Question:

Is it wise to designate a grandchild as primary beneficiary for IRA accounts?

Answer:

You can choose to name whomever you want as your IRA beneficiary. If you want your IRA funds to go to your grandchildren, that is your decision and there is nothing wrong with making that choice.

There are some things you will want to be aware of, though, before updating your beneficiary designation. The first is that the SECURE Act has eliminated the stretch for most non-spouse IRA beneficiaries. Your grandchildren will be subject to the 10-year rule unless they are disabled or chronically ill.

There are also some special concerns if your grandchildren are minors. If so, they should not be named directly on the beneficiary form since minors do not have legal authority to conduct business on an investment account. Instead, consider naming a Uniform Transfers to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA) account if the custodian will allow it, or a trust if it is a large IRA.

Question:

When mentioning contribution limits to IRAs, shouldn’t you also mention that earned income is an overriding factor?

Jim

Answer:

Hi Jim,

Tax season is the time when many people consider making contributions to IRAs. Your comment is a good reminder that an individual (or their spouse if married) must have earned income or taxable compensation to contribute to an IRA. This can be wages or income from self-employment. Without it, no IRA contribution is possible, and if your taxable compensation is less than the maximum contribution limit for the year, you will only be able to contribute up to the amount of taxable compensation that you (and your spouse if married) have.

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 many Americans are still working long beyond what has traditionally been retirement age. This may be by choice or by necessity. If this is your situation, you may be keeping funds in your employer plan well into your seventies and maybe even later. There are some big benefits to extending a career. You can continue to contribute to your retirement account and may even be able to take advantage of rules that allow required minimum distributions (RMDs) to be delayed.

Eventually, however, the time will likely come when you will want to take some or all of the funds out of your plan. You may want to roll over those funds to an IRA. A large percentage of employer plan funds do end up in an IRA eventually. At that time, you will need to pay special attention to your RMD if you have one for the year.

Here are five things to know about your RMD when you are doing a rollover from your plan to your IRA.

1. You must take the RMD from your plan. The first thing to understand is that if you have an RMD from the plan for the year, you will need to take that RMD. It is NOT eligible for rollover to an IRA. It cannot be converted to a Roth IRA. The bottom line is that there is no way around it; you must take it.

2. The first-money-out rule applies. The next thing to know is that the
first money out of your plan is your RMD. This is called the first-money-out rule and many people run afoul of it. You cannot roll part of the funds over now to an IRA and take the RMD later from the plan. You cannot roll over your entire plan balance to your IRA and then take the RMD from the IRA later. If you do either of these, you will wind up with an excess contribution in your IRA. That can mean penalties if it is not corrected on time.

3. There is no aggregation for plan and IRA RMDs. Your plan RMD cannot be aggregated with RMDs from your IRA. This means you cannot take it from your IRA. Also, qualified charitable distributions (QCDs) are not available from plans. They are only available from IRAs, so you cannot offset the income from a plan RMD with a QCD.

4. After the rollover, you have an IRA. Once you have taken your RMD, you may roll over the remainder of your eligible plan funds. When they are deposited to your IRA, they become IRA funds and will be subject to all the IRA rules. There will be no IRA RMD due for the funds rolled over to the IRA for the year of the rollover (because you already took your RMD from the plan prior to the rollover). However, in years going forward, RMDs will be due on these funds just like any other IRA funds.

5. Moving your retirement funds can be complicated and the stakes are high. This is especially true when there is an RMD involved. Failing to follow the rules for your RMD can result in adverse tax consequences and penalties. If you have questions about your own situation, the best way to get it right and avoid costly mistakes is to consult with a financial or tax advisor who is knowledgeable in this very specialized area.

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 a transactional mistake is made with retirement plan or IRA assets, there is oftentimes a mechanism to correct the error. For example, if too much money is contributed to an IRA, a person can leverage the excess contribution withdrawal rules to remove the excess without penalty (assuming the excess is withdrawn prior to the October 15 correction deadline). In another example, if an IRA owner failed to take his required minimum distribution (RMD), there are procedures in place whereby the person can take the missed RMD and formally request a waiver of the missed RMD penalty from the IRS.

