Not all funds in an IRA belong there. When a contribution is not permitted in an IRA, it is considered an excess contribution and needs to be fixed to avoid penalties. Some excess contributions are easy to understand. Others may surprise you.

Here are some ways an excess IRA contribution can happen to you:

Your income is too high to make a Roth IRA contribution.

A common cause of excess Roth IRA contributions is contributing in a year when income is too high. If your income fluctuates or you have unexpected income in the year, you are particularly vulnerable. Watch out for the annual income limits. For traditional IRAs, there are no income limits for eligibility to contribute, so this is never a problem.

You do not have enough earned income or taxable compensation.

A more frequent occurrence is an IRA owner not having sufficient earned income or taxable compensation to fund an IRA contribution for the year. While you can use a spouse’s taxable compensation to fund your IRA, a multitude of different income sources do not qualify for an IRA contribution, including Social Security, rental income and investment income. You may have a high income, but still not be eligible to fund an IRA. If you go ahead anyway, the result is an excess IRA contribution.

You contribute more than the annual limit.

If you contribute more than the annual limit to an IRA for the year, that will be an excess contribution. This may seem like an easy rule to follow. You may wonder who is going around contributing tens of thousands of dollars to IRAs in violation of the contribution limits. In fact, most IRA custodians will not accept contributions over the yearly limit. However, an individual with multiple IRAs with different custodians could exceed the limit by contributing to each of them. 

You violate the 60-day or once-per-year rollover rule.

You may be surprised to know that a failed rollover attempt can result in an excess contribution. How can this happen? Well, there are a variety of ways you can end up in this position. One possibility would be a violation of one of the rollover rules. If you mistakenly roll over after the 60-day rollover period has already expired, or if you violate the once-per-year rollover rule, you will end up with an excess contribution instead of a rollover in your IRA.

You roll over your RMD.

If you are older, you may be at greater risk of excess contribution due to rollover mistakes. Older clients can be at a higher risk for excess contributions due to rollover mistakes. This is because of the rule that says that the required minimum distribution (RMD) for the year cannot be rolled over. In fact, the RMD for the IRA must be taken before any of the funds in the IRA are eligible for rollover. For example, an RMD must be taken before doing a Roth IRA conversion. If you mistakenly roll over your RMD, you will end up with an excess contribution.

You make a contribution to an inherited IRA.

If you inherit an IRA from someone who is not your spouse, you may not contribute to that inherited IRA or combine it with your own IRA. If you do, you will have an excess contribution.

The Fix for Excess Contributions

Now you know what can cause excess IRA contributions. That is the first step in avoiding them. If, despite your best efforts, an excess contribution occurs, the bad news is that the problem will not go away or fix itself. An excess contribution can be subject to penalties each year it remains in the IRA. The good news is that excess contributions can be corrected and often without penalty. For the right fix for your situation, be sure to talk to a knowledgeable tax or financial advisor.

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

April 15 is fast approaching. Not only is this the standard tax filing deadline, but it is also the deadline to complete some IRA transactions. But there is a common misconception that certain other IRA transactions can also be done up until mid-April. Such is not the case. Here are a few IRA moves that can be done by April 15, and a few that are already well past their deadline.

Prior-year traditional IRA contributions CAN be made up until April 15. So, if an IRA owner still wants to make a 2025 traditional IRA contribution, there is still time (as of this publication date). Prior-year contributions can be deductible or not. But be forewarned, even if a taxpayer files for an extension to submit his return, that extension does not extend the IRA contribution deadline. It remains April 15.

Prior-year Roth IRA contributions CAN ALSO be made up to April 15. The same extension rules mentioned above apply to Roth IRAs as well. But not all benefits are the same. For example, Roth IRAs have 5-year clocks to consider for tax-free earnings. No such clocks apply to traditional IRAs. A person who opens his very first Roth IRA (via either contribution or conversion) will receive a January 1 start date of that year for his “5-year forever” clock. What if a person who never had a Roth IRA before makes a prior-year Roth IRA contribution in early 2026 for 2025? Since the contribution was for 2025, that person receives a January 1, 2025 start date. A prior-year contribution can shave over 15 months off an initial 5-year Roth IRA clock.

What CANNOT be done up to April 15 is a “prior-year Roth IRA conversion.” There is no such thing. All Roth IRA conversions count for the year of the conversion. For a conversion to be applicable for the 2025 tax return, the dollars must have left the traditional IRA by December 31, 2025. So, a person can make a prior-year (2025) traditional IRA contribution, but if those contributory dollars are then promptly converted, the conversion will count for 2026. This is an important distinction when a person is completing a “backdoor Roth IRA” by making a non-deductible traditional IRA contribution and then converting it.

