Question:

Hello,

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

Thank you,

Jeffrey

Answer:

Hi Jeffrey,

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

Question:

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

Thanks,

Mike and Becky

Answer:

Hi Mike and Becky,

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

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

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

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

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

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

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

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

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

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

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

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

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

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

Question:

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

Answer:

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

Question:

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

Thanks,

Rick

Answer:

Hi Rick,

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

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

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

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

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

And here’s the big sticking point:

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

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

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

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

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

QUESTION:

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

Thanks,

Greg

ANSWER:

Greg,

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

QUESTION:

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

Respectfully,

Richard

ANSWER:

Richard,

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

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

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

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

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

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

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

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

If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.

On April 30, 2026, President Trump signed an executive order to promote retirement savings for American workers. In its aftermath, we have had a flurry of questions about a new savings option called a “Trump IRA.” This is, as the saying goes, “fake news.”

Here are three things you need to know to separate fact from fiction about the new presidential order and its impact on retirement savings.

1. There is no such thing yet as a “Trump IRA.” The executive order did not create a new tax-advantaged account to save for retirement. The President cannot, in fact, do this on his own. Only Congress can change the tax code and create a new savings vehicle. The President, however, can establish a website, and that is what happened. The executive order calls for the establishment of a website (TrumpIRA.gov) by January 1, 2027.

2. The new website (TrumpIRA.org) will promote the Saver’s Match. The Saver’s Match is not a newly created initiative. It was already in the works. It was enacted in 2022 as part of the SECURE 2.0 Act and is effective starting in 2027.

The Saver’s Match will replace the current Saver’s Credit and will provide a federal matching contribution of 50% on the first $2,000 of annual retirement contributions (up to $1,000 annually) for eligible lower-income savers. This match is deposited directly into a 401(k), 403(b), or IRA. For single filers, the Modified Adjusted Gross Income (MAGI) phaseout range is between $20,500 and $35,500. For those who are married filing jointly, the MAGI phaseout range is between $41,000 and $71,000. Unlike the current Saver’s Credit, the Saver’s Match is available even for eligible savers who don’t owe federal income tax.

The executive order also says that the new website will list financial institutions that offer IRAs that will accept the Saver’s Match and meet certain other criteria to enhance retirement savings. The website will allow users to filter and select IRAs based on their cost and quality.

3. The new order has nothing to do with Trump Accounts. Trump Accounts are tax-deferred investment vehicles for children under 18, created under the One Big Beautiful Bill Act of 2025. Contributions to these new investment accounts are scheduled to be available on July 4, 2026. More guidance is expected to be released soon to explain more about how exactly these accounts will work, but the executive order does not do this.

Another factor making things even more confusing is that while a Trump Account is subject to special rules until the year the child reaches age 18, at that point it then becomes a traditional IRA, subject to all the normal IRA rules. So, while the account does change from being a Trump Account to being a regular traditional IRA, there never is a point where it is a “Trump IRA.”

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 still working, over age 75, and wants to roll her 401(k) into her IRA. She has stopped contributing and wants to move the company stock to her brokerage account using the net unrealized appreciation (NUA) strategy. She has been told that the cost basis will be taxed as ordinary income and the appreciation will be taxed at long-term capital gains rates. Someone mentioned that if there are any monies left in the 401(k) account at the end of the year, it could jeopardize the NUA. Is this correct? 

Mary

Answer:

Hi Mary,

That is correct. To use the NUA strategy, there must be a triggering event and a lump sum distribution. Turning age 59½ is a triggering event, so your client qualifies there. The lump sum distribution requires that the entire account be distributed in one calendar year – either the calendar year in which the triggering event occurs, or any subsequent calendar year. So, if your client takes a distribution of any of her 401(k) funds this year, she must empty the entire account by December 31, 2026.

Question:

I don’t understand the big deal with qualified charitable distributions (QCDs). If my required minimum distribution (RMD) in one year is $10,000 and I give the $10,000 to a charity as a QCD, I reduce my taxable income by $10,000. Assuming I’m in a 30% tax bracket, I’ve saved $3,000 in taxes.

Alternatively, if I give $10,000 of non-IRA funds to a charity, I get a $10,000 charitable tax (itemized) deduction, and since I’m in the 30% tax bracket, I save $3,000 in taxes. So what’s the difference between the two approaches? They both save me $3,000 in taxes.

Answer:

There are several important differences. Many taxpayers are better off taking the standard deduction instead of itemizing deductions. Those people would get no tax benefit from donating non-IRA funds. In addition, if you are in an RMD year, making a QCD can offset the RMD. This will save you taxes on the RMD. But if you donate non-IRA funds, you will still be stuck with taking a taxable RMD.

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.

We know that Roth conversions are permanent. Recharacterization of a conversion is no longer allowed. Once the conversion is done, there is no going back. However, recharacterization is still available for IRA contributions. A traditional IRA contribution can be recharacterized to a Roth IRA or vice versa. A contribution can be recharacterized for any reason as long as it can be a valid contribution to the other type of IRA. This means that the person must be eligible to contribute to the type of IRA to which the funds are being recharacterized.

Why recharacterize? There are multiple scenarios where recharacterization could be the proper strategy. For example, an individual who contributed to a traditional IRA and later discovered the contribution was not deductible could recharacterize the contribution to a Roth IRA (assuming Roth IRA eligibility). A person who contributed to a Roth IRA not knowing his income for the year will be above the phaseout limits could recharacterize that contribution to a traditional IRA.

To recharacterize a contribution, the IRA custodian will transfer the funds, along with the earnings or losses (“net income attributable” or NIA), from the first IRA to the second. NIA is determined by a special IRS formula, which is the same formula used to determine NIA when removing an excess IRA contribution. The deadline for recharacterization is October 15 of the year following the year for which the original contribution was made. The recharacterized contribution is treated as if it had always been made to the intended IRA.

While this is a tax-free transaction, both IRAs report the transactions to the account owner and the IRS. The first IRA custodian will report the recharacterized amount, plus NIA, as a distribution on Form 1099-R. The second IRA (the receiving IRA) custodian will generate a Form 5498. On the Form 1099-R, both the recharacterized contribution amount and the NIA (i.e., the current fair market value of the recharacterized amount) are reported in Box 1, Gross distribution, with “0” in Box 2a, Taxable amount. The distribution code will be either an “N” or “R.”

From the Instructions for Form 1099-R for 2025 recharacterizations:

“N—Recharacterized IRA contribution made for 2025. Use Code N for a recharacterization of an IRA contribution made for 2025 and recharacterized in 2025 to another type of IRA by a trustee-to-trustee transfer or with the same trustee.”

“R—Recharacterized IRA contribution made for 2024 or a previous year. Use Code R for a recharacterization of an IRA contribution made for 2024 and recharacterized in 2025 to another type of IRA by a trustee-to-trustee transfer or with the same trustee.”

Form 5498 will report the total amount being recharacterized in Box 4, Recharacterized contributions. Note: If an unwanted (or disallowed) Roth IRA contribution is recharacterized to a non-deductible traditional IRA contribution, be sure to file Form 8606 to claim that basis.

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.