The SECURE Act of 2019 changed many rules for inherited IRAs. However, it left intact the rules for non-living (non-person) beneficiaries, such as an estate. For these non-designated beneficiaries (NDBs), the same two possible payout options still exist:

1. If death occurs before the owner’s required beginning date for starting required minimum distributions (RBD), payments must be made under the 5-year rule. The account must be emptied by December 31 of the 5th year after the year of death. This is the only time the 5-year payout rule is applicable — when a person dies before the RBD with an NDB. There are no annual required minimum distributions (RMDs) required within the 5-year period. Because Roth IRAs are not subject to lifetime RMD requirements, all Roth IRA owners are considered to have died before their RBD. Therefore, whenever an estate or other NDB is the beneficiary of a Roth IRA, the 5-year rule will always apply.

2. If death occurs on or after the RBD, annual stretch RMD payments are made over the deceased IRA owner’s remaining single life expectancy, had he survived. This is known as the “ghost-life rule.” The ghost-life rule will never apply to an NDB who inherits a Roth IRA. Since lifetime RMD requirements do not apply to Roth IRAs, a Roth IRA owner cannot die on or after the RBD.

To calculate the ghost-life rule payments, start with the single life expectancy factor of the deceased account owner in the year of death. For the first RMD (for the year after the year of death), use that factor minus 1.0. For succeeding years, use the preceding year’s factor minus 1.0. (This is different from standard inherited IRA RMD calculations in which the first RMD uses the age of the beneficiary in the year after the year of death.)

Example: Saldies at age 87 (well after his RBD) and leaves his IRA to his estate (an NDB). Sal’s son, Manny, age 40, inherits through the estate. RMDs to Manny would be based on his father Sal’s remaining single life expectancy. The first RMD in the year following the year of death would be based on Sal’s 6.1-year remaining single life expectancy (7.1 for an 87-year-old, minus 1.0).

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 just wanted to verify that a 403(b) plan is not subject to the pro-rata rule when doing a Roth IRA conversion. Can you please let me know if this is correct?

Thanks!

Lynn

ANSWER:

Lynn,

You are correct. When doing a Roth IRA conversion, the pro-rata rule looks at all of a person’s traditional IRAs, SEP IRAs and SIMPLE IRAs. Accounts that the pro-rata rule does not consider are inherited IRAs, other Roth IRAs, and work plans like a 401(k) or 403(b).

QUESTION:

Is a participant in a 401(k) plan, who moves from full-time to part-time status, but continues to work with the same company that sponsors that plan, still allowed to delay their required minimum distribution (RMD)?

ANSWER:

If a 401(k) plan includes the optional design feature of the still-working exception (and most plans do), then participants can delay their first RMD until April 1 of the year after the year they separate from service. However, there is no universal definition of “still working.” Part-time status normally would qualify, but we suggest you confirm with your 401(k) plan provider to see what definition of “still working” the plan uses. 

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.

From its onset, I have been a fan of the concept of Trump accounts. Created by the One Big Beautiful Bill Act (OBBBA), this new savings vehicle for children is now up and running as of July 4, 2026. At their core, Trump accounts have the potential to supercharge the very long-term retirement planning for kids. Conservative mathematical assumptions and the magic of compounding could result in a multi-million-dollar account for a toddler when he is age 60.

For some background information, a Trump account is a long-term retirement savings vehicle that comes packed with many rules and restrictions. For example, the maximum annual contribution (as indexed) is $5,000. But since Trump accounts allow for many types of contributions from different sources, that annual limit can be exceeded. In fact, the annual maximum can be surpassed in the very first year for some Trump account owners. How so? The initial one-time $1,000 Federal government contribution for children born between January 1, 2025, and December 31, 2028, does not count against the annual maximum.

But since last summer when Trump accounts were first announced, some weird stuff keeps happening.

Trump accounts are established by an election made on IRS Form 4547. (That new form and form number in-and-of itself received more than a few eyerolls and groans.) One way to access the form and establish the account is via the website www.trumpaccounts.gov. But who is authorized to make the election to establish the account? There is an order of priority, as follows: Legal guardian; parent; adult sibling; grandparent; state child welfare agencies for foster children. Where things got weird was, if an eager grandparent jumped the gun and opened a new Trump account ahead of the child’s parent…the grandparent could be committing perjury! See the Slott Report entry which discusses that conundrum here: Grandparents should be very careful before opening Trump accounts.

