Converting a traditional IRA to a Roth IRA (or converting a workplace retirement plan) is optional. It is up to each IRA owner to decide if converting makes sense in their particular situation. Roth conversion is not a universally beneficial transaction, so each scenario must be evaluated individually. We all have different opinions and financial goals. While a Roth conversion could make sense for one person, it might be too far of a leap for another. To help with the decision, here is a list of people for whom a Roth conversion could make sense.

1. Those who will not need the money soon or at all, especially if they plan to pass the funds to beneficiaries. Most beneficiaries will be subject to the 10-year rule. This accelerated payout of an inherited IRA compresses the overall tax bill into a shorter time period. A Roth conversion eliminates the tax bill for beneficiaries (since the taxes are paid up front at conversion). Individuals who don’t need the money should consider converting, regardless of age. They are not doing the conversion for themselves; they are doing it for their children, grandchildren and other beneficiaries. A tax-free inheritance? What a great final gift!

2. Anyone naming a trust as their IRA or plan beneficiary. A Roth conversion removes the trust tax problem when inherited traditional IRA funds are retained in the trust. Trusts reach the 37% bracket when income exceeds just $16,000 for 2026. Converting to a Roth IRA while the original IRA owner is still alive and leaving those funds to a trust eliminates the trust tax problem after death.

3. Those who expect their future tax rates to be higher. This is especially true for those who are worried about future tax rate increases. (The national debt is over $40 trillion. Someone has to pay that bill.)

4. Those who have certain tax characteristics like high deductions, tax credits and other tax benefits. These can be used to offset Roth conversion income. But be careful! Capital losses can only offset up to $3,000 of Roth conversion income.

5. Those who have the money in non-IRA funds to pay the tax. Try not to use IRA dollars to pay the tax (via withholding). It reduces the amount that can be converted in the future. And avoid having taxes withheld for anyone under age 59½. This will result in a 10% early withdrawal penalty on the taxes withheld – because those tax dollars don’t actually get converted.

6. Young people. Younger people generally are in a lower bracket and have not yet accumulated large sums in their IRAs or 401(k)s. Therefore, a conversion should not generate an overwhelming tax hit. Plus, young people will have an extended time for the Roth dollars to compound tax-free. And speaking of a long time to let the assets grow…

7. Trump account owners. This can’t happen until the year the child reaches age 18. However, a Roth conversion of a Trump account at age 18 not only starts the “5-year forever” clock for the child, but also allows for over 40 years of tax-free growth by the time the child reaches age 59½.

And finally…

8. Those who do not want to worry about paying taxes later, in retirement, when they may need the money. A Roth conversion locks in today’s historically low tax rates. No conversion means a traditional IRA owner can only wait and hope that tax rates don’t significantly increase.

(Note: Watch for the September 14 Slott Report, “Part 2: Who Should NOT Convert to a Roth 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:

Can I convert my traditional IRA to a Roth IRA even though I have no earned income for this year?  

Answer:

While having earned income or taxable compensation is a requirement for making a tax-year contribution to an IRA or Roth IRA, there is no such requirement for doing a conversion. Anyone with a traditional IRA is eligible to convert to a Roth IRA.

Question:

I have both an IRA and a 401(k). Can I satisfy the required minimum distribution (RMD) from my IRA by taking additional funds from the 401(k)?

Answer:

Unfortunately, this will not work. While you may aggregate RMDs from multiple IRAs, you cannot aggregate IRA and employer plan RMDs. You must take your IRA RMD from your IRA and your 401(k) RMD from the plan.

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.

One of the most important features of Trump accounts is that they must be invested a certain way during the period before January 1 of the year the child turns age 18. (The IRS calls this the “growth period.”) The IRS recently issued guidance on permissible (“eligible”) investments during the growth period. The guidance came in the form of proposed regulations issued on August 21, 2026.

During the growth period, Trump account funds must be invested in a low-cost mutual fund or ETF that tracks the S&P 500 stock index or another index comprised primarily of U.S. companies. The fund may not use leverage, and annual fees and expenses may not exceed 0.10% (10 basis points) of the net value of the assets.

On July 1, 2026, the Treasury Dept. announced that initial Trump account contributions must be invested in the State Street SPDR Portfolio S&P 500 ETF (Ticker: SPYM). In the coming months, funds can be allocated among four other ETFs.

Here are the highlights of the August 21 proposed regulations:

• ETF share classes of mutual funds qualify as permissible ETFs.
  
• The mutual fund or ETF must seek to replicate the returns of an index, but it need not necessarily hold each of the underlying stocks of the index.
  
