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IRA Trick-or-Treat!

Trick-or-treating in the time of a pandemic is a challenge. Social distancing while handing out candy requires some creativity. The Slott Report and Eastern Planning Inc. has elected to place a big bowl of random treats in front of our house for the kids to pick from. We bought a lot of candy, so feel free to take more than one…

Twix. Do not name your estate as your IRA beneficiary. If a person inherits through the estate, that is the death knell for their status as a designated beneficiary.

Snickers. Avoid starting a Net Unrealized Appreciation (NUA) transaction after Thanksgiving. If you miss the year-end deadline for the lump sum distribution, the NUA tax break will be lost.

Milky Way. With a trust as beneficiary, the deadline for providing trust documentation to the custodian is Halloween (October 31) of the year following the year of the IRA owner’s death.

Smarties. The end of the stretch IRA is not the end of the world – there is flexibility with the new 10-year payout option under the SECURE Act. Be smart with your tax planning!

Butterfinger. A non-spouse beneficiary cannot convert an inherited IRA to an inherited Roth IRA…but employer plan designated beneficiaries can. Tricky!

Baby Ruth. There is no such thing as a “hardship withdrawal” from an IRA, and “hardship” is not an exception to the 10% penalty for plan distributions. Hardship only allows access to plan assets.

KitKat. 72(t) distribution payments cannot be converted to a Roth…but the entire IRA account balance where the 72(t) payment is coming from can be converted. Weird.

Reese’s Peanut Butter Cups. A Roth contribution can still be recharacterized, but a Roth conversion cannot.

Milk Duds. There is no special tax benefit you can get from a trust as IRA beneficiary that you cannot get by directly naming a person as your IRA beneficiary.

Almond Joy. Don’t go nuts with backdoor Roth conversions before understanding the pro rata rule. All of a person’s IRAs, SEPs and SIMPLE plans must be factored in.

Heath Bar. For those under 59 ½, do not pay the tax on a Roth conversion with money from the IRA being converted. Regarding the taxes withheld…the IRS will take 10% of that candy!

Three Musketeers. There is no such thing as a prior-year Roth conversion, and there is no such thing as a prior-year Qualified Charitable Distribution (QCD). Both must be completed by December 31 to qualify…but New Year’s Eve is another holiday to write about.

I am an Ed Slott Master Elite trained IRA Specialist and I would like to help you. If you have any questions regarding this article or would like to schedule a complimentary consultation please call my office at 845-627-8300. My Client Service Coordinator Christina will be happy to set up a convenient time so I can help. 

Happy Halloween!

Warm Regards,
Beth Blecker CEO
Eastern Planning Inc.

Follow Beth Blecker on Twitter: @EasternPlanning

“Ed Slott’s Elite IRA Advisor Group” is solely an indication that the financial advisor has attended training provided by Ed Slott and Company. Ed Slott is not affiliated with Royal Alliance Associates, Inc. Securities and advisory services offered through Royal Alliance Associates, Inc. Member FINRA/SIPC. Securities and advisory services offered through Royal Alliance Associates, Inc. (RAA), member FINRA/SIPC. RAA is separately owned and other entities and/or marketing names, products or services referenced here are independent of RAA. Reprinted from The Slott Report, 10/26/2020, with permission. Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article. Copyright © 2019 Ed Slott and Company, LLC.

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