will only be needed for IRA owners who don’t have reasonable cause for missing RMDs (or for IRA custodians who were responsible for missed distributions).
  
• IRA Establishment Failures. This occurs when an IRA owner requests that a custodian establish a particular type of IRA (e.g., a traditional IRA), but the custodian mistakenly opens a different type (e.g., a Roth IRA). For this error only, a submission to the IRS must be made by December 31 of the year following the year in which the incorrect account was established.
  
• Nonspouse Beneficiary Rollovers. Nonspouse beneficiaries cannot do 60-day rollovers of inherited IRAs, so any distribution they receive is taxable and possibly subject to penalty. ICRS provides relief if such a beneficiary receives a distribution or does a 60-day rollover, but only if she provides evidence that a custodian, financial advisor, CPA or attorney had led her to believe that a tax-free rollover could be done.
  
• 60-Day Rollover Failures. Unlike the other three correctable failures, this one covers both IRA owners and company plan participants. Since 2016, the IRS has allowed retirement account owners to use “self-certification” to cure 60-day rollover failures if the deadline was missed because of one of 12 specified reasons and the rollover is completed as soon as possible. Self-certification is free. However, if the deadline is missed for a reason other than one of those 12 reasons, the IRA owner or plan participant currently must obtain relief from the IRS by requesting a private letter ruling (PLR). From May 1, 2027 through the end of 2027, retirement account owners can continue to request a PLR or use ICRS for a 60-day rollover failure that doesn’t qualify for self-certification. Effective in 2028, only ICRS can be used. 

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 am age 84. My IRA beneficiaries are my two children (ages 52 and 56) and my grandchild (age 8). Who is a non-eligible designated beneficiary (NEDB) and who is an eligible designated beneficiary (EDB)?

Bobby

ANSWER:

Hi Bobby,

It sounds like all of your beneficiaries are NEDBs under the SECURE Act’s rules for IRA beneficiaries and would be subject to the 10-year rule. They will not qualify as EDBs because they are not your spouse, disabled, or chronically ill. You might think that your 8-year-old grandchild could be an EDB because they are a minor child. However, only minor children of the account holder can qualify, not grandchildren.

QUESTION:

A Roth IRA must be open for five years for distributions for those age 59½ or older to be qualified. If funds are directly rolled over from a Roth 401(k) to a Roth IRA, does the five-year period start when the IRA account is opened or when the Roth 401(k) is opened?

For example, my employer has a Roth 401(k) and I (age 60) have been contributing for the last 10 years (since 2016). In 2026, I opened a Roth IRA to accept the direct rollover of my Roth 401(k). Has the five-year period been met (because the Roth 401(k) has been open for 10 years)?

Dean

ANSWER:

This is a confusing area of the rules! The funds from the Roth 401(k) that are rolled over to the Roth IRA will be considered basis in the Roth IRA because you are over age 59½ and have participated in the plan for more than five years. These funds will be available tax- and penalty-free immediately. However, the Roth IRA clock takes precedence for all future earnings. Assuming this is your first Roth IRA, any earnings that accrue in the Roth IRA after the rollover must remain in the account for five years from the year of the rollover in order to be distributed tax-free.

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.

Excess IRA contributions happen frequently and for a variety of reasons. Maybe your income ended up being higher than expected and you were ultimately ineligible for the Roth IRA contribution you made. Maybe you did not have earned income and contributed to an IRA anyway. The deadline for correcting an excess IRA contribution for 2025 without penalty was October 15, 2026. What happens if you missed this deadline?

There are two options for fixing excess 2025 IRA contributions after the October 15 deadline. One option is to withdraw the contribution from the IRA. The good news is that only the excess contribution amount needs to be withdrawn. When correcting an excess before the October 15 deadline, any net income attributable (NIA) must also be withdrawn. However, in an odd tax code anomaly, if the removal is after the deadline, the NIA to the excess contribution can remain in the traditional or Roth IRA.

The bad news is that there will be a 6% annual excess contribution penalty, and IRS Form 5329 will need to be filed to pay it. Fixing the excess contribution is still the smart thing to do because if the excess contribution is not fixed, the 6% penalty will continue to accrue each year until either the excess is corrected, or time runs out under the statute of limitations (six years).