• An index that is based on market capitalization (e.g., a mid-cap fund) would qualify, but an industry or sector-specific index (e.g., a health care fund) would not. In addition, an environmental, social and governance (ESG) fund index may not be used.
  
• 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.
  
• Annual fees and expenses include transactional fees, such as sales charges, loads and redemption fees. They don’t include custodial fees or other similar charges associated with a Trump account itself (rather than any particular investment fund).
  
• A custodian may offer multiple eligible investments for Trump account funds. In that case, the custodian must select a default eligible investment if no fund is selected.
  
• Before a custodian first offers an investment fund, it must determine that the fund qualifies as an eligible investment. Thereafter, the custodian must monitor all investment funds at least once every 12 months. If the custodian determines that a fund no longer qualifies, its shares must be sold and reinvested within 30 days.

Most of the rules in the regulations are proposed to be effective retroactively back to January 1, 2026. However, the rules governing custodians won’t apply until after the IRS finalizes the regulations.

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.

Naming a trust as your IRA beneficiary can help you meet important estate planning goals. However, if you are considering this, you should proceed with caution. Here are four common mistakes with IRA trusts you will want to avoid.

1. Naming an Unnecessary or Unwanted Trust as Your IRA Beneficiary

If you plan to leave your IRA funds to a vulnerable beneficiary such as a minor or an individual, a trust can be a good strategy to protect the beneficiary or preserve government benefits. However, naming a trust when it is not needed or wanted is a mistake.

When an unnecessary trust is named as IRA beneficiary, the trust beneficiaries will often look to the IRS for a private letter ruling (PLR) allowing a spouse beneficiary to do a spousal rollover or nonspouse beneficiaries to set up inherited IRAs.

While these PLR requests do have a track record of success, they are expensive and time consuming, not to mention the money and effort required for drafting an unnecessary IRA trust. A better approach is to proactively determine whether a trust is really needed from the onset. If the desired outcome is a spousal rollover or nonspouse beneficiaries having their own inherited IRAs, avoid the mistake of naming a trust and just name the living, breathing beneficiaries directly.

2. Paying Out the Entire Inherited IRA to the Trust

Imagine spending a lifetime building a retirement account only to have beneficiaries lose the tax-deferred status in one fell swoop by taking a total distribution from the inherited IRA. Avoid this outcome by correctly establishing an inherited IRA for the trust and only distributing RMDs or other desired distributions out of the inherited IRA to the non-qualified trust account.

3. Failing to Name the Trust as Your IRA Beneficiary

It is hard to believe, but one critical step that can get missed is remembering to name the trust on the beneficiary form. Don’t go through the trouble of having a perfect trust drafted and then overlook updating the beneficiary form.

4. Not Updating Your Trust for the Secure Act

It has been several years since the SECURE Act became a reality, and there are still many outdated IRA trusts that do not take the new rules into account. It is not too late. If you named a trust as your IRA beneficiary, you should act to review and potentially revise the trust. Conduit trusts may have to be changed to discretionary-type trusts to either allow distributions within the 10-year payout period to smooth out the tax bill, or to be held within the trust beyond the 10 years for long-term protection.

If you are considering a trust as an IRA beneficiary after the SECURE Act, one strategy worth pursuing is to convert your traditional IRAs to Roth IRAs. Leaving Roth IRA funds to a discretionary trust can provide post-death control while also eliminating trust or individual taxes.

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 inherited a Roth IRA from a sister who was one year younger than me. If I choose to stretch distributions over my life expectancy, which chart do I use, and whose age do I use for the first required minimum distribution (RMD)?

ANSWER:

You qualify as an eligible designated beneficiary (EDB) on this inherited Roth IRA under the “not more than 10 years younger than the decedent” EDB category. As such, you have the option to take stretch annual RMDs over your own single life expectancy. Use your age (on your birthday) in the year after the year of your sister’s death. Find the corresponding factor from the Single Life Table. That is your first RMD factor. Then, subtract 1.0 from the first factor for the next year, and 1.0 from the previous year’s factor for each year thereafter.

QUESTION:

A client rolled over $7,500 of her 529 account to a Roth IRA in 2026. Can she also contribute $7,500 to her Roth IRA, assuming she has the earned income?

ANSWER:

A beneficiary of a 529 account with unused dollars (money that will not be used for higher education) can roll over up to $35,000 to a Roth IRA. This is a lifetime limit, and only an amount up to the annual Roth IRA contribution amount can be rolled over in any given year. Whatever amount that is rolled over counts toward the annual contribution limit. So, if your client already rolled over $7,500 in 2026, she cannot contribute additional funds to a traditional or Roth IRA for this year as she has already hit the maximum annual contribution total.