On the other hand, some transactional mistakes have no corrective steps. Once the deed is done, there is no going back. Such missteps can create massive tax bills and result in unintended penalties. Many of these “fatal errors” involve rollovers. Here are a few:

Non-Spouse Beneficiary Rollovers. Only a spouse beneficiary can move inherited plan or IRA dollars between custodians via 60-day rollover. Non-spouse beneficiaries can only move inherited dollars via direct transfer. If pre-tax inherited IRA or plan funds are distributed and payable to a non-spouse beneficiary, those dollars are taxable. End of story. If the recipient tries to roll over the funds, the doors at all potential receiving institutions will be closed. There is no transaction a non-spouse beneficiary can do to reverse what has been done. Any taxes due will be due. As such, it is imperative that non-spouse beneficiaries understand the rollover rules and limitations when attempting to move inherited plan or IRA funds. Failure to do so could result in a significant tax bill and eliminate any ability to spread taxable distributions over a multi-year period.

Spousal Rollover. Spouse beneficiaries are the only beneficiaries that can move inherited dollars into their own account. This is called a “spousal rollover.” However, once this common transaction is completed, it cannot be unwound. If a surviving spouse under age 59½ does a spousal rollover, the inherited assets will follow all the normal rules applicable to a person’s own IRA – including the early distribution rules. If the young surviving spouse then takes a withdrawal from the account, a 10% early distribution penalty will apply (unless an exception exists). If a young spouse knows that she will need access to the funds, a better choice is to delay the spousal rollover for now and maintain an inherited IRA. Any withdrawals from the inherited IRA will be penalty-free, and she can always do a spousal rollover later, after she turns age 59½.

Exceeding the One-Rollover-Per-Year Rule. An IRA owner is only allowed to roll over one distribution received within any 12-month period (for IRA-to-IRA or Roth-IRA-to-Roth-IRA rollovers). If more than one rollover is done, that mistake cannot be fixed. The illegal rollover is deemed to be an excess contribution in the receiving IRA and must be removed. Any pre-tax dollars included in the failed rollover will be taxable. Note that the one-rollover-per-year rule also applies to spousal rollovers if done via 60-day rollover. To sidestep the one-rollover-per-year rule, do direct transfers.

In Part 2 (to be published on March 11), we will discuss more fatal errors that cannot be fixed.

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:

What’s your opinion of the value of Trump Accounts? Worth it for kids? Should the child do a Roth conversion at age 18? Or is it better just to do a Uniform Transfers to Minors Act (UTMA) account? Or perhaps a mix of both since the IRA/Roth is retirement-only money and the UTMA would be able to be used before retirement?

ANSWER:

There is no right answer as every person is different and has different objectives. However, you cannot argue with the mathematics of compounding interest. Trump Accounts are saddled with several restrictions, but the long-term saving possibilities cannot be denied. Assume annual $5,000 contributions go into a Trump Account for a child until they reach age 18. Those dollars are required to be invested in a vehicle that tracks the S&P 500 index (or any other index comprised of stocks in primarily U.S. companies). As such, it is not unreasonable to imagine the account being worth north of $150,000 by age 18. Trump Accounts then begin following the standard IRA rules and can be converted to a Roth IRA. With a conservative (by historical standards) 6% average annual return, the account could be worth over $1.7 million, tax-free, by the time the child is age 60.

QUESTION:

I’m age 75 and started to take my required minimum distribution (RMD) from my IRA at age 73. I want to know if I don’t need my RMD money, can I just dump it into my Roth IRA account? I can survive on my pension and Social Security that I receive monthly. Please help!

Thank you,

Barbara

ANSWER:

Barbara,

RMDs are not allowed to be converted, so those dollars cannot be dumped into your Roth IRA. However, after your RMD for the year is satisfied, you could then do a Roth conversion at any time during the rest of the year for whatever amount you wish. While this strategy will generate more taxable income now, it will also reduce future RMDs and result in tax-free earnings on the dollars you convert; short-term pain for potential long-term gain.

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 expected to begin in just a few months, there are some new developments to report.

