Answering some questions from readers
It’s hard to imagine that this is my 1,262nd weekly column since its launch in The Greenwich Time and The Stamford Advocate in 1998. Occasionally, I hear from people who tell me they have been reading the column for decades. That’s always nice to hear. And, that’s my segue into reader questions.
Before I begin, as always, no matter the topic, let me remind you that my comments need to be general in scope. As a result, you will want to talk about your specific situation with your tax adviser or lawyer before taking any actions that we discuss in the column.
No. 1: H.M. raises an interesting question about leaving an inheritance to a relative who receives Social Security disability benefits. Would the inheritance affect those disability benefits?
The source for the answer is a Social Security Administration official, writing in the comments section of a ssa.gov blog (tinyurl.com/yeckuydh): “If you’re receiving Social Security disability (SSDI), an inheritance will not affect your benefits.” SSDI benefits are not means-tested (tinyurl.com/2aasmjvs).
However, the official pointed out that an inheritance could affect someone receiving Supplemental Security Income (SSI), which is means-tested. See more details about SSI at tinyurl.com/kmtkbuwd. Be sure to contact the SSA at ssa.gov if you have further questions.
No. 2: E.S. asked if she could take her required minimum distribution (RMD) from her IRA and put it in her Roth account after paying the taxes on the RMD for 2022. The answer is maybe.
Let’s look at this question carefully. E.S. understands that the RMD she will withdraw from her IRA in 2022 will be taxed when she files her tax return in 2023. That means she is not asking if she can avoid taxes by rolling over the RMD to a Roth IRA (the answer to that question is no).
After the RMD is withdrawn, E.S. can use those funds any way she would like, including contributing to a Roth. But first, she needs to understand and meet Roth IRA contribution requirements. One requirement is to have 2022 earnings (taxable compensation) (tinyurl.com/3psuajpx).
Taxable compensation includes wages, salaries, commissions, tips, bonuses or net income from selfemployment. IRS Tax Topic 451 (tinyurl.com/342erczh) provides more information. For more information about Roth IRAs see tinyurl.com/yp6dsx9y.
If her earnings are above a certain threshold, she will not be able to do a Roth contribution. The IRS website provides the details, which are based on filing status (tinyurl.com/3463s63t ).
E.S. could also do a Roth conversion by taking more out of her tax deferred IRA above and beyond the RMD she has already taken. Taxes will have to be paid on that distribution in order to do the conversion.
No. 3: D.W. wondered if the SECURE Act (Setting Every Community Up for
Retirement Enhancement Act) affected the RMDs he was taking yearly from the traditional IRA he inherited from his father in 2018. The answer is no.
Since the SECURE Act’s inherited RMD rules are not retroactive to 2018, D.W.’s RMDs are not affected. The rules that applied before the SECURE Act took effect can be found in IRS Publication 590-B for tax year 2019: tinyurl.com/y2d94dxy.
No. 4: The last question has to do with an individual in his 80s who is still working. The reader wants to know if he can contribute to his traditional IRA account at his age. The answer is yes.
There is now no age cutoff on contributions to a traditional or Roth IRA, thanks to the SECURE Act.
Now, let’s get back to you. If you happen to be a longtime reader of this column, let me know. I will consider doing a special column to feature you if you would like to share your story. Also, I’m thinking of possibly doing a few webinars on topics covered in the column. Let me know if that would interest you. Email me at readers@juliejason.com.
Seasoned Investment Counsel and award-winning columnist and author, Julie Jason, JD, LLM, promotes financial literacy and investor protection. Read her latest book, “The Discerning Investor: Personal Portfolio Management in Retirement for Lawyers (and Their Clients),” published by the American Bar Association. Write to Julie at readers@juliejason.com. While all questions cannot be answered, each email is read and reviewed and can lead to discussion in a future column.