What to do with 401(k) and other questions

Q. My wife died in 2019. She was

64. I will be 72 in September. I was named the beneficiary of her IRA. I have rolled over the account into mine as an inherited account. Do the old laws for inheritance apply or do the new ones? I was under the impression that because I was older than my wife, I have the option to initiate my required minimum distributions when she would have been 72, and use her longer life expectancy. Is that correct? I have talked to different sources and received different opinions. Can you provide the correct answer?

A. First, the old rules would apply since the new regulations didn’t go into effect until after December 2019. However, under both the old and the new regulations, as a surviving spouse, you are entitled to “stretch out” the payments. The 10-year rule is not applicable.

Whether you can use her life expectancy to stretch out the payments is a complicated issue. What matters is whether the owner of the IRA had already reached the age that required minimum distributions (RMD). Because your wife was not old enough to initiate RMDs, you are allowed under the regulations to wait until your wife would have reached age 72 to initiate RMDs. However, you would have to base the amount of the RMD on your own life expectancy, not your wife’s life expectancy.

If the IRA owner dies after his or her required beginning date (RBD), and the designated beneficiary is older, the beneficiary can use the deceased IRA owner’s remaining life expectancy rather than his or her own. The bottom line for you is because you reach 72 in 2021, your first RMD is required by the end of 2021, or you can postpone it to April 2022. If you do postpone the first distribution to April 2022, then you will have to take two distributions in 2022. Use your own life expectancy.

Q. I will be retiring shortly and have to make a decision regarding my 401(k). I am 57 now. Should I roll the 401(k) into a Roth IRA or a traditional IRA? The reason I am uncomfortable about the Roth option is because of the 10-year holding requirement to avoid withdrawals. Or should I consider an annuity, which I am not knowledgeable about. I have to make a decision soon. Please advise.

A. The Roth conversion option is not as onerous as you think. First, there is no 10-year holding requirement. Distributions of converted amounts are not taxable. Pretax amounts are subject to the 10% early distribution penalty only if you withdrew funds before you have reached age 59 , and the conversion is less than five years prior. So, if you wait until age 59

before withdrawing any of the contributions, there would be no penalty. There would be no tax or penalty on earnings from the conversion if they are distributed after 5 years and 59 .

My advice is to do a traditional IRA rollover now. If you wish to consider a Roth conversion, do it gradually after age 59

. You can always consider the pros and cons of an annuity later. Converting to an IRA now does not preclude considering an annuity later after you consider the pros and cons.

Q. I finally received my 2019 tax refund, but the IRS did not enclose any interest payment even though it took the IRS a year to process my tax return.

A. You can submit IRS Form 843. You can find the form and instructions on the Internet. If you filed before April 15, you can compute interest earned at 5% from April 15 to June 30. For time after June 30 until the IRS processed your return, you should be paid interest at 3%. The instructions for Form 843 ask you to compute the interest that the IRS owes you. Another option is to request an IRS advocate to assist you. Call (877) 777-4778 after 7 a.m. You may have a long wait.

Elliot Raphaelson welcomes your questions and comments at raphelliot@gmail.com.