Example 1: Greg, age 41, contributed $7,000 to his traditional IRA for 2025. After October 15, 2026, he realized that he was ineligible because he had no earned income for 2025. Greg has an excess contribution of $7,000 in his traditional IRA. To correct the excess, Greg withdraws the contribution, but not the NIA. Greg will owe the 6% excess contribution penalty for 2025 (but not for 2026 if his withdrawal occurs by December 31, 2026). He will also need to file Form 5329.

Besides withdrawal, there is another option to correct excess IRA contributions after the deadline. You can elect to carry forward the excess and apply the overage to future years. To use this method of correction, you must be eligible to make the contribution in the future year(s), and the 6% penalty must be paid each year until the original excess contribution amount is used up or the statute of limitations runs out. Carrying an excess contribution forward may be a good solution if you will be eligible for a contribution in a future year.

Example 2: Greg (from Example 1) is working in 2026 and has earned income. He may consider carrying forward his 2025 excess contribution instead of withdrawing it. He would claim the $7,000 traditional IRA contribution on his 2026 tax return. He would still have to pay the 6% excess contribution penalty for 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.

Although many IRA owners are required to take required minimum distributions (RMDs), much confusion remains as to how the RMD is calculated. Factors include whether the original IRA owner reached his required beginning date (“RBD” – April 1 of the year after the year the IRA owner reaches age 73), the type of beneficiary, and the beneficiary’s age. Here are the basics.

Year-of-Death RMD. When an IRA owner is subject to lifetime RMDs, the year-of-death RMD cannot be avoided. This is true whether the IRA owner died on the first day of the year or the last. If any portion of the year-of-death RMD was not taken prior to death, it is the responsibility of the beneficiary to take whatever remains by December 31 of the year AFTER the year of death. Otherwise, penalties will apply. There is no special calculation using any of the beneficiary’s information for the year-of-death RMD. It is simply the RMD amount (or whatever remains) that the deceased IRA owner would have taken had he survived.

Eligible Designated Beneficiary (EDB). When a non-spouse EDB inherits either a traditional or Roth IRA, that EDB can take annual “stretch” RMDs. To calculate the first annual RMD, use the EDB’s age (on his birthday) in the year AFTER the year of death. From the IRS Single Life Expectancy Table, identify the corresponding factor. (For example, the factor for an individual who is age 50 is 32.5.) Divide the prior-year December 31 balance by the appropriate factor, and that is the RMD. For each successive year thereafter, do NOT go back to the Single Life Table. Instead, subtract 1.0 from the previous year’s factor, and divide it into the prior year-end balance.

Non-Eligible Designated Beneficiary (NEDB). NEDBs are subject to the 10-year payout rule. Year 1 of this window is the year AFTER the year of death. (For example, with a 2026 death, the 10-year period runs from 2027 through the end of 2036.) If the original traditional IRA owner died on or after the RBD, then annual RMDs apply in years 1 – 9 of the 10-year period. These RMDs are calculated in exactly the same way as the EDB RMD calculation outlined above. The only extra layer is that an NEDB must take a full distribution of the inherited IRA by the end of year 10. (Note that if the original traditional IRA owner died before the RBD or the NEDB inherited a Roth IRA, no RMDs apply within the 10-year period.)

Non-Designated Beneficiary (NDB). These are non-people, like an estate. If the IRA owner died before his RBD, the 5-year rule applies. There are no annual RMDs within the 5-year period. But if death occurred on or after the RBD, then annual RMDs apply using the “ghost rule.” As with all annual beneficiary RMDs, these begin in the year after the year of death. However, the “ghost rule” RMD calculation has a little twist. Use the deceased IRA owner’s age (at his birthday, whether or not he reached it) in the year OF death. Identify the corresponding factor from the Single Life Expectancy Table. Then subtract 1.0. Divide that factor into the 12/31 balance on the year OF death. This is the first RMD in the year AFTER the year of death.

