Roth IRAs Favored for Annual Contributions, Neglected for Rollovers from Company Plans

Roth IRAsRoth IRAs become 20 years old in January of 2018 and now hold more than $660 billion in retirement wealth, reports the Investment Company Institute (the source of the data in this article). 

Yet while Roth IRAs have become very popular among individuals who make annual contributions to IRAs, they are near totally avoided by persons who roll over big-dollar distributions from company retirement plans into their IRAs, with these funds going overwhelmingly into Traditional IRAs.

This suggests that some people are undervaluing the benefits of making a rollover into a Roth IRA. If you are an individual with funds to roll over, it may pay to re-examine the benefits of choosing a Roth IRA to be the destination of a big-dollar rollover.

IRA Snapshots

Contributions to Roth IRAs exceeded those to Traditional IRAs by $21.9 billion to $17.5 billion in 2014, even though only about one-third of IRA owners have a Roth.  Yet Traditional IRAs now hold near $7 trillion in assets, dwarfing the total in Roths. The main reason is that rollovers of large balances from employer plans flow overwhelmingly into Traditional IRAs. Rollovers totaled $423.9 billion into Traditional IRAs versus a mere $5.7 billion into Roth IRAs in 2014 – Traditional IRAs received 98% of rollovers.

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10 Things about Using your IRA for Educational Expenses

Using your IRA for educational expensesIt’s back to school time! This means it’s time for school supplies and additional expenses. Are you considering using your IRA to pay that large tuition bill? The rules can be complicated. Here are 10 things you will want to know about using your IRA for educational expenses.

1.  Typically, if you take a taxable distribution from your IRA before you reach age 59 ½, you are subject to a 10% early distribution penalty. The exception to the penalty allows you to take a penalty-free distribution from your IRA if you use the funds for qualified higher education expenses.

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IRA Beneficiary Quiz. Can You Pass?

By Beverly DeVeny
Copyright Ed Slott, LLC

IRA Beneficiary QuizMost people think it is easy to leave an IRA to their heirs. But is it? The following is a quick IRA beneficiary quiz. How many of these beneficiary questions can you get correct? The answers are at the end of the quiz.

1.  The IRA owner has four children. He names the oldest child as the beneficiary of his IRA and the executor of his will which divides all his assets equally among the four children. Who gets the IRA?

2.  The IRA owner has met with an attorney who recommends that he establish a trust for his spouse and that he names the trust as the beneficiary of his IRA. Who gets the IRA?

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IRA Benefits for Married Couples

Four IRA Benefits

‘Tis the season for weddings! You’ve probably heard the saying that marriage has its Married IRA Benefitsbenefits. That’s particularly true for IRA rules. There are IRA benefits for married couples that are not options for single folks.

1. Spousal Contributions

Generally, to make an IRA contribution, you must have compensation (typically W-2 income or net earnings from self-employment). If you are single and have no compensation, you are out of luck. However, a special rule applies for those who are married. You can use your spouse’s compensation to fund an IRA contribution. This is a great benefit if you are a stay-at-home parent. If your spouse has enough compensation, you and your spouse can each fully fund an IRA for the year. If you are age 50 or over this year, you can each contribute $6,500 to your respective IRAs for 2016.

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Qualified Charitable Distributions: Their History and Tax Benefits

qualified charitable distributions (QCD)The qualified charitable distribution (QCD) provision was originally enacted into law as part of the Pension Protection Act of 2006. It was effective from August 17, 2006 through the end of 2007. And since then, it has been a yearly song-and-dance that has eventually resulted in a last-minute, or even retroactive, extension. However, thanks to the newly-signed PATH Act, QCDs are now permanent.


There are a couple of things you should know about QCDs. First, they are not distributions payable to the IRA owner. They are direct transfers of funds from an IRA to a qualifying charity. An individual who takes a distribution payable to himself and then makes a charitable donation cannot use the QCD provision. It should really be called a QCT – qualified charitable transfer – but Congress called it a QCD. Second, it was intended to be a temporary provision. It was supposed to expire at the end of 2007. Because of this, there is no required reporting on the part of the IRA custodian. IRS did not see a need to amend the 1099-R form for a temporary provision. All the tax reporting is done by the individual. The IRA custodian simply issues a 1099-R showing a normal distribution

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3 Required Minimum Distribution Mistakes

Required Minimum DistributionIt’s that time of year if you are an IRA owner age 70 ½ or older. You must take your required minimum distribution (RMD) before the end of the year. Not taking your RMD or the correct amount can result in crippling penalties, which is why we cover this topic in great detail at The Slott Report.

Here are three RMD mistakes you must avoid. Remember, it’s not too late to take your RMD, just make sure you do it correctly with the assistance of a competent, educated financial advisor like those who train in this specialized area.

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Individual Retirement Accounts (IRAs) Celebrate its 40th Year

Individual Retirement Accounts turn 40

Happy Birthday, IRAs!

January 1, 2015 marks the 40th anniversary of Individual Retirement Accounts (IRAs) in the United States.  Born from the passing of the Employee Retirement Income Security Act (ERISA) of 1974, IRAs were created to protect workers’ earned company retirement benefits and transfer them to their own retirement accounts, thus the name Individual Retirement Accounts. IRAs also provided an alternative for Americans to save on their own rather than depending entirely on company pensions to fund their retirements. With fewer lifetime employees and increasing mismanagement or underfunding of pension plans, IRAs shifted the financial responsibility and the risk from the employer to the employed.  IRAs have proven to serve as a vehicle to give Americans more control over their retirement savings and have become the ultimate retirement savings vehicle as many retirement contribution plan funds end up in IRAs as rollovers from 401(k), 403(b) and other company plans.

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