Home Personal Finance How a Roth IRA rollover can cause unforeseen problems

How a Roth IRA rollover can cause unforeseen problems

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Dear Liz: I have been donating to my young adult children’s Roth IRA accounts for the past few years to start retirement savings. My oldest just quit his first job to go back to graduate school. