Can I rollover mom’s IRA into my IRA?

Can I rollover mom’s IRA into my IRA?

Only a surviving spouse may rollover a deceased’s IRA account into their own IRA. After the SECURE Act of 2019, most non-spouse inheritors whose benefactors die in 2020 or later have only one requirement – the inheritor must take all the money out of the Inherited IRA by the end of the tenth tax year after the year of death. The only exception to the new ten-year rule is for spouses and “Eligible Designated Beneficiaries (EDB).”  EDB are people with certain disabilities (or certain chronic illnesses), or are a minor child of the deceased IRA owner, or people who are older or not more than ten years younger than the deceased such as a sibling or friend

Taking whatever one wants whenever it is wanted over ten years presents a great deal of flexibility and some planning possibilities. When distributions are taken from an Inherited IRA, the entire distribution is usually taxed as ordinary income on the inheritor’s tax return. Because of this taxation, some inheritors may be tempted to leave the account alone and not take anything until they have to in the tenth year.

Delaying distributions may be a fine strategy if one’s income is expected to be substantially lower in ten years. This could be the case upon retirement, for instance.  For many though, allowing an Inherited IRA to continue to grow for ten years will make the distribution in ten years so big that they will pay taxes at higher rate than they would if they had taken some distributions during the ten years. The higher income amount may also trigger other taxes and costs such as the 3.8% additional tax on investment earnings, a reduction in some deductions or higher Medicare premiums.

Further, most inheritors have accounts of their own. In some cases, it may be advantageous to invest the Inherited IRA conservatively and place more aggressive holdings in the inheritor’s personal accounts. This will stunt the growth of the Inherited IRA and the taxes that go with it, while not hampering the growth in the overall household portfolio.

The rules are identical for Inherited Roth IRAs but the strategies differ. Distributions from Inherited Roth IRAs are typically tax free. Letting the Inherited Roth IRA grow for ten years may provide the inheritor a significant tax-free payout in year ten. If the Inherited Roth IRA is invested in a moderate or aggressive manner, any growth will just add to the tax-free amount.

Coupling tax strategy with a smart investment allocation can produce better results than simply taking distributions haphazardly.

For most, the best strategy is to estimate income over the next ten years and attempt to take larger distributions in lower income years. Coupling tax strategy with a smart investment allocation can produce better results than simply taking distributions haphazardly. Inheriting is not a fun way to come into some money but our team is here to help you and your heirs make the most of your inheritances by customizing a distribution plan.

Making News…

We continue to help the Orlando Sentinel with reader questions by participating in a free call-in hotline and its Ask An Expert feature. (Some links require a subscription to view.) Mike Salmon, CFP®, Charlie Fitzgerald, CFP®, Derrick Chandler, CFP®, and Tommy Lucas, CFP® participated in and answered questions from callers and some of their answers have been published in recent issues of the paper.

Mike laid out the tax ramifications for selling stock and explained how to decide between making traditional pre-tax contributions and after-tax Roth contributions in a 401(k) plan.

Derrick Chandler, CFP, fee-only financial advisor Orlando

Derrick Chandler, CFP®

Derrick discussed the best way to leave money to a disabled child who is not able to handle money well and explained how to transfer Roth IRAs without running afoul of the “one rollover per year” rule.

Tommy Lucas  discussed what you can do with an old 401(k) and explained if one needs to file a tax return based on your income.

DJ Hunt, CFP®  discussed the “mixed bag” that remote communication technology presents in his piece “The Planning Profession in a Post-COVID World” for Rethinking 65, an online publication for financial advisors.

Dan Moisand,CFP® continues to write for MarketWatchFlorida Todayand Financial Advisor. Click on the links to read some of his published articles:

Remember this as you consider financial moves: Higher yield means higher risk

Business Q&A: Can I deduct all of my charitable contributions?

How will stocks be affected by rising interest rates?

My dad died without taking his RMD for 2021. What’s the deadline for me to take it?

Should I roll my Roth 401(k) into a Roth IRA?

What’s the point of owning bonds?

