Anyone with a traditional IRA can do a Roth conversion. As long as the funds are eligible to be rolled over, they can be converted. With a Roth conversion, traditional IRA funds are moved into a Roth IRA. This movement of funds is technically a rollover (as opposed to a transfer) because it is a reportable transaction. The custodian in charge of the traditional IRA will issue a Form 1099-R showing the total dollar amount leaving that IRA in Box 1, Gross distribution. The custodian holding the Roth IRA will issue a Form 5498 reporting the total amount converted in Box 3, Roth IRA conversion amount. Properly coded forms are essential to inform the IRS of what transpired and to track 5-year clocks within the Roth IRA.

When a standard conversion is done between traditional and Roth IRAs held at the same custodian, there are no concerns. The same custodian directly moves the funds between accounts and issues both a 1099-R and a Form 5498. Since the same custodian processed the entire transaction, that custodian is confident handling the tax reporting.

However, some custodians can get a little wary when a Roth conversion is completed via 60-day rollover. This is a perfectly acceptable way to execute a Roth conversion now, and it has been since the beginning of Roth time. A traditional IRA owner is allowed to take a distribution from his account and, within 60 days, roll those dollars over to a Roth IRA. That is a valid Roth conversion — and is sometimes a required necessity. Why so?

Example: John needs cash to make a down payment on a new home. John withdraws $50,000 from his traditional IRA with the intent to roll those dollars back to the traditional IRA within 60 days after his old house is sold. A week later, John realizes he needs $30,000 more to cover the down payment, so he takes a second distribution from his IRA. John quickly sells his old house and wants to roll over the entire $80,000. John learns that the one-rollover-per-year rule prohibits him from rolling back the entire $80,000 to his traditional IRA. John can choose one of the distributions to put back, so he returns $50,000 to the traditional IRA via 60-day rollover. John’s astute advisor knows that Roth conversions do NOT count against the one-rollover-per-year rule. Since John is already stuck with the taxes due on the $30,000, the advisor suggests he roll those dollars directly to a Roth IRA. John does so within the 60-day window. John will receive a Form 1099-R showing an $80,000 distribution, and a Form 5498 reporting $50,000 in Box 2, Rollover contributions, and $30,000 in Box 3, Roth IRA conversion amount.

The key to the example above is that the Roth IRA custodian codes the $30,000 deposit as a Roth conversion. This is essential to generate the proper coding on Form 5498. But some custodians are reticent to report the conversion because they may not know where the dollars originated. Coding this as a “60-day rollover” is incorrect! That would indicate the $30,000 came from another Roth IRA, and it clearly did not. In this example, John completed a valid Roth conversion, and it must be reported as such. Custodians unwilling to do so are creating a potentially mountainous problem for their clients.

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:

Does the SECURE Act’s 10-year rule apply to inherited Roth IRAs?

ANSWER:

Yes, the SECURE Act’s 10-year rule also applies to inherited Roth IRAs for non-eligible designated beneficiaries (NEDBs). That means most nonspouse Roth IRA beneficiaries will have ten years to empty an inherited Roth account. On the other hand, eligible designated beneficiaries (EDBs) of Roth IRAs have the option to choose lifetime stretch required minimum distributions (RMDs) on their inherited Roth IRA.

QUESTION:

I have several IRAs. To keep things simple for my children after I die, is it better to put these IRAs into my trust? Thanks 

Lisa

ANSWER:

Hi Lisa,

It is not possible to put your IRAs into a trust during your lifetime. That would result in a full distribution. The “I” in IRA stands for individual, and these accounts must be owned by the individual while they are alive. It is possible, however, to name a trust as your IRA beneficiary. That said, the rules for IRA trust beneficiaries can be complicated. Simplicity would not be guaranteed for your children if you name a trust as your IRA 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.

How well are your retirement plan account funds protected from creditors? The answer depends on which kind of creditors you are worried about.

There are two types of creditors that might be coming after your retirement savings. The first is bankruptcy creditors, who are owed money by you after you file for bankruptcy. The second is general (non-bankruptcy) creditors, who are owed money by you outside of a bankruptcy proceeding. These include creditors who’ve won a judgment against you in court and are trying to collect on that verdict.

For workplace retirement plans, it also matters whether your plan is covered by the federal Employee Retirement Income Security Act (ERISA). If your plan is an ERISA plan, you can sleep well at night. Your plan assets are completely shielded from both kinds of creditors. (Not surprisingly, there is an exception allowing the IRS to recoup unpaid taxes.)

