QUESTION:

Are there any penalties/consequences/tax issues if I move money from a Roth IRA to start a new Roth IRA at another company?

Thanks,

Ramona

ANSWER:

Hi Ramona,

Roth IRA funds are portable. There are no penalties or negative tax consequences when you move your funds from one Roth IRA to another. For example, the five-year holding period for qualified distributions of earnings does not reset. Instead, it continues on. One caveat – if you are thinking of moving your account, it is best to do a direct trustee-to-trustee transfer. Doing a 60-day rollover is more risky and comes with more rules.

QUESTION:

If a spouse beneficiary dies before retitling or taking any action on an inherited IRA, who inherits the account? Would it be the contingent beneficiaries of the original IRA owner? Or, is it the estate of the spouse beneficiary?

ANSWER:

This is a question that comes up a lot. When an IRA owner dies, the funds immediately belong to the beneficiary. This is true even if no paperwork officially retitling the account is done. Assuming no disclaimer, the contingent beneficiaries no longer matter because the account has been inherited by the primary beneficiary. If the spouse (who is the primary beneficiary in this case) dies before naming their own beneficiary on the account, then the IRA custodial document’s default beneficiary will inherit the funds. Often, the default beneficiary is the estate.

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.

With the cost of food, energy, healthcare and other basics on the rise, many Americans are facing a cash crunch. For some, their IRA is their largest asset. Therefore, it is not surprising that they may be looking to their IRAs for a quick solution. Why not borrow from your IRA instead of securing a loan? Why not use your IRA as an immediate cash resource and just pay the IRA back later?

This may sound tempting, but you should be cautious as there are rules that make this strategy more complicated than it may seem. Loans from your IRA are not permitted. In fact, taking a loan from an IRA would be considered a prohibited transaction and could result in the entire account becoming an immediate taxable distribution and the retirement savings lost.

You can, however, “borrow” from your IRA funds on a short-term basis by taking a distribution, using the funds as needed, and then replacing them in the IRA via a 60-day rollover. There is nothing in the rules that prohibits you from taking a distribution at any time from your IRA and for whatever purpose you choose. There is also no rule that limits what you can do with the money while it is out of the IRA during the 60-day period. So yes, it is possible to “borrow” money from your IRA by using the 60-day rollover rule, but this is not technically a “short-term loan.”

The 60-Day Rollover Deadline

A major concern with using an IRA for a “short-term loan” is the rollover deadline. An IRA owner does not have unlimited time to complete a rollover. Instead, there is a 60-day window to finalize the transaction. If the funds are not deposited back to an IRA within 60 days, the distribution may be both taxable and subject to penalty.

Life doesn’t always go as planned, and many times IRA owners find themselves unable to meet the 60-day deadline. While anything goes during the 60-day rollover period, it’s a different story when the clock runs out. What you do with the funds during the 60-day rollover period can never undo a timely rollover, but if the deadline is missed, the result is very different. When trying to defend a late rollover to the IRS, what happened during the 60-day period suddenly matters. Also, self-certification of a late rollover will provide no lifeline if your situation does not fit neatly into one of the 12 reasons where self-certification is permitted.

Once-Per-Year Rollover Rule Violations

Another concern when it comes to “borrowing” from your IRA is the once-per-year rollover rule applicable to IRA-to-IRA and Roth IRA-to-Roth IRA rollovers. For purposes of this rule, traditional and Roth IRA rollovers are aggregated. For example, a 60-day rollover of a Roth IRA distribution to another Roth IRA will prevent a 60-day rollover of a traditional IRA distribution, received within 12 months of the date of the Roth IRA distribution, to another traditional IRA. (Note that Roth conversions do not count against the one-rollover-per-year rule.)

This rule prevents IRA owners from rolling over a distribution within 12 months of a prior distribution that was rolled over. Naturally, that is not as simple as it sounds. The 12-month period is a full 365 days. Assume an IRA owner received a distribution on December 15 that she rolled over. She is not eligible to do another 60-day rollover from any IRA to another IRA (or from any Roth IRA to another Roth IRA) until the following December 15. The 12 months begin with the date the funds are received by the account owner.