As mentioned, contributions from different sources can be made to Trump accounts. One of these sources is tax-exempt organizations who make contributions to a “targeted group” of beneficiaries. It was originally understood that all contributions had to be made in the form of cash. But an odd development with these types of contributions sprung up just a few days ago, when the U.S. Department of the Treasury announced it will accept large philanthropic contributions of public company stock as Trump account contributions. Not only does this seem to fly in the face of current tax code provisions, but it also introduces new questions, like:

• If a large donor wants to give $150 per child, how can they do that if the stock price is, for example, $300 per share? One can’t donate partial shares (without a stock fund).

• Why was this rule made? To avoid a billionaire having to sell millions of shares that might depress the overall stock price? Is this a tax play to maximize a deduction?

It’s possible this could all be sorted out and explained away. So, while I am still a fan of the concept and possibilities of Trump accounts, it would be nice if the weird stuff went away.

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.

On July 1, 2026, the Treasury Department announced the investment options for initial Trump account contributions.

In the One Big Beautiful Bill Act (OBBBA), Congress imposed strict investment restrictions on Trump account contributions made before the year the child turns age 18 (i.e., during the “growth period”). Before that year, Trump accounts must be invested in an “eligible investment.” An eligible investment is a low-cost mutual fund or exchange-traded fund (ETF) that tracks the S&P 500 index or any other “qualified index” comprised of stocks in primarily U.S. companies, and that does not use leverage.

The IRS has said that a mutual fund or ETF will be considered “low cost” if the sum of its annual fees and its annual expenses is less than 0.1% of the value of the fund’s net assets. A “qualified index” does not include any industry or sector-specific index but may include an index based on market capitalization. Therefore, a mid-cap or small-cap U.S. stock fund or ETF would qualify. Under a safe-harbor rule, an index will be treated as comprised of “primarily” U.S. companies if those companies represent at least 90 percent of the index based on their weighting in the index.

The Treasury Department selected the State Street SPDR Portfolio S&P 500 ETF (SPYM) as the initial Trump account investment. According to the July 1 announcement: “The fund was selected to provide broad exposure to the U.S. stock market while maintaining expenses well below the statutory fee limitation.”

The Treasury also said that in the coming months, parents will be able to allocate funds among four other options:

• iShares Core S&P 500 ETF (IVV)
• Vanguard Total Stock Market ETF (VTI)
• State Street SPDR Portfolio S&P 1500 Composite Stock Market ETF (SPTM)
• iShares Core S&P Total U.S. Stock Market ETF (ITOT).

If no investment is elected, SPYM will be the default investment.

At some point, parents (or other persons responsible for Trump accounts) also will be able to roll over funds to another approved custodian offering different investment options.

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:

If someone has a SIMPLE IRA and is interested in doing a backdoor Roth IRA conversion, does the SIMPLE IRA count under the pro-rata rule?

Answer:

The pro-rata rule that determines the taxation of a backdoor Roth IRA conversion includes all of a person’s IRAs owned as of the end of the calendar year in which it is done. This includes SEP and SIMPLE IRAs, but not Roth IRAs or inherited IRAs. Even IRAs held at different financial institutions are aggregated.

Question:

Hi Mr. Slott,

I have a dual citizenship, U.S. and The Philippines. I have an IRA and would like to have my chronically ill/disabled nephew as one of my beneficiaries. Can he be my beneficiary if he is not a U.S. citizen?

Thank you so much,

Erlinda

Answer:

Dear Erlinda,

Yes, a non-U.S. citizen can be named as beneficiary, whether the beneficiary lives in the U.S. or abroad. If the beneficiary is a nonresident alien, distributions from the inherited IRA may be subject to a 30% U.S. withholding tax, unless reduced by a tax treaty between the U.S. and the country of residence.

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 just a few days, on July 4, Trump accounts will be available. As we come down to the wire, the IRS has stepped in to provide a safe harbor to address concerns about potential gift tax issues with contributions.

The Gift Tax Issue

Contributions to Trump accounts do not qualify under the annual gift tax exclusion ($19,000 for 2026). Only gifts of “present interest” qualify. A gift of “present interest” means a gift that the recipient can immediately access and use. Trump accounts are not considered gifts of “present interest” because they cannot be accessed until the year the child turns 18.

Congress did not include a provision in the One Big Beautiful Bill Act (OBBBA) to exempt Trump accounts, like it did many years ago for section 529 plans. Unless Congress or the IRS intervened, there was concern that a gift tax return (Form 709) would be required for individuals making Trump account contributions.