Spouse Beneficiary. Surviving spouse beneficiaries have special RMD rules applicable only to them. We will discuss the spouse beneficiary options in an upcoming 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.

QUESTION:

I have a question regarding joint health savings accounts (HSAs). What happens if an HSA is shared with a spouse who is not yet eligible for Medicare? Can that spouse continue to contribute if they remain enrolled in a high-deductible health plan (HDHP)?

Best regards,

Shyam

ANSWER:

Shyam,

Technically there is no “joint HSA.” Each spouse must open their own account, but the family contribution limits are aggregated among spouses. If one spouse is age 65 or older and enrolled in Medicare, that spouse can no longer contribute to an HSA. However, if the other spouse is not yet enrolled in Medicare and remains in an HDHP, that spouse can continue to contribute to an HSA based on the self-only contribution limits. For 2026, the self-only limit is $4,500, plus a $1,000 catch-up for those age 55 and older.

QUESTION:

I am age 71 and currently have a small traditional IRA at Vanguard as well as a large traditional IRA and a Roth IRA at Fidelity. In the interest of preparing for required minimum distributions (RMDs) in a couple of years, I plan to roll my Vanguard traditional IRA into my Fidelity traditional IRA, and convert some of my Fidelity traditional IRA into the Fidelity Roth IRA. Can I do both of those transfers this year? Does it matter what order I do them in?

ANSWER:

You can do of both these transactions this year, and you can do them in any order. We recommend that you move the small IRA into the larger traditional IRA via direct transfer as opposed to a 60-day rollover. That way you can avoid any tax reporting with the transfer and not have to worry about either the 60-day deadline or the once-per-year rollover rule. As for the partial Roth conversion, you can do that at any time and for any amount. (But be aware that, once your RMDs start, you must take your full RMD before you do any Roth IRA conversions.)

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.

Many of you are probably aware of the 60-day rollover deadline and the once-per-year rollover rule. But there’s a third IRA rollover restriction you may be less familiar with: the “same-property rule.”

The same-property rule is the Rodney Dangerfield of rollover rules. It gets no respect. That’s because it comes into play much less often than the other two rules. However, it should not be overlooked. As with the other IRA rollover rules, failing to comply with the same-property rule can have serious tax consequences.

What does the same-property rule require? It requires that if property is received in an IRA distribution, the very same property must be rolled over. If cash is received, cash must be rolled over. If shares of stock are received, those same shares of stock (notthe same value of the stock) must be rolled over. It’s not enough to substitute another asset of equal value to the property received and roll over that other asset.

Example: Ella owns 1,000 shares of Choosin’ Texas Company stock in her IRA, valued at $150,000 ($150 per share). Ella requests that those shares be distributed in-kind from her IRA to her non-qualified brokerage account so she can roll them over to an IRA with another custodian within 60 days. However, by the time she does the rollover, the Choosin’ Texas share price has dropped to $100. To avoid a violation of the same-property rule, Ella must roll over the same 1,000 shares, even though their value has fallen to $100,000.

When does the same-property rule apply? It applies to the following types of 60-day rollovers:

• Traditional IRA-to-traditional IRA;
• Roth IRA-to-Roth IRA;
• Traditional IRA-to-plan (“reverse rollovers”), if allowed by the plan; and
• Roth conversions.

What about plan-to-IRA rollovers? The same-property rule does apply, but there’s an exception: If you receive property from a plan, you can either roll over the same property to the IRA or sell the property and roll over the proceeds. There must be an actual sale. You cannot elect to keep the property and roll over cash.

What happens if I violate the rule? You’ll definitely have some tax headaches. Since the IRA distribution was not eligible for rollover, it’ll become taxable and possibly subject to the 10% early distribution penalty. And since the rollover was invalid, it’s treated as an excess contribution that’s subject to a 6% annual penalty unless timely corrected. And don’t look to the IRS for help. The IRS has no authority to excuse same-property rule violations.

How can these complications be avoided? It’s simple: Don’t do 60-day rollovers. Instead, do direct transfers. The same-property restriction does not apply to direct transfers. (Extra bonus: Direct transfers also avoid the other two rollover rules – the 60-day deadline and the once-per-year rule.)