Proceed with Caution

“Borrowing” from your IRA by doing a 60-day rollover is allowed but best avoided if possible. The risks are high and the ramifications if things do not go as planned could be a tax bill and penalties. What was intended as a short-term loan could easily result in the long-term loss of your hard-earned retirement savings.

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 72(t) rules (“series of substantially equal periodic payments”) allow a person to tap retirement dollars before age 59½ without a 10% early distribution penalty. However, to gain early access to the funds, the IRA owner must commit to a strict withdrawal plan. For example, the payments must continue for at least five years or until age 59½, whichever period is longer. Also, the payments must be distributed at least annually, and an approved method must be used to calculate the annual distribution amount.

Typically, when IRA owners are in need of funds, a 72(t) schedule is set up on their traditional IRA. While the 10% early withdrawal penalty can be avoided with a 72(t), taxes will still apply. But what if a person had a Roth IRA? Could a 72(t) be established to access Roth funds early?

Yes, but a 72(t) on a Roth IRA doesn’t always make sense. Why not? Because Roth IRAs follow strict distribution ordering rules. Contributions come out first, then converted dollars, and then earnings. A Roth IRA owner always has tax- and penalty-free access up to an amount equal to his total Roth IRA contributions. This is true regardless of age. Since Roth contributions come out first, these dollars are fully accessible – no 72(t) needed.

If any Roth conversions were done, an amount up to the total of all conversions comes out next. AFTER five years, a person has tax- and penalty-free access to those converted dollars, again, regardless of age. Yes, each conversion has its own 5-year clock, but after the clock specific to that conversion has been satisfied, those converted dollars are available for withdrawal penalty-free. (DURING the five-year holding period, distributions of converted funds are subject to the 10% penalty if the individual is under age 59½, unless an exception applies.)

Based on the ordering rules, it seems like a 72(t) on a Roth IRA is merely a way to gain early access to Roth IRA earnings. But if those earnings are touched prior to age 59½, even through a 72(t) program, they would be taxable. All things considered, a 72(t) on a Roth IRA appears to be almost pointless. A person would have to be in a unique situation for a 72(t) on a Roth IRA to make sense.

Such a unique situation recently presented itself. A retired traditional IRA owner, age 55, needed access to his IRA for annual living expenses. The problem was, based on other financial entanglements, he required tax-free income. Yes, a 72(t) on his traditional IRA would allow penalty-free access to the funds, but they would be taxable. This taxable income would negatively impact his other dealings each year going forward.

So, his astute Ed Slott Elite Advisor™ devised a creative plan. The advisor proposed a large Roth conversion in 2026. Yes, this would generate a significant tax hit this year, but the need for tax-free income did not begin until next year. The next step was to initiate a 72(t) on the new Roth IRA, with the first payment scheduled for 2027. Based on the aforementioned Roth IRA distribution ordering rules (and since this person had no Roth IRA contributions), distributions of the converted dollars could begin. The 10% penalty would be avoided, and the annual income over the life of the 72(t) would be tax-free. After five years the 72(t) could be stopped, and the then-60-year-old would have full access to all his Roth IRA funds. Brilliant.

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 did a qualified charitable distribution (QCD) in early January of 2026 to cover a portion of my required minimum distribution (RMD), then took the rest of the RMD before I processed a Roth conversion. Am I now allowed to process another QCD if I still keep under the maximum allowed per year?

Kind regards,

Greg

ANSWER:

Greg,

Yes, you can continue to do QCDs in 2026. Even though your entire RMD has been satisfied and you even did a Roth conversion, QCDs are still available. The only limitation is the annual QCD cap ($111,000 in 2026).

QUESTION:

I have an inherited traditional IRA from my mother and I am age 70. I’m told the account must be emptied by the end of 2034 based on the 10-year rule. I am also taking annual required minimum distributions (RMDs) from that account. Is it better that I take out more than the RMD annually so I don’t have a big tax bill in 2034 when all the money must be taken out?

Thank you.

ANSWER:

The 10-year payout rule was created by Congress to accelerate the distribution of inherited IRAs, which in turn expedites the taxation of those dollars. With this shorter payout window, proper tax planning is vital. Annual RMDs within the 10-year period are not designed to deplete the account evenly over the 10 years. So, there could be a large balance remaining which could force you into a higher tax bracket in the 10th year. To avoid this potential problem, you should consider taking distributions over and above the RMD in the remaining years of the 10-year period to level out the taxes due and potentially reduce your overall tax liability.