The Fix

On June 29, the IRS issued Rev. Proc. 2026-25. This guidance provides a gift tax reporting safe harbor for Trump account contributions made before the year the child reaches age 18.

Under the safe harbor, if certain requirements are met, contributions made by individual donors to Trump accounts in a given year will not be subject to gift tax reporting requirements for that year.

The IRS said that a safe harbor was necessary for several reasons. For many of those who contributed to Trump accounts, the cost and other burdens of complying with gift tax reporting requirements could outweigh the anticipated financial savings benefit of making contributions. In addition, gift tax reporting compliance by Trump account contributors could dramatically increase the burden on the IRS, who would have to process gift tax returns for taxpayers who would be unlikely to ever be subject to gift, estate, or generation-skipping tax. Also, according to the IRS, the fact that nearly six million Trump accounts have already been opened means the number of gift tax returns filed annually could be expected to increase from roughly 300,000 to several million.

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.

When it comes to the rules governing specific workplace retirement plans like a 401(k), there are the foundational rules dictated by law, and there are “in-house rules” put into place by the plan itself. Plans can choose to be far more restrictive than what the law allows. For example, while loans are permitted to be taken from a 401(k), a specific plan can be designed to refuse all loan requests. Workplace plans can implement all sorts of restrictions that plan participants may not be aware of…until it comes time to access their funds. Plans are perfectly within their rights to do so, and any complaints will fall on deaf ears. When it comes to plan design, we like to say, “the law of the plan is the law of the land.”

In one egregious scenario, a small (20-employee) blue-collar business installed a 401(k) plan for its employees. The problem was that the business owner appeared to suffer from some level of paranoia. He was so concerned that an employee would quit and use his 401(k) funds to start a competing business that he designed the 401(k) to be incredibly restrictive when it came to withdrawals. In fact, participants could not access a penny of their retirement money – even if they separated from service – until age 65 or death.

Recently, I was contacted by a member of Ed Slott’s Elite IRA Advisor Group℠ whose successful client was preparing to retire early, at age 56, from a large medical company (approximately 300,000 employees). The client had a significant balance in her 401(k). The idea was for the client to delay a rollover of the 401(k) to her IRA until she was 59½. Until then, she would take periodic distributions from the 401(k) to cover whatever expenses she had.

On its surface, this seemed like a wise planning strategy. The advisor had done his homework and was aware of the “age 55 exception” to the 10% early withdrawal penalty. When a person leaves her job in the year she turns age 55 or older, she can take penalty-free withdrawals from the 401(k) held at that business. The age 55 exception is written into the tax law and is claimed on a taxpayer’s federal return using Form 5329. The advisor in this case also knew the age 55 exception applies to plan withdrawals only. It does not apply to distributions from an IRA, hence the need to leave the 401(k) assets where they were for a few years.

The advisor and his client contacted the 401(k) provider to explain their intentions…and their best-laid plans fell apart.

In fact, the plan design of this large 401(k) did not allow for partial withdrawals before age 59½. For anyone in the age 55 to 59½ range, the plan contained an all-or-nothing withdrawal rule. Essentially, this 401(k) legislated out the age 55 exception. Ultimately, it appeared the plan was intentionally structured this way to discourage early retirement among highly skilled employees who would otherwise be most likely to separate from service. Most of these employees have no idea how much the plan rules disadvantage them, and the plan is within its rights to do so.

It would be wise to get a handle on what your plan does and does not allow before it is too late. After all, the law of the plan is the law of the land.

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:

Can required minimum distributions (RMDs) from 403(b) plans be aggregated and taken from one account?

Answer:

Yes, it is allowed to aggregate RMDs from multiple 403(b) plans and take the total from one of the 403(b) accounts. However, RMDs from 401(k)s cannot be aggregated with RMDs from other 401(k)s, other types of employer plans, or RMDs from IRAs.

Question:

Hi Ed Slott Team,

I made a Roth IRA contribution for 2025. Unfortunately, I just found out that my income is too high for me to make Roth IRA contributions. Will I be penalized?

Appreciate your help!

Answer:

It is not too late to correct an excess Roth IRA contribution and avoid the 6% penalty. If you timely filed your 2025 federal income tax return, you can still do a corrective distribution (or recharacterization). If you remove the contribution and the net income attributable to it by October 15, 2026, you will not be subject to penalty. The contribution will not be taxable when distributed, but the net income attributable to it would be. There will be special reporting required, so be sure to tell your IRA custodian that you are doing a corrective distribution.