Example: On April 15, John, age 55, makes a prior-year (2025) traditional IRA contribution for $8,000 and, at the same time, makes a current year (2026) traditional IRA contribution for $8,600. John then converts all $16,600 to a Roth IRA. While the $8,000 contribution will count for 2025, the entire $16,600 conversion is documented and taxed on his 2026 return.

Another transaction that CANNOT be extended to the following year is a qualified charitable distribution (QCD). Like Roth conversions, there is also no such thing as a “prior-year” or “retroactive” QCD. When executed properly by an eligible traditional IRA owner, a QCD can exclude income that would otherwise be taxable if a person just took a normal distribution. However, once a standard withdrawal is paid out to a traditional IRA owner, the deed is done. Yes, you can subsequently give that money to charity, but you cannot claim “QCD.” A charitable deduction could work, but the opportunity to offset that income with a QCD is lost. If the goal was to exclude income in 2025 with a QCD, that QCD must have been processed by December 31, 2025.

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 a non-spouse beneficiary inherits a 401(k), what are the options? Can you roll the money into an inherited IRA? Are there any other options, and over what time period does each option require the account to be drained? Thank you so much for your help.

Roger

ANSWER:

Roger,

The payout rules for non-spouse beneficiaries of 401(k) plans are the same as those that apply to non-spouse beneficiaries of IRAs. We must first determine if the non-spouse is an eligible designated beneficiary (EDB) or a non-eligible designated beneficiary (NEDB). EDBs can use their own single life expectancy to take annual required minimum distributions (RMDs) from the inherited account. NEDBs will get the 10-year rule. Whether or not RMDs apply within the 10-year period depends on the age of the deceased 401(k) plan participant. Regardless of the beneficiary’s status as either an EDB or NEDB, the inherited 401(k) can be directly rolled over to an inherited IRA, and the applicable payout schedule will follow. Note that non-designated beneficiaries (NDBs), such as an estate, cannot move plan funds to an inherited IRA. Also, 401(k) plans can be more restrictive and require a quicker payout vs. what is outlined above.

QUESTION:

I am currently retired, age 65, and have a 401(k) plan. How far in advance should I transfer money from my 401(k) to an existing traditional IRA to fund a qualified charitable distribution (QCD)? Can I use the same traditional IRA account to fund QCDs in future years? Need I transfer the entirety of my 401(k) balance into an existing traditional IRA up front, or may I do it gradually over time?

Best regards,

Ken

ANSWER:

Ken,

Step 1 is to become eligible to complete a QCD. Since a person cannot do a QCD until age 70½, you have five years to get your ducks in a row. You are correct to anticipate the need to roll over 401(k) funds to an IRA, because QCDs cannot be done from a 401(k) plan. Yes, you can use the same traditional IRA to receive your 401(k) rollover and handle all of your QCDs. You could do partial rollovers to your IRA to fund QCDs between ages 70 and 74, but this could become problematic when you are RMD age. Since you are only age 65, at age 75 there will be an RMD due on your 401(k). RMDs cannot be rolled over. So, you would need to take the RMD from the plan before doing any rollovers to your IRA. The income from the 401(k) RMD cannot then be offset with a future QCD. If your goal is to offset future RMDs with QCDs, it might be wise to roll over your entire 401(k) to your IRA before the year you turn age 75.

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.

“Qualified domestic relations orders” (QDROs) are court orders used to divide ERISA retirement plan assets after a divorce. Normally, after a QDRO is approved by a defined contribution plan like a 401(k), the plan will establish a separate account within the plan in the name of the ex-spouse.

Since the ex-spouse has her own separate account within the plan, you might think that required minimum distributions (RMDs) for her would be based on her age. In other words, you might think that the ex-spouse doesn’t have to start RMDs until the year she turns age 73 (or 75 if born after 1959) – regardless of the 401(k) participant’s age.

Strangely, that’s not what the IRS regulations say. Those rules say that, even though an ex-spouse has a separate account, she must start taking RMDs when the participant reaches age 73 (or 75). The IRS rules go on to say that when RMDs start for the ex-spouse, she gets to use her own single life expectancy factor to calculate RMDs. Unfortunately, it’s not clear which IRS life expectancy table should be used. Although it would seem that the more favorable Uniform Lifetime Table (usually used for lifetime RMDs) is the correct table, some large plan administrators base RMDs on the Single Life Table (usually used only for post-death RMDs).