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.

One of the mantras we have here at Ed Slott & Company is: “Don’t do 60-day rollovers. Do direct transfers instead.” The reason? 60-day rollovers between IRAs are subject to several rules that have serious tax consequences if not followed.

One of those restrictions is the so-called “once-per-year” rollover rule. That rule prevents you from doing a 60-day rollover of more than one IRA distribution you receive during any 12-month (365-day) period. If you violate this rule, the second IRA distribution is not eligible for rollover. So, it could become taxable and subject to the 10% early distribution penalty. And, depositing that second withdrawal into another IRA is an excess contribution subject to an annual 6% penalty unless timely corrected. To make matters worse, unlike missing the 60-day deadline, a mistake with the one-rollover-per-year rule cannot be corrected by you or waived by the IRS. That’s why we call it a “fatal error.”

The once-per-year rule applies to traditional IRA-to-traditional IRA rollovers and Roth IRA-to-Roth IRA rollovers. It doesn’t apply to company plan-to-IRA rollovers, IRA-to-company plan rollovers, or traditional IRA-to-Roth IRA rollovers (Roth conversions).

The easiest way to explain the rule is to say you can’t do more than one 60-day rollover in any 12-month period. But that’s not really completely accurate. The rule actually kicks in if you receive more than one IRA distribution in a 12-month period – not if you do more than one 60-day rollover within 12 months.

Here are a few examples that illustrate the difference:

Example 1: Jolene received a traditional IRA distribution on September 1, 2025, that she rolled over to another traditional IRA on October 1, 2025. Let’s say Jolene receives a second distribution on August 15, 2026 (within 12 months of her first distribution). She would still violate the once-per-year rule even if she delays rolling over the second distribution until October 2, 2026 (more than 12 months after the first rollover on October 1, 2025).

Example 2: Now assume Jolene receives the second distribution on September 10, 2026 (more than 12 months after the first distribution on September 1, 2025). She would not violate the once-per-year rule even if she rolls over the second distribution on September 25, 2026 (within 12 months of the first rollover on October 1, 2025).

Once again, you can avoid all of this complexity and potential tax problems by doing direct transfers instead of 60-day rollovers when you want to move your IRA funds. You can do as many direct transfers as you like during a 12-month period without any concern about 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.

Fall is in full swing and October is almost upon us. That means that an important IRA deadline looms just ahead. Here are three transactions you must get done by October 15, 2026.

1. Make a SEP IRA contribution for 2025.

The deadline for making a 2025 traditional or Roth IRA contribution was April 15, 2026. That deadline has long passed. However, employers who are interested in establishing and funding a SEP IRA for 2025 may have a little more time to get this done. The deadline for making a SEP contribution is the business’s tax-filing deadline, including extensions. For some businesses that date is October 15, 2026.

2. Correct a 2025 excess IRA contribution without penalty.

Did you contribute too much to your traditional or Roth IRA for 2025? Maybe your income ended up being higher than you expected and it turned out you were ineligible for the Roth IRA contribution you made. If you made an excess contribution to your traditional or Roth IRA for 2025, you can fix that mistake by withdrawing the contribution, plus net income or loss attributable. Your deadline for getting this done and avoiding the 6% excess contribution penalty is October 15, 2026.

While recharacterization of Roth IRA conversions is long gone, recharacterization of tax year contributions remains an option to correct an excess contribution by moving it to a different type of IRA. The deadline for getting this done for 2025 contributions is also October 15, 2026.

3. Remove an unwanted 2025 IRA contribution.

It’s not too late. You can still change your mind about a 2025 IRA contribution. Have you changed your mind about the type of IRA to which you wanted to make your 2025 contribution? Maybe you contributed to a Roth IRA and now you think a traditional IRA is a better fit, or vice versa. October 15, 2026 is your last chance to recharacterize that contribution to the other type of IRA. If you later discovered that your 2025 traditional IRA contribution was not deductible and you wish you never made the contribution, October 15, 2026 is the deadline to correct this problem. Don’t miss the deadline. If you do, the contribution must remain in the IRA as a nondeductible 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.