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.

The unfortunate reality for many Americans is that medical expenses will be a large part of their expected budget in retirement years. Health Savings Accounts (HSA), which continue to grow both in numbers and in balance size, can help. We receive many questions about HSAs for individuals who are age 65 or older. Here is what you need to know about your HSA as you reach your retirement years.

1. You can use your HSA to pay most Medicare premiums.
   
   Generally, insurance premiums are not considered qualified medical expenses. However, after age 65 and enrollment in Medicare, certain insurance premiums can be paid tax-free with HSA distributions. You can pay for all Medicare premiums (including IRMAA), except for Medigap.
   
   
2. You can take penalty-free distributions.
   
   If a distribution is taken from an HSA and the funds are not used for qualified medical expenses, the distribution is taxable and a 20% penalty applies. However, there is good news if you are age 65 or older. Distributions that you take from your HSA after age 65 are never subject to penalty. What you use the funds for does not matter. All HSA distributions after age 65 are penalty-free, even if the funds are not used for qualified health expenses. (If not used for qualified expenses, they still will be taxable.)
   
   
3. You can make prorated contributions.
   
   When it comes to making contributions to an HSA when you reach age 65, things can get a little tricky. This is due to the complicated interaction of the HSA rules with Medicare. To be eligible to contribute to an HSA, you must have a High Deductible Health Plan (HDHP). You cannot have coverage under another plan that is not an HDHP. Because Medicare is not an HDHP, you cannot contribute to your HSA if you are enrolled in Medicare. Enrollment in any Medicare coverage (Parts A, B, C, D, or Medigap) will end HSA eligibility.
   
   You lose your eligibility to make an HSA contribution as of the first day of the month you reach age 65 and enroll in Medicare. You can make a prorated contribution for the year to your HSA for the months before you became ineligible due to your enrollment in Medicare. This contribution can be made until the HSA contribution deadline, which is generally April 15 of the following year.
   
   
4. You must understand the interaction between Social Security and your HSA.
   
   Social Security can add another wrinkle. This is because if you claim Social Security at age 65 or later, you also will automatically be enrolled in Medicare Part A. This would mean that you are no longer eligible to contribute to an HSA because you no longer have an HDHP. The bottom line is if you are over 65, you cannot be both receiving Social Security and contributing to your HSA.
   
   Things get even more complicated for those workers who decide to delay receiving Social Security benefits. If you claim Social Security and therefore enroll in Medicare Part A after reaching age 65, your enrollment will be backdated by six months. However, it cannot be backdated past age 65. Because Medicare enrollment makes you ineligible for HSA contributions, you must exclude those retroactive months from HSA contribution eligibility.
   
   
5. You may be able to continue to make HSA contributions after age 65.
   
   Are you delaying retirement after age 65 and still working? If you do not claim Social Security and you have an HSA, can you still contribute? Well, it depends on whether you are enrolled in Medicare. You may decide to opt out of Medicare and receive healthcare coverage through a large employer’s HDHP. In that case, you can continue to contribute to your HSA.

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 client who is age 52 and is being placed on hospice due to his battle with cancer. I understand that there is a provision in the SECURE 2.0 Act that allows individuals to withdraw from their IRAs prematurely without the 10% penalty if their condition is expected to result in death within 7 years. Can my client qualify for this exception?

ANSWER:

You are correct that SECURE 2.0 created a new exception for pre-59½ IRA withdrawals for a terminal illness. To qualify for the exception, your client must obtain a certification by his physician that describes the illness and includes a specific statement that his illness is reasonably expected to result in death in 84 months (7 years) or less. This certification must then be provided to the IRA custodian.

QUESTION:

Can an IRA owner within the 60-day window pay back multiple distributions received at different times but within the 60 days?

ANSWER:

No. Under the “once-per-year” rollover rule, if an IRA owner receives multiple distributions within any 12-month period, he can do a 60-day rollover of only one of those distributions. This rule applies to both traditional IRA-to-traditional IRA rollovers and Roth IRA-to-Roth IRA rollovers. Violating that rule could result in taxes and penalties.

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.