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 foundational premise of a Roth IRA and a Roth 401(k) is the same – after-tax dollars go into the Roth account (either via contribution or conversion), and eligible earnings are tax-free. Pretty easy. But when it comes to withdrawing dollars from a Roth IRA or Roth 401(k), there is a fork in the road. Roth distribution rules between Roth 401(k) plans and Roth IRAs do NOT work the same.

Roth IRAs follow strict distribution ordering rules. Contributions come out first, converted dollars come out next, and earnings are paid out last. It does not matter how many Roth IRAs a person has or if those Roth IRAs are held at different custodians. The IRS sees only one big, consolidated Roth IRA bucket.

Example: Jim, age 48, has a Roth IRA at Custodian A into which he makes annual contributions. Over the years, his total contributions into this Roth IRA are $50,000, and the account value is $100,000. Jim has a second Roth IRA at Custodian B worth $300,000 that was created when he did a full conversion of a traditional IRA. Jim has made no contributions to his “Roth Conversion IRA” at Custodian B. If Jim takes a distribution of $10,000 from the Roth IRA at Custodian B (the “conversion Roth”), the distribution is deemed to consist of contributed dollars. That’s because Jim’s two Roth IRAs are considered to be one consolidated bucket of Roth IRA money, consisting of contributions, conversions and earnings. Regardless of which Roth IRA Jim takes a distribution from, he would need to withdraw a total of $50,000 before his Roth IRA conversion dollars could be reached.

Roth 401(k) plans, on the other hand, do not follow the same distribution ordering rules. Dollars within the Roth portion of a plan can be a mix of salary deferrals (“contributions”), in-plan conversions and earnings. Any distribution from the Roth 401(k) bucket will come out based on a pro-rata mix of salary deferrals, conversions and earnings.

For plan participants who are age 59½ or older and who have held the Roth 401(k) for over 5 years, this is a non-issue. Any Roth 401(k) distribution to a person who meets these levels will receive a “qualified distribution.” That means the entire distributed amount is tax- and penalty-free. If a qualified distribution is rolled over to a Roth IRA, it all dumps into the “contributions bucket” within the Roth IRA and is immediately available for tax-free distribution.

But if a person is either under age 59½ or has not held the Roth 401(k) for 5 years (“non-qualified”), any distribution from the Roth portion of the plan will come out pro-rata. A non-qualified Roth plan participant cannot target only his Roth 401(k) salary deferrals for withdrawal. He must instead receive a proportionate blend of those deferrals (after-tax) and earnings on the deferrals – which will be taxable if not rolled over. If a non-qualified Roth 401(k) distribution is rolled over to a Roth IRA, the Roth dollars will “maintain their same character” when they go into the Roth IRA. Meaning, salary deferrals will go into the Roth IRA contributions bucket, conversions will go to conversions, and earnings will go into the Roth IRA earnings bucket.

While the basic principles of Roth IRAs and Roth 401(k) plans are the same, note that the distribution rules are not.

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.

Recent IRS guidance confirms that any employer that wishes to make employer contributions to Trump accounts must comply with several administrative requirements. Especially for small employers, these requirements are likely to be challenging. The guidance came in the form of proposed IRS regulations issued on August 10, 2026.

Employers are permitted to make contributions to the Trump account of either an employee or of an employee’s dependent. These contributions can only be made until December 31 of the year the employee or dependent turns age 17 (i.e., during the “growth period”).

Annual employer contributions up to $2,500 (as indexed) won’t be taxable to the employee in the year they are made. However, those contributions, plus earnings, will be taxable when distributed. The $2,500 annual limit is per employee – not per dependent. For example, if an employer makes contributions to the Trump accounts of an employee’s two dependent children in 2026, the aggregate amount the employer can contribute between the two children is $2,500. Employers can make contributions that exceed the $2,500 limit, but amounts over the limit will be taxable to the employee in the year made.

Employer contributions count towards the $5,000 (as indexed) annual limit that applies to Trump account individual contributions made by parents, grandparents, or other persons during the child’s growth period.

An employer looking to make Trump account contributions will be required to carry out the following administrative steps:

• Establish a separate plan, called a “Trump account contribution program,” whose terms must be set forth in a separate written plan document;
• Notify employees of the availability and terms of the program;
• Provide an annual written statement to employees; and
• Comply with several complicated rules prohibiting discrimination in favor of highly compensated employees. 