I have questions about my RMDs

Why am I being charged a penalty on my Roth conversion?

How does a rollover affect required minimum distributions?

Helping Clients Avoid Big Financial Planning Mistakes

In the News…

On July 21st, Mike Salmon and Tommy Lucas spoke to the Developing Leaders group of NAIOP, the Commercial Real Estate Development Association formerly known as the National Association for Industrial and Office Parks. With 19,000 members in the US, NAIOP is the leading organization for developers, owners and investors of office, industrial, retail and mixed-use real estate. Mike and Tommy’s presentation was called “Career Transactions” and covered how to switch brokerage firms and limit taxes. If you are a member of a professional or civic group in need of a personal finance speaker, we are happy to talk with your group’s organizers about helping out at no cost.

If you are a member of a professional or civic group in need of a personal finance speaker, we are happy to talk with your group’s organizers about helping out at no cost.

Dan added some commentary on a piece for about converting 401(k) funds to Roth 401(k) accounts via an “in-plan Roth conversion.” From the article: “Measure twice, cut once. That’s the advice of Dan Moisand, a certified financial planner with Moisand, Fitzgerald, Tamayo. ‘The conversion cannot be unwound so it’s best to be careful with your tax calculations before executing,’ he said. ‘There are lots of nasty little surprises that can come with higher gross incomes, in addition to putting you in a higher tax bracket than you would like.'”


Things We Found of Note

Gold is a lousy inflation hedge.  Gold gets its reputation as an inflation hedge from its increase in value during the inflation riddled 1970s. Researchers suspect the rise in gold prices then was more a reaction to the US coming off the gold standard than other factors. During some periods since then gold has increased in price when inflation has risen but those periods are infrequent and short-lived. After four decades of additional data, it is clear from statistical analysis that the price of gold has little to do with inflation. A correlation of 1 would indicate that gold has moved in lock step with inflation. A correlation of zero means there is no relationship whatsoever.  According to recent research from Amy Arnott at Morningstar, the correlation of gold to inflation has been a mere .16.

An August 8, 2021 Wall Street Journal article by Mark Hulbert commemorating the 50th anniversary of President Nixon’s end to the gold standard cited research by Campbell Harvey of Duke University. Harvey’s paper stated the results plainly, “…over 1, 5, 10, 15 and 20 year investment horizons the variation in the nominal and real returns of gold has not been driven by realized inflation (emphasis added).” Echoing Arnott’s concussions, the correlation between gold prices and inflation is so weak, Harvey found gold can only be relied upon to do a relatively good job of maintaining its purchasing power over a century. That is far longer than most people’s time frames!

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Moisand Fitzgerald Tamayo, LLC is an Orlando, Tampa and Melbourne, Florida based fee-only financial planner serving central Florida and clients across the country. Moisand Fitzgerald Tamayo, LLC specializes in providing objective financial planning, retirement planning, and investment management to help clients build, manage, grow, and protect their assets through all phases of one’s life and the many transitions in between. If you have any questions or would like to discuss anything further, please give us a call or send us a note. If you are not a client and wish to receive emails notifying you of new posts – no more than once per month – fill out the subscription information in the sidebar to the right. For more frequent updates, follow us on FacebookLinkedIn, or Twitter.  

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Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Moisand Fitzgerald Tamayo, LLC-“MFT”), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. 

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About Dan Moisand

Dan Moisand is a fee-only financial advisor with Moisand Fitzgerald Tamayo, LLC. He is a regular contributor for multiple outlets, including Florida Today, MarketWatch, and The Wall Street Journal. His writing and financial advice have also been featured in Financial Planning, Investment Advisor, Wealth Manager/Advising Boomers, Forbes, Smart Money, and The New York Times, among other publications. He is the only two-time winner of the Journal of Financial Planning’s “Call for Papers” competition and has been named a top financial planner and advisor by multiple publications. Investment News named Dan one of the “twenty most influential men and women” in the history of financial planning. He currently serves on the Board of Directors for the CFP (Certified Financial Planner) Board.


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