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Retirement Perspectives

We answer a handful of frequently asked questions during our recent webinar.

As many of us scramble to file our 2018 tax returns (time is running out!), it’s a good time to check in with an update on the various complex rules for retirement accounts after the tax reform was passed last year. As I’ve written before, the new tax law has sparked a lot more interest in Roth accounts, as well as Health Savings Accounts (HSAs).

Our March 27 webinar, “The Appeal of Roth Accounts Post-Tax Reform,” had a tremendous turnout as well as audience participation. In case you missed it, we provided resources for some of the key topics covered in the webinar.

This week, after sifting through more than 100 questions from our audience, we compiled answers to a handful of their most frequently asked questions.

Q. Can individuals older than age 70½ convert their traditional IRA to a Roth IRA?
A.
  Yes. Individuals older than age 70½ may convert to a Roth IRA, provided that no portion of the funds converted are a required minimum distribution (RMD). In other words, the RMD needs to be paid before the conversion occurs.

Q. Do donor-advised funds qualify for qualified charitable distribution (QCD) treatment?
A.
  Obtaining the tax benefits for using a QCD from an IRA to a charity requires meeting a number of requirements, including contributing to only certain public charities. Therefore, private foundations and donor-advised funds are ineligible to receive QCD treatment.

Q.  Where can I learn more about Health Savings Accounts (HSAs)?
A.
  For an in-depth look at how to use HSAs and the rules for these accounts, see our recent three-part series: Why Health Savings Accounts Make Sense, Health Savings Accounts: Eligibility, Distributions, and More, and Health Savings Accounts: Rollovers, Beneficiaries, and Other Rules.

Lord Abbett also offers a comprehensive seminar focusing on HSAs. Please call 888-522-2388 for details.

Q. Where can I learn more about IRS Form 8606 (“non-deductible” IRAs)?
A.
Read our column about non-deductible IRAs.

Q. Can aftertax 401(k) contributions be rolled directly to Roth IRAs?
A.
  Yes!  See our column to learn more about a rollover with aftertax dollars.

 

To comply with Treasury Department regulations, we inform you that, unless otherwise expressly indicated, any tax information contained herein is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties that may be imposed under the Internal Revenue Code or any other applicable tax law, or (ii) promoting, marketing, or recommending to another party any transaction, arrangement, or other matter.

The information is being provided for general educational purposes only and is not intended to provide legal or tax advice. You should consult your own legal or tax advisor for guidance on regulatory compliance matters. Any examples provided are for informational purposes only and are not intended to be reflective of actual results and are not indicative of any particular client situation.

The information provided is not directed at any investor or category of investors and is provided solely as general information about Lord Abbett's products and services and to otherwise provide general investment education. None of the information provided should be regarded as a suggestion to engage in or refrain from any investment-related course of action as neither Lord Abbett nor its affiliates are undertaking to provide impartial investment advice, act as an impartial adviser, or give advice in a fiduciary capacity. If you are an individual retirement investor, contact your financial advisor or other fiduciary about whether any given investment idea, strategy, product or service may be appropriate for your circumstances.

GLOSSARY

Traditional IRA contributions plus earnings, interest, dividends, and capital gains may compound tax-deferred until you withdraw them as retirement income. Amounts withdrawn from traditional IRA plans are generally included as taxable income in the year received and may be subject to 10% federal tax penalties if withdrawn prior to age 59½, unless an exception applies.

A Roth IRA is a tax-deferred and potentially tax-free savings plan available to all working individuals and their spouses who meet the IRS income requirements. Distributions, including accumulated earnings, may be made tax-free if the account has been held at least five years and the individual is at least 59½, or if any of the IRS exceptions apply. Contributions to a Roth IRA are not tax deductible, but withdrawals during retirement are generally tax-free.

401(k) is a qualified plan established by employers to which eligible employees may make salary deferral (salary reduction) contributions on an aftertax and/or pretax basis. Employers offering a 401(k) plan may make matching or nonelective contributions to the plan on behalf of eligible employees and may also add a profit-sharing feature to the plan. Earnings accrue on a tax-deferred basis.

A Health Savings Account (HSA) is a savings account that lets employees set aside money on a pretax basis to pay for qualified medical expenses.

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