QUESTION:

I really enjoy reading the Slott Report articles, but I’m confused about the inherited Roth IRA required minimum distributions (RMD) explanations. My understanding was Roth IRAs do not have RMDs even when inherited. Am I mistaken?

Thanks,

Donald

ANSWER:

Hi Donald,

There’s lots of confusion over this issue. Roth IRA owners do not have RMDs while they are living, but beneficiaries of inherited Roth IRAs do have RMDs. Further confusion results because only Roth IRA beneficiaries who are “eligible designated beneficiaries” and elect to stretch RMDs have annual RMDs. Roth IRA beneficiaries who are “non-eligible designated beneficiaries” are subject to the 10-year payout rule, but they do not have annual RMDs in years 1-9 of the 10-year period. However, they must empty the inherited account by the end of the 10th year following the year of death, and this 10th-year distribution is considered their RMD.

QUESTION:

I am age 85. Would it make sense to convert my IRA (worth $1.3 million) to a Roth IRA at this late stage, or am I too old to convert?

I have four children, two of whom are on Social Security Disability Insurance (SSDI). Would the children on SSDI still have to follow the 10-year rule?

Thank you.

ANSWER:

There are no age restrictions for doing Roth conversions. Many older IRA owners choose not to do conversions because there may not be enough time for the tax-free accumulation to offset the additional taxable income resulting from the conversion. However, others who wish to leave a tax-free inheritance to children or grandchildren may find a Roth conversion beneficial at any age. IRA beneficiaries who are “disabled” are “eligible designated beneficiaries” and can therefore stretch RMDs over their life expectancy instead of being subject to the 10-year rule. Beneficiaries on SSDI are automatically considered “disabled.”

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.

For those workplace retirement plan participants fortunate enough to own highly appreciated company stock in their plan – like a 401(k) or ESOP – the net unrealized appreciation (NUA) strategy may be available. NUA allows a person receiving a workplace plan distribution to:

• Pay ordinary income tax on only the cost basis of company stock (the amount paid to acquire the stock in the plan) in the year of distribution.
• Pay tax at more favorable long-term capital gains (LTCG) rates on the appreciation when the stock is sold – even if sold within one year.

However, a person must hit a “trigger event” to be NUA eligible, and the plan must be completely emptied. Trigger events include turning age 59½, separation from service (not for the self-employed), disability (only for the self-employed), and death.

Example: Gonzo, a 401(k) participant at Muppet Company, owns ABC stock in his plan with a total value of $1 million and a cost basis of $200,000. If Gonzo did not pursue the NUA strategy, the entire $1 million would eventually be taxed at ordinary income rates. On the other hand, if Gonzo properly implemented the NUA strategy, then only the $200,000 cost basis would face ordinary income rates in the year he received the distribution from the plan. The $800,000 of appreciation that occurred within the plan would be taxed at LTCG rates when he sells the stock. The “spread” between paying higher ordinary income rates vs. LTCG rates on the $800,000 of appreciation is the NUA tax savings.

When it comes to determining a participant’s cost basis in company stock, plans will typically provide an average. Average cost basis is determined by dividing the total dollar amount used to purchase the shares (overall cost basis) by the current total value of the shares. That percentage is then multiplied by the current share price. From the example above, Gonzo’s overall cost basis is $200,000. Dividing that number by the current total value of his shares ($1 million) equals 20%. If the current share price of Muppet stock is $150, then Gonzo would have an average cost basis of $30 in each share ($150 x 20%).

But what if Gonzo (or the plan) maintained meticulous records and, over the years, was able to accurately document the actual purchase price of each share? As Muppet stock fluctuated, Gonzo may have bought shares early in his career at only $8 per share and bought shares more recently at over $100. Can Gonzo take an NUA distribution of only the low-basis shares of Muppet stock? Yes! NUA is not an all-or-nothing proposition. Partial NUA distributions are allowed. By distributing the low-basis shares in an NUA transaction and rolling the high-basis shares to his IRA, Gonzo can maximize his NUA opportunity. This targeting of low-basis shares is known as “specific identification,” but it is only available when detailed records of each purchase price are maintained.