Even if your plan is not an ERISA plan, your funds are still completely protected against bankruptcy creditors. This protection comes not from ERISA but from the federal Bankruptcy Code. But the situation may be different if you owe money to a general creditor. In that case, your ability to shield your non-ERISA plan accounts depends on the law of the state where you live. Many states offer complete protection similar to ERISA, but other states provide weaker protection.

How do you know if you’re in a plan covered by ERISA? Here’s a quick primer.

Plans covered by ERISA:

• Most retirement plans sponsored by companies in the private sector, including most 401(k) plans and defined benefit pension plans.
  
• 403(b) plans sponsored by private tax-exempt employers (such as hospitals) that DO NOT qualify for the ERISA exemption (see below).

Plans not covered by ERISA:

• Plans with no employees other than you and your spouse, such as a solo 401(k).
  
• 403(b) plans sponsored by private tax-exempt employers that DO qualify for the ERISA exemption. That exemption applies if your employer doesn’t make contributions to the plan and its only involvement with the plan is administering employee elective deferrals.
  
• Plans sponsored by governmental or church employers. These include the Thrift Savings Plan, which is a 401(k)-type plan for federal government employees and the military. They also include 403(b) plans for public school or church employees and 457(b) plans for state and local government workers.

What about traditional and Roth IRAs? If you’ve filed for bankruptcy, your IRAs are protected from bankruptcy creditors – but only up to an inflation-adjusted dollar limit (currently, $1,711,975). Note that funds rolled over to IRAs from employer plans don’t count towards that limit. As such, the entire $1,711,975 cap is available to shield your direct IRA contributions and earnings.

Traditional and Roth IRAs are not covered by ERISA. So, if you’re not in bankruptcy, you must instead rely on the state law where you live to block your IRAs from general creditors. As with non-ERISA plans, some (but not all) states provide complete protection for IRAs, regardless of size. Others offer only limited protection.

SEP and SIMPLE IRAs have complete protection against bankruptcy creditors, but may not have any protection at all against general creditors. (More about that in a future Slott Report article.)

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 have compensation (or “earned income”), you can always contribute to a traditional IRA, but your traditional IRA contribution may not always be deductible. (Roth IRA contributions are never deductible.)

One factor for determining IRA deductibility is whether a worker is an “active participant” in a retirement plan at work. (This is sometimes referred to as “being covered” by a workplace plan.) If neither you nor your spouse (for those married filing jointly) has a retirement plan through an employer — no 401(k), no SEP, no SIMPLE, etc., then neither of you is “covered,” and each can deduct a traditional IRA contribution. Single filers not covered by an employer plan also qualify for a deductible IRA contribution.

Your W-2 form will usually indicate if you are covered by a work plan or not. If you are not covered by a work plan, there should NOT be a check in the “retirement plan” box (Box 13) on the W-2. If there is no checkmark and compensation was earned, a traditional IRA contribution can be deducted. The amount earned is irrelevant. (Be careful – sometimes employers mistakenly complete Box 13, so if any questions exist, it is advisable to confirm with the employer.)

If you are/were an active participant in an employer plan, you must consider the phase-out ranges for traditional IRA deductibility. For 2026, if you are a married active participant in a plan, your ability to deduct your traditional IRA contribution will phase out when your modified adjusted gross income (MAGI) is between $129,000 and $149,000.

Even if you are not an active participant, you may still not be able to deduct your traditional IRA contribution if you are married. There is another IRA deductibility phase-out range when one spouse is covered by an employer plan and the other is not. The covered spouse uses the married/filing joint phase-out ranges mentioned above. The uncovered spouse is permitted a higher phase-out range. If you are not covered by an employer plan but your spouse is, the MAGI phase-out range for 2026 is $242,000 – $252,000.

Example: Uma is an active participant in her company’s 401(k) plan. Her husband, Josh, works for a company that does not offer a retirement plan. For 2026, their MAGI is $300,000. If Josh makes a traditional IRA contribution for 2026, he cannot deduct any part of it because his spouse, Uma, is an active participant in a workplace retirement plan and their income exceeds $252,000. (Uma also could not make a deductible IRA contribution for 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:

You recently posted an article about the “still-working exception.” Does this apply to solo 401(k) plans?

Thanks,

Birdie

ANSWER:

Birdie,

The still-working exception allows participants in certain workplace retirement plans — like a 401(k) — to delay required minimum distributions (RMDs) until after they separate from service. However, one of the eligibility requirements to be able to use the exception is that the person cannot own more than 5% of the company. (In determining the 5% threshold, ownership by certain family members is considered to be owned by the participant.) Typically, a solo 401(k) participant is the 100% owner of the company. Based on this ownership percentage, the still-working exception would not be available.