As a reminder, Trump Accounts are tax-deferred savings accounts for children. They were established by Congress last July as part of the One Big Beautiful Bill Act (OBBBA). Several different kinds of contributions can be made to Trump Accounts:

• A one-time $1,000 contribution from the federal government for children born between 2025 and 2028.
• Individual contributions by parents, grandparents or others on behalf of a child. For 2026, these contributions are limited to $5,000 and are available even for children who don’t qualify for the federal government contribution.
• Employer contributions for children of employees (or for teenage employees). The 2026 annual limit is $2,500, and these contributions count against the $5,000 individual contribution limit.
• Contributions by tax-exempt organizations and governments. These contributions have no annual dollar limit and don’t count against the $5,000 limit.
• Note that none of these contributions can be made before July 4, 2026, and the last three are only for children in the years before they reach age 18.

Trump Accounts are (non-Roth) traditional IRAs. However, until the year the child turns age 18, several special rules apply. For example, the accounts cannot be withdrawn for any reason. In addition, the funds must be invested in a low-cost mutual fund or ETF that tracks the S&P 500 index or another similar index that consists primarily of the stock of U.S. companies.

Here are the new developments:

• On December 2, 2025, the IRS issued Notice 2025-68, which answered some questions about how Trump Accounts will work. Among other things, the IRS said that a Trump Account can be established by filing Form 4547, either by itself or with the 2025 federal income tax return. The IRS has recently created a website, forms.trumpaccounts.gov, that allows Form 4547 to also be completed online. Parents or grandparents can also use Form 4547 to accept the $1,000 federal government contribution for qualifying children.

• Recently, some estate tax attorneys have said that individuals making Trump Account contributions will need to file Form 709 (the gift tax return) with the IRS. This will create an additional headache for parents or grandparents unless Congress or the IRS eases this requirement.

• For federal incometax purposes, all Trump Account contributions (except for individual contributions) are considered pre-tax IRA contributions. This means that taxation of the contributions and their earnings can be deferred until distribution. Individual contributions are considered after-tax IRA contributions, so only their earnings are taxed – but again not until distribution.  

For state income tax purposes, most states appear to be following the federal tax treatment. California is an exception. That state has announced that it won’t recognize Trump Accounts as IRA contributions, but instead will treat them as taxable accounts. This means that, in California, employer contributions and tax-exempt organization contributions will be taxed in the year they are made. Only the $1,000 federal government contribution is considered a pre-tax contribution in California (like under federal tax law). In addition, earnings on all types of Trump Accounts contributions will be taxed annually.

The bottom line: California residents who have Trump Accounts will have them taxed one way for federal income tax purposes and another way for state tax purposes.

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 tax season is upon us. This is the time when many people consider contributing to a retirement account. You may be interested in the Roth IRA, which offers the promise of tax-free withdrawals in retirement if you follow certain rules. If you are deciding whether a 2025 Roth IRA contribution is the right move for you, here are 5 tips to keep in mind:

1. Know the deadline. The deadline for making a prior year contribution to a Roth IRA for 2025 is April 15, 2026. If you have an extension to file your taxes, that does not give you more time. Sooner is better than later. Don’t wait until the last minute, because you never know what may happen. Be sure to let the IRA custodian know the year for which you are contributing.

Interesting fact: Who do you not have to tell about your Roth IRA contribution? That would be the IRS. There is no requirement that you report a Roth IRA contribution on your 2025 federal tax return. It is good practice, however, for you or your tax preparer to keep track of your Roth IRA contributions.

2. Understand your limits. If you were under age 50 in 2025, the maximum contribution that you may make to a Roth IRA for 2025 is $7,000. For those who reached age 50 in 2025, the maximum contribution limit is $8,000. The annual limit is aggregated for traditional and Roth IRAs. For example, you could contribute $5,000 to your Roth IRA and $2,000 to your traditional IRA. You may not contribute $7,000 to your traditional IRA and $7,000 to your Roth IRA for 2025.

3. Have taxable compensation or earned income. You or your spouse must have taxable compensation or earned income to make a Roth IRA contribution. Passive income such as investment income will not work. Social Security income will not work either.