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 understand that the SECURE Act 10-year payout rule applies to certain beneficiaries. I also understand that, if the IRA owner died after his required beginning date (RBD), annual required minimum distributions (RMDs) must be taken during the 10-year period. My question is whether we use the life expectancy of the IRA owner or the beneficiary to calculate these RMDs?

Thank you,

Bill

ANSWER:

Hi Bill,

You are correct that annual RMDs must be taken during the 10-year payout period when the IRA owner dies after the RBD. Those annual RMDs are based on the beneficiary’s life expectancy.

QUESTION:

First, you all are fantastic, and I appreciate your insights and information.

My question relates to the beneficiaries of a Roth IRA.

If the IRA owner completes a conversion to her first Roth account and dies before the five-year holding period is over, do the beneficiaries have any problems with receiving the earnings in their inherited Roth account tax free?

Thank you,

Tom

ANSWER:

Hi Tom,

Thanks for the kind words!

There is good and bad news when it comes to inherited Roth IRAs and the five-year holding period for qualified tax-free distributions of earnings. The bad news is that the holding period does apply to inherited accounts. The good news is that it starts with the Roth IRA owner’s first contribution. It does not restart for the beneficiaries. The beneficiaries would need to wait out whatever is left of the Roth IRA owner’s five-year holding period, but after that all earnings would be 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.

Believe it or not, you still have some time if you are having second thoughts about that IRA contribution you made for 2025. Maybe you made a Roth IRA contribution and then discovered your income was too high. Maybe you made a traditional IRA contribution, but you were ineligible due to having no earned income. Maybe you made a 2025 contribution but changed your mind. There is good news if you act quickly. You can correct 2025 IRA contribution errors by the upcoming October 15, 2026, deadline.

October 15, 2026 – Correction Deadline

When it comes to the timing for correcting a contribution, the key deadline is October 15 of the year following the year for which the excess (or unwanted) contribution is made. The statutory deadline is actually the tax-filing deadline including extensions. However, the IRS has said that the applicable deadline for taxpayers who file a timely return is six months after the due date for filing the tax return, excluding extensions (i.e., October 15 of the year following the year for which the contribution was made).

Why is this date so important? A 6% penalty applies to excess contributions that are not corrected by the deadline. This penalty is not a one-and-done thing. It will apply every year that an excess contribution remains in your IRA. The only way to avoid the 6% penalty when an excess contribution occurs is to correct it by the October 15 deadline. Also, if you are just changing your mind about a contribution that you are actually eligible to make, your ability to correct the IRA contribution will end with the October 15 deadline.

Withdrawal or Recharacterization

When you correct an IRA contribution before the deadline, you have two choices when it comes to fixes. You can recharacterize the contribution or withdraw it. With either option, the slate is wiped clean, and the contribution is treated as though it had never been made to the IRA where the excess occurred.

With both choices, the net income attributable (NIA) must accompany the contribution, either when it is recharacterized or when it is withdrawn. The NIA can be a loss if the IRA has lost value. The calculation of the NIA is based on the entire value of the IRA during the time the contribution was in the IRA. The NIA is calculated using a special IRS-approved formula. Many times, the IRA custodian will do the calculation for you. A worksheet with the formula can also be found in IRS Publication 590-A.

One option for correcting an IRA contribution is withdrawal. Be sure to tell the IRA custodian that the distribution is a return of an excess contribution. With this method of correction, the contribution and the NIA are distributed. The contribution is not taxable. However, the earnings are taxable in the year in which the contribution was made. Thanks to the SECURE 2.0 Act, these earnings are not subject to the 10% penalty, regardless of your age. The IRA custodian will use special reporting on Form 1099-R to reflect that this is a corrective distribution before the deadline.

Recharacterization is often overlooked as a strategy to fix excess contributions. Recharacterization is a way to move an unwanted tax-year contribution from a traditional IRA to a Roth IRA, or vice versa. If a contribution is recharacterized, it will move from one type of IRA to another in a reportable nontaxable transfer. The contribution will be treated as though it had been originally made to the IRA to which it is recharacterized. Recharacterization is a very useful tool. However, it does have its limits. A contribution cannot be recharacterized from one tax year to another.

Correcting IRA contributions can be complicated. Be sure you get it right by seeking the advice of a professional tax or financial advisor.

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.