Example: Harrison is a participant in a 401(k) plan. He and his wife, Calista, are divorced in 2026 when Harrison is 72 and Calista is 54. They agree to a QDRO in which Harrison assigns 50% of his 401(k) account balance to Calista. The plan establishes a separate account for Calista’s benefit. Harrison turns age 73 in 2027. Even though Calista will only turn age 55 in 2027, she must start taking RMDs for that year. Her RMD for 2027 would be based on a life expectancy factor of 31.6 if she uses the IRS Single Life Table, but would be 43.6 if she uses the Uniform Lifetime Table.

There is a workaround if an ex-spouse who is younger than her ex-spouse, doesn’t want to be saddled with RMDs. Most plans allow ex-spouses to roll over their separate account to their own IRA at any time. Once she does that, the ex-spouse won’t be required to start RMDs until she turns age 73 (or 75 if born after 1959). (However, if the ex-spouse does the rollover in a year in which she is subject to RMDs, she would have to take the RMD out first.)

A distribution out of a QDRO separate account is neversubject to the 10% early distribution penalty, regardless of age. The downside to the rollover strategy is that the rolled-over funds become subject to the standard IRA early distribution rules. Therefore, if the ex-spouse must tap into the rolled-over IRA funds before age 59½, that withdrawal is subject to 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.

The tax-filing deadline is almost here. Are you thinking about making a 2025 IRA (traditional or Roth) contribution? Time is quickly running out. Here are some last-minute tips to keep in mind as you make your IRA contribution.

1. Watch the Deadline. The deadline for making your 2025 IRA contribution is the tax-filing deadline, Wednesday, April 15, 2026. Do you have an extension? That won’t buy you more time. Even if you have an extension for filing your 2025 federal income taxes, your deadline for making a traditional or Roth IRA contribution is still April 15, 2026.

• Know Your Limits. The maximum contribution that you can make to an IRA for 2025 if you were under 50 is $7,000. If you reached age 50 (or older) in 2025, the maximum contribution limit is $8,000. The annual limit is aggregated for traditional and Roth IRAs. You cannot contribute $7,000 to your traditional IRA and $7,000 to your Roth IRA for 2025. 

• Have Taxable Compensation. Your IRA contribution generally may not exceed your taxable compensation (or earned income) for 2025. However, if you are married, you may be able to use your spouse’s compensation or earned income to make your IRA contribution.

• Check Your Income. When your 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 Roth IRA begins to be phased out for 2025. There are no income limits for traditional IRA contributions. 

• Maximize Your Benefits. Many people miss out on the benefits of IRA contributions simply because they do not understand the rules. This is particularly true when it comes to how participation in a company plan affects your IRA contribution.

Here is some good news: Your participation in your company plan does not affect your eligibility to make a Roth IRA contribution at all! More good news: If you and your spouse, if married, are not active participants in a company plan, you can fully deduct your traditional IRA contribution, regardless of how high your income is. However, if you are an active participant in your company’s retirement plan, and your MAGI exceeds $79,000 if you are single, or $126,000 if married, your ability to deduct your 2025 traditional IRA contribution begins to phase out. If you are not an active participant, but your spouse is, your ability to deduct phases out when MAGI reaches $236,000. 

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 had my IRA custodian send my required minimum distribution (RMD) from my IRA to our church, but had 20% federal taxes withheld. Subsequently, I received two Form 1099-Rs from the custodian. One showed the withheld amount as a taxable amount and had a “7” code. The second showed the balance and had a “7Y” code. Then, when doing my taxes, the tax software also says that the amount withheld is taxable. Is there any way to correct this? Please help. 

Bernie

Answer:

Hi Bernie,

You did a qualified charitable distribution (QCD), which is a direct transfer from a tax-free IRA to a charity. (A QCD can be used to offset an RMD for a year if the QCD is done first during the year.) Since QCDs are tax-free, you should not have had taxes withheld. Since the taxes withheld went to the IRS and not to your church, that amount was not a QCD and is therefore taxable to you. That explains why the custodian reported the withheld amount as taxable on the first Form 1099-R. The custodian properly used Code “7Y” for the balance on the second Form 1099-R, since the balance was a tax-free QCD. The mistake of withholding on the QCD cannot be corrected, but you can take a credit for the withholding on your tax return.

Question:

If you’re under age 59½, do a Roth conversion, and withhold from the conversion, are you subject to a 10% early distribution penalty?

Best,

Nick

Answer:

Hi Nick,

Normally, you are not subject to the 10% penalty if you do a conversion before age 59½. However, you will have to pay the penalty on any taxes withheld. That’s because the withheld amounts are not being converted and are considered a standard withdrawal that is being sent to the IRS. This is why we advise paying the taxes on a Roth IRA conversion with other, nonqualified assets – like money from your checking account.

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.