QUESTION:

My question is about a SEP IRA account my mother had. She passed away last year. I have four sisters, one of whom withdrew her portion last year. The remaining four of us have not yet withdrawn any funds. Additionally, Mom did not make a withdrawal of her RMD prior to her passing. 1. How long do we have to make our withdrawals? 2. Is there a penalty because the RMD was not taken prior to Mom’s passing?

Charles

ANSWER:

Charles,

Since one sister withdrew her share, that 1/5 of the account most likely satisfied Mom’s year-of-death RMD. In that case, there would be no penalty to worry about. As for you and your other sisters who now have inherited SEP IRAs, you have your own RMDs beginning this year (2026). You will each use your own age in 2026 to determine the starting RMD factor from the IRS Single Life Expectancy Table. Then subtract 1.0 from that initial factor each year thereafter. Additionally, you and your sisters will be subject to the 10-year payout rule. So, take RMDs in years 1 — 9, and empty the inherited accounts by the end of 2035.

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.

These days, anything with a hint of politics can be divisive. Trump accounts are no different. Public comments about this new savings vehicle are clearly rooted in the political divide that permeates our country. We are all sick up to our eyeballs with political bickering and the “whose-side-are-you-on” mentality. To avoid politics and focus solely on the numbers, we will refer to Trump accounts as “530A accounts,” so named by the section of the Internal Revenue Code enacted under the One Big Beautiful Bill Act (OBBBA) on July 4, 2025.

The math is clear. The compounding potential of dollars within a 530A account vs. a Roth IRA is impressive for those with a long-term view. Since eligibility for a 530A account can occur many years before Roth IRA eligibility, a 530A account owner can benefit not only from the extra years of growth, but also from additional contribution dollars. (Note that this article is not intended to be a comprehensive comparison of 530A accounts vs. a 529 account or an UGMA/UTMA.)

The Roth IRA Option. For a child to open a Roth IRA, he must have earned income. Yes, there are child actors and other ways for little kids to have earned income, but that is not the norm. Taxable wages don’t typically happen until the teenage years. Assume Henry, age 15, starts his first summer job and earns $5,000. (That’s an impressive number, but we are keeping things equal in this comparison.) Henry is eligible to contribute $5,000 to a Roth IRA, and he does so. Henry earns the same amount over the next two summers at ages 16 and 17, and he contributes all of it to his Roth IRA. The $15,000 is the most Henry is eligible to contribute based on his earnings. At age 18, assuming 6% average annual growth, Henry’s Roth IRA is worth just over $16,800. That’s an impressive balance for an 18-year-old! If Henry never adds another penny to his Roth IRA, assuming a 6% average annual return, the account will compound to over $172,000 (tax-free) in 40 years ($364,971 at 8% average annual; $760,355 at 10% average annual).

The 530A Account Option. 530A accounts do not require a child to have earned income to contribute. This allows babies to have 530A accounts opened for them. The current maximum contribution amount allowed for a 530A account is $5,000. (That number is indexed and will increase, but for this article we will stick to $5,000 annually.) Assume Henry has a newborn sister named Sophia. Sophia’s parents contribute $5,000 to a 530A account from her birth until Sophia’s age-17 year ($90,000 total). At a conservative 6% average annual clip, the account will be worth north of $150,000 by age 18. In the age-18 year, 530A accounts can be converted to a Roth IRA. Assume the conversion is done and Sophia’s parents pay the tax due. (Disregard the kiddie-tax concerns and the fear of giving an 18-year-old a $150K account. We are focusing on the math.) If Sophia never contributes another penny to her Roth IRA, after 40 more years of compounding, the future account value numbers are as follows: over $1.5 million at 6% average annual; over $3.2 million at 8%; and over a whopping $6.7 million at 10% — tax free!

530A accounts can be maximized as very long-term savings vehicles. Those with foresight and decades of patience can jumpstart a child’s retirement savings. The math cannot be argued with.

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 contributions to Trump accounts having gone live on July 4, 2026, there has been lots of discussion recently about the “kiddie tax.” That’s because, once a child reaches January 1 of the year they turn age 18, they will be able to withdraw or do a Roth conversion of accumulated Trump account funds. And, at least part of that withdrawal or conversion will likely be taxable and subject to the kiddie tax.

