By Andy Ives, CFP®, AIF®
IRA Analyst
Are the current tax brackets, made “permanent” by OBBBA, really here forever?
Not necessarily. The One Big Beautiful Bill Act (OBBBA) did extend the tax rates established by the 2017 Tax Cuts and Jobs Act “permanently.” But that word has a different meaning when it comes to tax law. Yes, the current tax brackets are locked in…at least until a future Congress decides to change them. So, leverage these low brackets for Roth conversions while they are still here, because “permanent” may not mean what you think.
How old does a beneficiary have to be to do a QCD?
There are a number of rules governing qualified charitable distributions (QCDs). The first of which is: To be eligible to do a QCD, a person must be age 70½ or older. But the question says “beneficiary.” Yes, QCDs can be done from an inherited IRA…but the same standard rules apply. The beneficiary of the inherited IRA must be age 70½ or older to do a QCD. It does not matter if the original IRA owner (now deceased) was age 70½ or not.
What year does the age 75 RMD rule take effect?
Technically, the required minimum distribution (RMD) age bumps up to age 75 in 2033. But in reality, we won’t feel the effects until 2035. Why so? Well, anyone who turns age 75 in 2033 or 2034 would have turned 73 (the current RMD age) two years prior (in 2031 or 2032, respectively). Therefore, these people will fall under the existing age 73 RMD rule. In fact, there will be a 2-year adjustment period to the new RMD age in 2033 and 2034. To qualify for the age 75 RMD rule, you must turn age 75 in 2035 or later. Therefore, the age 75 RMD rule applies to anyone born in 1960 or later.
Does the pro-rata rule apply to Roth IRA conversions if a person has NO after-tax dollars in any of their own IRAs, but they DO have after-tax (non-Roth) dollars in a 401(k)?
It does not. Pro-rata dictates that if after-tax (non-deductible) dollars exist in a traditional IRA, SEP or SIMPLE, a person cannot cherry pick only those dollars for Roth conversion (or withdrawal). A proportionate share of pre- and post-tax dollars must be accounted for. Any after-tax dollars that a person might have in their 401(k) are disregarded. (Note: This is also true if a person has after-tax dollars in an inherited IRA. While pro-rata does apply to inherited IRAs, those accounts are ignored when a person calculates pro-rata on his own IRAs.)
Can you take a distribution from a “Trump account” before the year the beneficiary turns age 18?
No, you cannot. There is currently no mechanism to withdraw any dollars from the newly created “Trump accounts” prior to the year when the child beneficiary turns age 18, regardless of what the dollars might be used for or what the emergency is. As things currently stand, when any money goes into this new savings vehicle, those funds are on full lockdown until the year the beneficiary turns age 18. This includes contributions from any source – the “seed” money from the government, personal contributions, or contributions made by an employer or any other source. In the year the beneficiary turns age 18, IRA distribution rules apply. But until then – there is zero access.
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.
https://irahelp.com/5-random-retirement-account-trivia-questions/
