1. IRA-to-IRA Rollovers and Roth IRA-to-Roth IRA Rollovers
Mistakes:
- Using 60-day IRA rollovers instead of using transfers to move IRA funds
- Once-per-year rule is for all IRAs and Roth IRAs
- IRS has no authority to correct these mistakes
- New client rollover mistakes - not asking about prior rollovers
- Not knowing the exceptions to the once-per-year IRA rollover rule
2. Non-Spouse Rollovers are NOT Permitted
Mistakes:
- Non-spouse beneficiary cannot do a rollover
- Taking a lump-sum distribution
- Putting a decedent's IRA funds into your own IRA
- Paying out the entire IRA to a trust beneficiary
3. Spousal Rollovers
Mistakes:
- Spousal rollover before age 59½
- Forgetting to do the spousal rollover at age 59½
- Not naming a successor beneficiary of the inherited IRA
4. 401(k) Rollovers to IRAs
Mistakes:
- Not reviewing all options (IRA rollover is not the only option.)
- Receiving a distribution personally and being subject to 20% withholding
- Not knowing the creditor protection of IRAs in your state
- Not first asking about the NUA (net unrealized appreciation) tax break
- Rolling over highly appreciated company stock to an IRA
- Not allocating the after-tax portion (basis) to a Roth IRA tax free
5. After-Tax Rollovers From Plans to IRAs and Roth IRAs
Mistakes:
- Not being aware of the allocation rules that allow the tax-free Roth conversion of after-tax plan funds
- Failing to allocate pre-tax and after-tax amounts to the correct account
- Rolling over all funds to a traditional IRA (Allocation rules do not apply to IRA distributions)
- Choosing to receive all funds personally
6. Roth Conversions (Technically IRA-to-Roth Rollovers)
Mistakes:
- Not advising on the income impact of a Roth conversions (other taxes may be triggered or tax benefits lost)
- RMDs (required minimum distributions) cannot be converted
- Choosing to receive all funds personally
- SIMPLE IRA cannot be converted until after 2 years
- Inherited IRAs cannot be converted, but inherited company plan funds can
7. In-Plan Roth Rollovers (401(k) to Roth 401(k) Conversions)
Mistakes:
- Not asking if in-plan conversions are available in the plan
- Not estimating the taxes due on the conversion
- Not checking first if a Roth IRA conversion is available
8. Rollovers to Any Retirement Account (60-Day Rule)
Mistakes:
- Losing track of the 60-day deadline
- Not knowing about the 20% mandatory withholding from plans
- Not knowing about the self-certification procedures for late rollovers
- Depositing the funds into a non-IRA account
- Choosing a 60-day rollover instead of a transfer
9. QDRO Rollovers in Divorce (From Plans Only) to Ex-Spouse as Alternate Payee
Mistakes:
- Rolling over all of a qualified domestic relations order (QDRO) distribution to an IRA and then taking an IRA distribution before age 59½
- Remember! A QDRO distribution is a 10% penalty exception, but only on distributions from the plans!
- Not knowing that an IRA rollover voids the 10% penalty exception
- Not knowing that QDROs do not apply to IRAs
10. Rollovers From IRAs Back to Plans
Mistakes:
- Rolling over basis into the company plan
- Only pre-tax funds can be rolled to the plan
- Failing to convert remaining IRA basis to a Roth IRA
- Not asking if your plan accepts IRA rollovers
- Not first checking plan restrictions on accessing funds (Funds are now subject to plan rules.)
Who is a spouse beneficiary? A spouse beneficiary must be married to the account owner at the time of the account owner's death, and he or she must be named on the beneficiary form (or inherit directly through the document default provisions). A spouse beneficiary has a number of unique options.
What does the basic process entail? An income tax refund can be directly deposited to an IRA up to the annual contribution limit. The contribution limit is $7,000 ($8,000 if age 50 or over) for 2025 and $7,500 ($8,600 if age 50 or over) for 2026. It can also be split among multiple accounts.
Avoiding Mistakes in a Divorce Retirement accounts and divorce. When a divorce occurs, the financial assets of a couple, including their retirement accounts, are often split. If mistakes are made during this process, the stress of a divorce can be compounded when one or both spouses find that they are subject to unnecessary taxes or penalties.
Choosing the Right Financial Advisor Why do you need a financial advisor? Today’s financial landscape is as complicated as ever. A good financial advisor can help you navigate this complexity so that you can make educated, informed decisions on what is best for you and your family.
Why do you need a tax professional? Managing taxes during retirement will be the single most important factor in determining your ultimate lifestyle. In addition to a financial planner and estate planning attorney, a qualified tax professional is an integral part of any planning team.
New Rules Are Here. On July 18, 2024, the IRS issued both final regulations under the 2020 SECURE Act and proposed regulations under the SECURE 2.0 Act of 2022. These long-awaited new regulations impact many parts of the required minimum distribution (RMD) rules for retirement accounts. The final regulations are effective for 2026, and the proposed regulations can be used immediately as guidance. Here are the highlights:
What is considered investment income? Investment Income: Interest, dividends, capital gains (long and short), annuities (not those in IRAs or company plans), royalty income, passive rental income, other passive activity income. NOT Investment Income: Wages and self-employment income, active trade/business income, distributions from IRAs, Roth IRAs and employer plans, excluded gain from the sale of a principal residence, municipal bond interest, proceeds of life insurance policies, veterans’ benefits, Social Security benefits, gains on the sale of an active interest in a partnership or S corporation.
What is a 60-day rollover? What is a 60-day rollover? A 60-day rollover is the distribution of funds from a qualifying retirement account payable to the account owner who then has 60 days to redeposit the funds into another qualifying retirement account.
You’ve probably heard the saying, “There’s no such thing as a bad question.” But in retirement planning, the way you frame your question often determines the quality of your answer. In this episode, we’ll share some common retirement questions, and how a simple reframing might lead to a more useful answer.
It is important for you to take an active role in your retirement planning. Life changes and events happen that require you to update your tax and estate plans. Use the information below to see how your planning might be affected. As you can see, many items require you to take action now.