Today is April 1, and that’s a big day! No, not because it’s April Fool’s Day, but because today is the required beginning date (RBD) for any traditional IRA owner who turned age 73 in 2025. Based on census data, that could be a few million Americans.

What is the RBD? It is the day when required minimum distributions (RMDs) are officially “turned on” within a traditional IRA. Regarding the RBD on company plans, older employees who do not own more than 5% of the business and whose workplace retirement plan offers the still-working exception can delay the RBD on that plan until April 1 of the year after the year of separation from service. As for Roth IRAs, they never have lifetime RMDs, so all Roth IRA owners are deemed to die prior to their RBD – even if they live to be 100. For this article, we will focus solely on the age 73 traditional IRA RBD.

For any IRA owner who turned age 73 in 2025, their first RMD is for 2025. This first RMD is taken in anticipation of reaching the RBD. The 2025 RMD is calculated by dividing the prior year-end balance (December 31, 2024) by the appropriate life expectancy factor. Most IRA owners will use the Uniform Lifetime Table to identify their applicable factor. For a 73-year-old, that factor is 26.5.

Example 1: Jim turned age 73 in 2025. His IRA balance on December 31, 2024, was $875,000. Jim divides $875,000 by 26.5 and correctly determines his 2025 RMD to be $33,019. Jim must take his first RMD by April 1, 2026.

A traditional IRA owner is only allowed to delay his very first RMD until April 1 of the following year. This grace period allows those who are new to RMDs a few extra months to get into a rhythm of taking annual mandatory distributions. If the first RMD is delayed to the following year, that does not change the original calculation amount. Also, if the first RMD is delayed, the IRA owner will ultimately have to take two RMDs that next year – the delayed first RMD, and the second RMD by December 31 of that same year.

Example 2: If Jim (from Example 1) delayed his 2025 RMD to the first part of 2026, he will have two RMDs to take in 2026 – the delayed 2025 RMD (by April 1) and his 2026 RMD (by December 31). Note that Jim will use his full IRA balance on December 31, 2025 to calculate his 2026 RMD. He does not get to reduce the balance by the delayed 2025 RMD amount.

The RBD is also important for determining the payout structure for IRA beneficiaries. If an IRA owner dies before his RBD, then there are no RMDs within the 10-year period for a non-eligible designated beneficiary (NEDB). Had death been on or after the RBD, then RMDs would apply in years 1-9 of that window. For non-designated (non-person) beneficiaries (NDBs – like an estate), death before or on/after the RBD is the difference between the 5-year rule and the “ghost” rule.

April 1 is not just for pranks. Missing an RMD could result in a substantial penalty. When it comes to lifetime RMDs and beneficiary payout rules, the RBD is nothing to joke about.

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.

More and more Americans are taking on “side gigs” or switching jobs. When that happens, they often wind up participating in two different employer retirement plans at the same time or in the same year. Here are 8 rules to help you understand how the plan contribution limits apply in those cases: 

1. There are two different plan contribution limits – the “deferral limit” and the “overall limit.” 
   
2. For 2026, the regular deferral limit for combined pre-tax and Roth contributions is $24,500. However, two catch-up contributions are available. If you’re age 50 or older by the end of the year, you can defer up to an additional $8,000, for a total of $32,500. And if you’re age 60–63 by year end, you can defer up to an additional $11,250, for a total of $35,750.
   
3. Non-Roth after-tax contributions, if allowed by the plan, do not count toward the annual deferral limit. (But they do count toward the overall limit, discussed later.)
   
4. The deferral limit is a per-employee limit. It’s based on the total pre-tax and Roth contributions you make to all your plans in one calendar year. Contributions to all plans are aggregated even if the plans are sponsored by companies that aren’t related under the tax rules.
   
   Example 1: Mira, age 48, participates in a company 401(k) plan through her regular job with Alpha Solutions and also has a solo 401(k) through a computer repair side business. Alpha and her side business are not related entities. By October 2026, Mira has contributed $20,500 of Roth elective deferrals to Alpha’s 401(k) and $4,000 of pre-tax deferrals to her solo 401(k). Even though the companies aren’t related, Mira can’t make any additional deferrals to either plan because her combined 2026 deferral total has already reached the $24,500 limit.
   
5. There’s one instance where contributions to all plans are not aggregated: If you’re eligible for both a 457(b) plan and either a 401(k) or a 403(b) plan, you can defer up to the maximum limit to each plan.
   
6. For 2026, the overall limit (also known as the “annual additions limit” or “415 limit”) is $72,000, or higher if you make catch-up contributions.
   