But what exactly is the kiddie tax? It’s a rule that requires that some of a child’s “unearned income” be taxed at the parent’s marginal tax rate – not at the child’s tax rate. The kiddie tax was intended to prevent parents from shifting their investment assets into their children’s names in order to have those assets taxed at the child’s lower tax rate.

What is “unearned income?” It’s basically any taxable income that is not earned by the child. Wages paid to a child for summer or part-time work are considered “earned income” and not subject to the kiddie tax (i.e., taxed at the child’s own rate). On the other hand, taxable IRA and retirement plan distributions (including Trump account withdrawals or conversions) count as unearned income. Unearned income also includes the following:

• Interest income
• Dividends
• Capital gains
• Income produced by gifts, including UTMA/UGMA custodial accounts
• Certain taxable scholarship and fellowship grants

Only unearned income in a calendar year above a certain dollar threshold (indexed based on inflation) is subject to the kiddie tax. For 2026, that threshold is $2,700. The first $1,350 is tax-free to the child, and the next $1,350 is taxed at the child’s rate.

If the child’s unearned income exceeds $2,700 (for 2026), the kiddie tax will apply for the year if:

• The child is age 17 or younger at year end;
• The child is age 18 at year end and not financially independent (that is, their earned income for the year did not provide more than 50% of their total living expenses); or
• The child is between ages 19 and 23 and a full-time student at year end, and not financially independent under the same 50% test.

Note that the kiddie tax will never apply for a year if the child isn’t required to file a federal income tax return for that year or if neither of the child’s parents is alive at year end.

So, a child who wants to withdraw Trump account funds or convert those funds to a Roth IRA may want to delay those transactions until the kiddie tax no longer applies (in many cases, that will be the age-24 year).

If the kiddie tax does apply, the child will usually file their own tax return and attach IRS Form 8615. However, if certain conditions are met, the parents may report the child’s unearned income and pay the kiddie tax on their own return using Form 8814.

Check with your financial advisor or tax pro for more details about the kiddie tax.

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:

My wife (Keiko) currently does not take a required minimum distribution (RMD) on her retirement account because the plan allows this while she is still working.

Here are our questions:

If she retires this December (2026), would she have to take an RMD when we file 2026 taxes in 2027 based on the value of the account on 12/31/2026?

If she retires in January (2027), may she wait to take an RMD when we file 2027 taxes in 2028 based on the value of the account on 12/31/2027?

James and Keiko


ANSWER:

Hi James and Keiko,

When an employee uses the “still-working exception,” the first RMD is due for the year of retirement. It is not based on when taxes are filed. So, if Keiko retires in December 2026, her first RMD is for 2026 and will be based on her 12/31/2025 plan account balance. Similarly, if she retires in January 2027, her first RMD is for 2027 and will be based on her 12/31/2026 account balance. If Keiko keeps her funds in the plan, she could defer the first RMD into the following year (by April 1), but then she would have two RMDs for that following year. If she decides at any point to roll over her plan account balance, she must first take the RMD due for that year before doing the rollover.


QUESTION:

Hello,

I’m age 68 and will do a Roth conversion later this year. Does the five-year holding period pertain to me? Thank you for taking the time to answer this.

Kind regards,

Mary Anne


ANSWER:

Hi Mary Anne,

There are two five-year holding periods. The first one determines whether distributions of converted amounts are subject to the 10% early distribution penalty. However, since you’re over age 59½, you don’t have to worry about that first holding period since the 10% penalty will never apply to you.

The second holding period helps determine whether earnings on Roth IRA distributions are taxable. (Your Roth conversion and any Roth IRA contributions you have made can always be withdrawn tax-free.) Since you’re over age 59½, earnings will be tax-free if a five-year period – starting on January 1 of the year you made your first Roth IRA contribution or did your first Roth conversion – has been satisfied. So, if you’ve never made a Roth IRA contribution or done a Roth conversion before, earnings on your 2026 conversion would be taxable if withdrawn before 2031. The good news is that you could withdraw tax-free all of the amount you converted at any time before having to touch your earnings.

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.

Tax rules require most retirement account owners who are subject to required minimum distributions (RMDs) to begin withdrawals at age 73. However, there is an exception to this rule for certain individuals who continue to work, called the “still-working exception.” Here is what you need to know about this strategy to delay RMDs.