4. Don’t count yourself out too soon. You are never too old to contribute to a Roth IRA. Do you already contribute to a retirement plan at work? That is not a problem. Your participation in your company plan does not affect your eligibility to make a Roth IRA contribution.

5. Consider the Back Door. Your income must be under certain limits to make a Roth IRA contribution. If your 2025 modified adjusted gross income (MAGI) exceeds $150,000 if you are single, or $236,000 if you are married filing jointly, your ability to contribute to a 2025 Roth IRA begins to be phased out.

If your income is too high, you might consider a back-door Roth IRA. You simply contribute to a traditional IRA, which has no income limits (but don’t forget the taxable compensation or earned income requirement), and convert. Sounds intriguing? Check with a knowledgeable tax or financial advisor to see if this is a good strategy for you. If you have pre-tax funds in any IRA, the pro-rata rule will apply to your Roth conversion and make part of your conversion taxable.

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 appreciate your emails and find them very helpful. Please continue the great work. I read your advice in the recent Slott Report article that IRA contributions need to be in cash, but was wondering about Roth conversions. If I do a Roth conversion from a traditional IRA, can it be done by moving shares of a mutual fund from the traditional IRA to the Roth IRA? (I would be paying the taxes out of personal funds.)

Thank you.

Answer:

We appreciate the kind words. The cash requirement discussed in the Slott Report refers only to tax-year IRA contributions. You are allowed to convert property such as shares of a mutual fund. If you are doing a Roth conversion through a direct transfer, the custodian will move mutual fund shares (or other property) from the traditional IRA to a Roth IRA. If you are doing the conversion through a 60-day rollover, you must roll over the same property that was distributed to you.

Question:

I am age 74 and have inherited both an IRA and a Roth IRA after my older sister died. Can I do a rollover from the inherited IRA into the inherited Roth IRA?

Daniel

Answer:

Hi Daniel,

Unfortunately, not. Inherited IRA funds cannot be rolled over (converted) to inherited Roth IRAs. By contrast, inherited employer retirement plan funds can be converted to inherited Roth IRAs.

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

A member of Ed Slott’s Elite Advisor Group℠ emailed us recently with a question about a minor child as beneficiary of her father’s IRA. The question was brief, and I think the expectation was that our reply would be of similar length. But our job is not to answer in the fewest words possible. Our responsibility is to fill in the blanks and make sure that member advisors are armed with all the pertinent details. Here is that communication. (Note: Some details have been changed for privacy.)

QUESTION:

Dad died leaving a $200,000 IRA to his daughter. He was not yet taking required minimum distributions (RMDs). Dad died in 2023. Daughter turned age 15 that year. When does her 10-year window begin?

OUR RESPONSE:

Here are the details in bullet points to keep it all straight:

• Dad died in 2023 prior to his required beginning date (RBD), so no lifetime required RMDs for Dad.
• Daughter is an eligible designated beneficiary (EDB) because she is a minor child of the IRA owner.
• As an EDB, and with death prior to the RBD, Daughter has a choice:
  • 10-year rule with NO annual RMDs. The 10-year period would start in 2024 and end in 2033 when the entire account would need to be emptied.
    
    
    OR…
    
    
  • Stretch RMDs starting in 2024 when Daughter was age 16 (at her birthday that year). The single life expectancy for a 16-year-old is 69.0. That would be Daughter’s starting factor in 2024, and she would subtract 1.0 from that number each year (i.e., 68.0 in 2025, 67.0 in 2026). Daughter would take RMDs each year until and including the year she turns age 21 (2029). At that point, the 10-year period kicks in (the year she reaches age 22). Daughter continues with the same RMD factor she was using, minus 1.0, for years 1–9. The account must be emptied by the end of the year (2039) in which Daughter turns age 31.

• If Daughter has not taken any RMDs in 2024 or 2025, and if she wants to leverage the EDB stretch + 10-year rule, then we have missed RMDs for 2024 and 2025. No worries. We follow the missed RMD penalty waiver request process.
• The process is: take the missed RMD, complete Form 5329, send the form and a letter to the IRS explaining what happened, that it has been corrected, and to please waive the missed RMD penalty. The IRS has shown that it is agreeable to work with proactive taxpayers.
• If Daughter wants to stick with just the 10-year rule and no EDB stretch, then no RMDs have been missed, and no penalty waiver request is needed.
• If Daughter goes with this 10-year/no RMD option, I suggest not waiting until the end of year 10 (2033) to deplete the account, because she could face an elevated “balloon” tax bill. A gradual drawdown over the next few years, being mindful of tax brackets, could be wise.