7. The overall limit sets the maximum amount of all contributions that can be allocated to your plan account in any year. This includes pre-tax and Roth elective deferrals, after-tax employee contributions, employer contributions, and forfeitures.
   
8. Normally, the overall limit applies on a per-plan basis. However, if your company has more than one plan, contributions to all plans are combined for the overall limit. That’s also the case for contributions to separate plans sponsored by two or more companies that are related under the tax rules. But, if you’re in two plans sponsored by unrelated companies, you get the benefit of a separate overall limit for each plan.
   
   Example 2: Alpha Solutions and Mira’s computer business (from Example 1) are considered unrelated businesses. So, for 2026, Mira has a separate overall limit for each 401(k) plan and could theoretically have a total of $144,000 ($72,000 x 2) of combined contributions made between the two plans. However, to achieve that result, she would have to make a large amount of after-tax employee contributions and/or receive a large amount of employer contributions. In any case, Mira’s total combined 2026 pre-tax and Roth elective deferrals between the two plans is still capped at $24,500.

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:

Hi Ed and team,

If a parent, age 86, inherited their son’s 401(k) after the son passed at age 58, does the parent still have 10 years to withdraw the funds? A lot is discussed about beneficiaries younger than the deceased, but not really beneficiaries that are older.

Thanks!

Janet

Answer:

Hi Janet,

Under the SECURE Act, a beneficiary who is “not more than ten years younger” than the deceased is considered an eligible designated beneficiary (EDB) and can still use the stretch. A beneficiary who is older than the account owner would fit into this category of EDB. If the IRA owner died before required minimum distributions (RMDs) would have had to start, the 10-year rule would also be an option.

In this situation, the parent beneficiary could therefore choose to use the stretch and take annual RMDs over their life expectancy, or use the 10-year rule with no annual RMDs. In this case, going with the 10-year rule may be the better option because the beneficiary is age 86, and their life expectancy would be less than ten years. Additionally, because the account owner was only age 58, no annual RMDs would be required during the 10-year period, which would allow more flexibility in distribution planning.

Question:

Hello!

Can a Roth conversion happen in April for the prior year? For example, could I convert my IRA in April of 2026 and consider it a prior-year conversion for 2025?

As always, thank you!

Calvin

Answer:

Hi Calvin,

While prior-year Roth IRA contributions are permitted, prior-year conversions are not allowed. A conversion done in April of 2026 would be taxable for 2026. For the conversion to be taxable for 2025, it would have to have been done by December 31, 2025.

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.

Here at the Slott Report, we get a lot of questions on all sorts of different IRA topics. However, one area where we consistently get the most inquiries is the five-year rules for Roth IRA distributions.

Here are 5 things every Roth IRA owner needs to know about the five-year rules.

1. Yes, there are two five-year rules. One thing that makes the Roth IRA distribution rules so confusing is the fact that there are actually two five-year rules you need to understand to properly execute tax- and penalty-free Roth IRA distributions. One five-year rule applies for tax-free distributions of earnings, and another applies for penalty-free distributions of converted funds.

2. The five-year rule for tax-free distributions of earnings starts with your first Roth IRA conversion or contribution and it never restarts. This rule applies in the aggregate to all your Roth IRAs. It also is not necessarily five full years. For example, if you make a prior-year Roth IRA contribution in March of 2026 for 2025, your five-year clock for tax-free distributions of Roth IRA earnings starts January 1, 2025.

3. The five-year rule for penalty-free distributions of converted funds applies separately for each conversion. While a distribution of converted funds is never taxable, the 10% early distribution penalty can apply if a five-year holding period is not satisfied. This five-year rule is only an issue if you are under age 59½. It applies separately to each conversion that you do. It also may not be five full years. For example, if you convert on December 31, 2025, you can take penalty-free distributions on January 1, 2030.

4. Beneficiaries are subject to the five-year holding period for tax-free distributions of Roth IRA earnings. If a Roth IRA owner has not satisfied this five-year rule, the beneficiary must finish it out. A spouse beneficiary can use the more favorable of their own or their deceased spouse’s five-year holding period. The five-year rule for penalty-free distributions of converted funds is never an issue for beneficiaries because all IRA distributions due to death are penalty-free.

5. The Roth IRA owner must track the five-year rules. Ultimately, it is up to the Roth IRA owner to keep good records and ensure that they are not violating either of the Roth IRA five-year rules. The taxation of Roth IRA distributions is determined in the aggregate, with all of an individual’s Roth IRAs being considered and ordering rules applied. Contributions come out first, then conversions, and finally earnings. Custodians do not necessarily have all the information to determine if the Roth five-year rules are satisfied. Roth IRA owners must understand the rules. A knowledgeable advisor 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.