Your Money Q & A
(Article previously ran in The Ponte Vedra Recorder, Ponte Vedra Beach, FL)
These questions continue to come up in client meetings and, in our webinars, so I thought it best to share those with you in this article. Some of it may be a little deep in the weeds but if you’ll read into it, it’ll make sense.
Q: Did the SECURE Act change the rules for designated non-spouse inheritors of a Roth IRA? I believe they used to be able to take distributions based on their life expectancy. Does the 10-year rule also apply to Roth IRAs?
A: Yes, the SECURE Act did change the payout rules for most beneficiaries if the IRA owner dies in 2020 or later. With certain exceptions, most beneficiaries cannot stretch out required minimum distributions (RMDs) over their lifetime like before. Instead, they must receive the entire IRA by December 31 of the 10th year following the year of the IRA owner’s death.
However, the following beneficiaries can still use the stretch: surviving spouses; minor children (while they remain minors); disabled individuals; chronically-ill individuals; and individuals no more than 10 years younger than the IRA owner. The 10-year payout rule also applies to Roth IRA beneficiary distributions
Q: What are the rules for QCDs now that required minimum distributions (RMDs) have been cancelled for 2020?
A: Qualified charitable distributions (QCDs) are unaffected by the CARES Act. Even though RMDs are waived for 2020, you can still do a QCD if you otherwise qualify. While QCDs are a popular way to offset the income from an RMD, they are not required to coincide with an RMD. “Voluntary” withdrawals can just as easily be removed from income by a QCD.
Q: In January 2020 I converted money from my traditional IRA to a Roth IRA. Can I undo the conversion? If so, is there a time limit to do this by and are there any stipulations?
A: While Roth contributions can still be recharacterized, conversions such as yours cannot. Roth conversion recharacterization was eliminated a couple of years ago by the Tax Cuts and Jobs Act. It may be wishful thinking but, with the recent market collapse and all the financial support offered in the CARES Act, the IRS could decide to temporarily allow conversion recharacterizations. However, I am sorry to say that, as of now, there is no going back on your Roth conversion.
Q: I took 25% of my 2020 required minimum distribution (RMD) from an inherited IRA on March 15, 2020. Can that be “undone” in accordance with the CARES Act and if so, how?
A: The CARES Act waives RMDs for 2020. The waiver does include inherited IRAs. However, any amounts already taken from an inherited IRA by a non-spouse beneficiary cannot be rolled over. That is because the regular rollover rules still apply, and those rules do not allow a non-spouse beneficiary to do rollovers. If you are a spouse beneficiary, the rules are different. A spouse beneficiary can roll over distributions from an inherited IRA.
Q: I have always had a traditional IRA. I plan to start a Roth IRA for the tax year 2019. Do I have until July 15, 2020 to make my first $7,000 contribution?
A: Yes. The IRS has confirmed that the deadline for making both traditional and Roth IRA contributions for 2019 is delayed until July 15, 2020.
I hope you’ll find some of these tax related questions useful for your financial and estate planning strategies. If you have any further questions you’re welcome to contact our office. Stay Well!
Frederic “Ric” Schilling is a Florida native, born in Jacksonville, Fl. Ric is President and founder of Senior Guardians of America, a local North Florida firm specializing in tax reduction, long term illness planning, asset protection, probate avoidance and life income planning. Ric is a National Speaker and Advocate on Senior Issues and has been featured by the Florida Times Union and WJXT, TV-4 in Jacksonville as an authority on Estate Planning and Retirement Issues. Senior Guardians has an A+ rating with the Better Business Bureau and is a member in excellent standing with the National Ethics Association. Ric Schilling is a Certified Financial Fiduciary (CFF). You may contact Ric at 904-371-3302 or 888-891-3381 Please visit: www.seniorguardian.com
This article is not intended to give tax or legal advice. Securities offered through Center Street Securities, Inc. (CSS), a registered Broker-Dealer & member FINRA & SIPC. Investment Advisory Services offered through Center Street Advisors, Inc. (CSA), a SEC Registered Investment Advisor. Schilling and Associates (d/b/a Senior Guardians of America) and CSA are independent of CSS.