Plans Only

The still-working exception applies only to employer plans. It does not apply to IRAs, ever (and that restriction includes SEP and SIMPLE IRA work plans). You may still be working but that will not help you delay RMDs from your IRA. Also, the exception will only apply to the plan of the company for which you are still working. If you have other funds in other company plans, it won’t help you with those.  Not all plans allow the still-working exception. Most do, but it is not required. You can’t take advantage of the exception if your plan doesn’t allow it.

Who Is “Still Working”?

Are you “still working”? This can be tricky because there is no official guidance from the IRS on this. There is no requirement that you work a certain number of hours a week in order for the exception to apply. A part-time position could be considered still working for purposes of this exception. When you use the still-working exception, then RMDs begin in the year you separate from service – even if your last day of work is December 31 of that year. Your required beginning date (RBD) is April 1 of the year after separation from service.

More Than 5% Owner

You can’t use the exception if you own more than 5% of the company for which you are still working. This is a one-time determination. If you are a “more than 5% owner” in the year you turn age 73, you will never be able to use the still-working exception on that company plan, even if you no longer own more than 5% of that same company in the future. When it comes to determining whether you are more than a 5% owner, it’s a family affair. The analysis starts with your personal ownership in the business but does not end there. The Tax Code’s family attribution rules apply. Any ownership in the business by your spouse, child, or grandchild will be included when making the call as to whether you are more than a 5% owner.

Rollovers

If your plan allows, you can roll over other retirement accounts to your company plan where you are still working and delay RMDs on these funds, too. Any RMDs for the year would not be eligible for rollover, nor would any after-tax funds from your IRA.

Downsides

Delaying your RMD using the still-working exception may sound like a good strategy, but there are downsides you should consider. You may face restrictions in the plan that would not apply to an IRA. Also, eventually all the funds in the taxable retirement account must be distributed, and there will be a tax bill that cannot be avoided. You must begin taking RMDs later, which means you will be taking larger RMDs. Larger RMDs mean more income taxes, resulting in the possibility of your Social Security income being taxed, and you could lose out on deductions, credits, exemptions and phase-outs.

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.

During our recent Ed Slott and Company’s Instant IRA Success workshop in Brooklyn, NY, we were presenting information about qualified charitable distributions (QCDs) when an audible groan emanated from the crowd. Over the grumbling, an exasperated woman’s voice was heard making a loud complaint. The attendees were not criticizing the presenters or any part of the program. What they were frustrated with was news from the IRS.

In the “2026 Instructions for Forms 1099-R and 5498,” the IRS included the following language on the very first page: “Code Y for box 7a on Form 1099-R. We added code ‘Y’ to the list of codes for box 7a to identify a qualified charitable distribution (QCD). See QCDs, later. For tax year 2026, the use of code Y to report a QCD is optional. If you are completing and filing a 2026 Form 1099-R, you may choose, but are not required, to enter code Y in box 7a.”

A QCD is a great way for charitably inclined IRA owners to donate. As long as the funds are properly distributed to the charity and all the QCD rules are followed, then distributions (up to $111,000 in 2026) can be excluded from income. For IRA owners subject to taking required minimum distributions (RMDs), a QCD can even offset all or part of that income. It’s a win/win.

What has been the problem with QCDs is not the QCD itself, but the reporting of the donation. Historically, IRA custodians were not required to report a QCD. There was never a code on Form 1099-R to identify this special distribution. It was up to the taxpayer to inform the IRS on the tax return that a QCD had been completed (or to tell the tax preparer to do so). As a result, QCDs were often not reported, resulting in a taxable distribution.

On May 12, 2025, the IRS released instructions for the 2025 Form 1099-R. Those instructions announced for the first time that the IRS had created a new “Code Y” to identify a QCD on the 1099-R. This was welcome news to tax preparers and financial advisors. Since the new code announcement came mid-year, it was no surprise that the IRS made it optional for 2025.

But apparently this ship takes time to turn. Upon release of the 2026 “Instructions,” the new code Y is again listed as an optional feature. Hence, the groans from the crowd.

While I understand the frustration, I also understand the optionality of the code for at least another tax year. Our guess is that the IRS is allowing IRA custodians time to implement rules and paperwork to cover their tails in the event of a “bad QCD.” It’s not unreasonable to think that IRA custodians will build some sort of “hold harmless” language into their custodial documents to avoid being held liable for placing a Code Y on a 1099-R, even if the distribution didn’t qualify as a QCD. After all, an IRA custodian does not want to police the credentials of every charity. And how will the custodian know if a person hasn’t already hit the annual QCD cap from another IRA at a different institution? These reasons likely explain why “Code Y” is optional again 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.