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 June 15, 2026 Slott Report described the strict barriers employees face when attempting to access their 401(k) and other plan funds while still working. One exception to those barriers is for hardship withdrawals. Plans are not required to offer hardship withdrawals, but the overwhelming majority – estimated at 80-90% – do.

If you’re a 401(k) or 403(b) plan participant, you must satisfy three conditions to qualify for a hardship withdrawal:

• Your withdrawal must be for an “immediate and heavy financial need.” Most plans allow you to satisfy this requirement only if your expense fits into one of seven “safe harbor” categories: medical expenses; home purchase costs; post-secondary educational expenses; payments necessary to prevent eviction or mortgage foreclosure; funeral expenses; expenses to repair home damage; and disaster-related expenses and losses. As an alternative to using these safe harbors, your plan can evaluate each request individually using objective standards. But that is relatively rare. 
  
• The amount you’re requesting can’t be more than is necessary to cover the expense (including any federal and state taxes and also, if applicable and the plan permits, the 10% early distribution penalty).
  
• You don’t have enough cash or other assets readily available to cover the expense.

If you’re a 457(b) plan participant, a stricter hardship standard applies: Your expense must have resulted from an “unforeseeable emergency.” This means an “extraordinary and unforeseeable circumstance” arising as a result of events beyond your control. This would include expenses due to imminent foreclosure or eviction from your primary residence, medical expenses, or funeral expenses of a spouse or dependent. However, the purchase of a home or payment of college tuition would not qualify because they are not “unforeseeable emergencies.” 457(b) hardships also must satisfy requirements similar to the second and third 401(k)/403(b) requirements.

Even if your withdrawal doesn’t qualify as a hardship withdrawal, you may still be able to tap into your workplace funds while still working. That would be the case if your plan allows withdrawals for one or more reasons that qualify as an exception to the 10% early distribution penalty for those under age 59½. One example would be withdrawals after the birth or adoption of a child. However, many plans don’t allow withdrawals due to birth or adoption or for other penalty exception reasons.

So, you can access your retirement plan funds while working if the plan allows, and you qualify for, hardship withdrawals or withdrawals for reasons that are exceptions to the 10% penalty. But keep in mind that, in either case, any pre-tax funds distributed to you will still be subject to taxes. And, if you’re under age 59½, the withdrawal may also be subject to the penalty.

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.

On July 4, contributions to Trump accounts, a new savings vehicle for children, will become available. In these final days before their launch, we have been getting questions from parents about exactly what they should be doing to take advantage of this new savings opportunity. Here is what parents need to know as we count down the days to the arrival of Trump Accounts:

How can I sign up my child for a Trump account?

You can sign your child up for a Trump account by completing IRS Form 4547 and submitting it by hard copy, electronic filing or through the trumpaccounts.gov website. You can also use Form 4547 to sign up for the $1,000 contribution from the federal government for children born between 2025 and 2028.

There is no cost to open an account. Trump accounts must be invested by the custodian in a diversified index fund of U.S. stocks and must minimize fees and expenses.

I’ve signed my child up for a Trump account. What’s next?

Look for an email confirming that your election to open your child’s Trump account was processed and prompting you to complete the account activation. 

Follow the instructions in the email to set up your child’s Trump account through the Trump accounts app (available in the Apple App Store and Google Play) or by visiting Trumpaccounts.gov.  If you do not have access to a mobile device, you can access the web version of the official Trump Accounts app through https://trumpaccount.com/

How will the government update me on what is going on with my child’s Trump account?

As Trump account activation begins, concerns about potential scams are growing. Families should know that the initial legitimate communications about Trump Account activation will be sent only by email from no-reply@TrumpAccounts.Treasury.gov.

Future communications will be available in the Trump accounts app. When in doubt, visit the official app. There will be no text messages or phone calls about Trump account activation. If you receive a call or text about a Trump account, do not respond. It is likely a scam. 

When will my child receive the $1,000 contribution from the government?

Starting July 4, 2026, eligible children will begin receiving the $1,000 pilot program contribution from the U.S. Department of the Treasury deposited directly into their Trump account.  

When can I contribute to my child’s Trump account?

Beginning July 4, 2026, Trump accounts will be able to accept contributions from parents, family members, employers, and other eligible contributors. 

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.