The proposed regulations clarify that a self-employed individual, such as a sole proprietor or a partner in a partnership, cannot make employer contributions to Trump accounts of his dependent children. However, a self-employed individual with employees can make employer contributions to Trump accounts of dependents of those employees. In addition, a self-employed person can make individual contributions to his own child’s Trump account, i.e., personal contributions that have nothing to do with any business entity. However, individual contributions are not deductible to a self-employed individual (or to any individual), whereas employer contributions are deductible as a business expense.

The IRS guidance confirmed that employer contributions can be offered through employee salary reduction contributions, but only for contributions made to the Trump account of an employee’s dependent – not to the Trump account of the employee.  

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

QUESTION:

Does each conversion from a traditional IRA to a Roth IRA require a five-year holding period? I have made several conversions and know that taxes are due when conversions are done. But how long must each conversion remain in the Roth IRA? Thanks!

ANSWER:

The five-year holding period for Roth conversions determines whether distributions of converted amounts are subject to the 10% early distribution penalty. If you receive converted amounts on or after age 59½, you don’t have to worry about this holding period since the 10% penalty will not apply to you. However, if you receive converted amounts before age 59½, you must pay the penalty – unless the five-year holding period has been satisfied. There is a separate five-year period for each conversion. The five-year period starts on January 1 of the year of that conversion.

There is a second five-year holding period which helps determine whether the earnings portion of any Roth IRA distribution is taxable. (You can always withdraw Roth conversions themselves – and Roth IRA contributions – tax-free at any time.) This second holding period does not require separate five-year periods for each year you do conversions. Instead, the five-year period is measured from January 1 of the year of your first Roth IRA conversion or contribution, and it does not restart with subsequent conversions or contributions.

QUESTION

I have been a fan and a subscriber to your newsletters for years.

I would like to know if a Trump account can be opened for any child under age 18, even if born before 2025? And once that child reaches age 18, can the balance be converted to a Roth IRA? Finally, is the maximum contribution each year $5,000?

Thanks for all your wonderful advice!

Janice

ANSWER:

Hi Janice,

Thank you for the kind words!

Trump accounts can be opened for any child through December 31 of the year the child turns age 17. That period is known as the “growth period.” Parents, grandparents and other individuals can make contributions to the Trump account of any child during the growth period. Children born before 2025 (and after 2028) are not eligible for the $1,000 one-time federal government contribution, but are eligible for individual contributions during the growth period. Employers and tax-exempt organizations can also contribute during a child’s growth period.

As of January 1 of the year the child turns age 18, a Trump account can be converted to a Roth IRA. In addition, the account can be rolled over or transferred to another traditional IRA or company plan, withdrawn or maintained as a traditional IRA.

During the growth period, there is a $5,000 annual limit on all contributions made by individuals to a Trump account. This $5,000 limit will be indexed beginning in 2028. Any employer contributions made on behalf of the child during the same year count towards the $5,000 limit.

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 SECURE Act, the SECURE 2.0 Act, and subsequent regulations have brought us a complex set of rules for IRA beneficiaries, including trusts. Only individuals who are named on the IRA beneficiary form (or named through the IRA custodial document if no beneficiary is named on the beneficiary form) can be considered non-eligible designated beneficiaries (NEDBs) who qualify for the 10-year rule, or eligible designated beneficiaries (EDBs) who qualify for the stretch.

A trust is not an individual. But if the trust qualifies as a “look-through” (also known as a “see-through”) trust, then the individual beneficiaries of the trust can qualify as NEDBs or EDBs for IRA distribution purposes. However, if one of the trust’s beneficiaries is not a living, breathing person (like a charity), there may still be no NEDB or EDB for IRA distribution purposes, even if the trust qualifies as a look-through trust.

If a trust qualifies under the look-through rules, then the shorter payouts required for non-designated beneficiaries (i.e., the 5-year rule) can be avoided. Instead, payouts to the trust can be made using the SECURE Act’s 10-year rule or even stretched over the life expectancy of the trust beneficiary if the trust beneficiary is an EDB.

To qualify as a look-through trust for IRA distribution purposes, the trust must meet the following technical requirements:

1. The trust must be valid under state law.

2. The trust must be irrevocable, or the trust must contain language to the effect that it becomes irrevocable upon the death of the employee or IRA owner.

3. The beneficiaries of the trust who are beneficiaries with respect to the trust’s interest in the IRA owner’s benefit must be identifiable; i.e., specifically named people or a specific group of relatives (“my grandchildren”), not a vague group (“my friends”).

4. For employer plans, the plan administrator can require that the trustee provide either a list of trust beneficiaries with a description of the conditions on their entitlement or the actual trust document, by October 31 of the year following the year of death. For trusts that are IRA beneficiaries, there are no documentation requirements. 

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.

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

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

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

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

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

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