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

In the January 5 edition of the Slott Report, we mentioned that the federal Thrift Savings Plan (for government workers and the military) started offering in-plan Roth conversions on January 28. This article will provide more information about in-plan Roth conversions generally – how they work, their availability, their tax consequences, and who can most benefit from them.

What is an in-plan Roth conversion? It’s a transfer of funds from your non-Roth 401(k) buckets (e.g., pre-tax elective deferrals, non-Roth after-tax contributions and employer matches) to a Roth account within the same plan. Besides active employees, in-plan conversions can be made by former spouses and surviving spouse beneficiaries with a plan account. Conversions cannot be done by non-spouse 401(k) beneficiaries.

In-plan Roth conversions are available to employees in 401(k), 403(b) and governmental 457(b) plans that permit them. (For the sake of simplicity, references in this article to “401(k) plans” mean 401(k), 403(b) and governmental 457(b) plans.)

In-plan Roth conversions are optional for plans. According to a recent report by the Plan Sponsor Council of America, 56% of surveyed plans allow in-plan conversions at any age, while 6% allow them only at age 59½ or older. So, be sure to check with your plan administrator or company HR to see if in-plan Roth conversions are allowed. By contrast, Roth IRA conversions are always available to traditional IRA owners. Roth IRA conversions are also available to inherited 401(k) beneficiaries, but not to inherited IRA beneficiaries.

When you convert funds in pre-tax 401(k) buckets, the conversion is fully taxable to you in the year you do the conversion. However, when you convert funds in a separate after-tax bucket, only part of the conversion is taxable. The conversion is taxable in the same proportion that after-tax earnings in your after-tax bucket bear to the total balance in that bucket. Note that Roth IRA conversions of after-tax amounts are taxed differently. All of your IRAs, including SEP and SIMPLE accounts, are considered in determining the taxable portion of the conversion.

It’s important to remember that once you do an in-plan Roth conversion, it cannot be undone. This means you must have the funds available to pay that year’s tax bill. You also may need to start making quarterly estimated payments to the IRS (or increase existing estimated taxes). Be sure to check with your financial advisor or CPA.

If you’re under 59½, working for a company with a 401(k) plan and want to boost your Roth savings, an in-plan Roth conversion may be an especially good idea. That’s because you normally can’t get access to your pre-tax plan savings in order to do a Roth IRA conversion while you are still employed. But if the plan allows, you can get those funds into a Roth 401(k) account through an in-plan conversion.

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:

Please explain the rules and qualifications for rolling over a portion of an IRA to a Health Savings Account (HSA).

Thank you,

Bill

Answer:

Hi Bill,

A Qualified HSA Funding Distribution (QHFD) is done by direct transfer from your IRA to your HSA. This transaction is not taxable or subject to the 10% early distribution penalty. The amount that can be transferred cannot exceed the amount you are eligible to contribute to your HSA for the year. The amount you can move will be reduced by any HSA contributions you have already made during the year.

You may only do one QHFD in your lifetime. There is an exception to this rule if you start out the year with self-only coverage and then later switch to family coverage. In that case, the additional amount can be transferred in the same year. Once you do a QHFD, you must remain eligible for the HSA for what is called the “testing period.” The testing period begins with the month of the HSA contribution and ends on the last day of the month, 12 months later. There are exceptions to the testing period for death and disability.

Question:

My current employer’s 401(k) plan includes a “still-working exception,” which will enable me to avoid having to take my required minimum distribution (RMD) from this plan. If I retire before year’s end, do I still qualify to take advantage of this, or do I need to be on the payroll through December 31?

Answer:

The only way to qualify for the still-working exception for this year is to work the entire year. If you retire at any point during 2026, including on December 31, 2026, you will have an RMD 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.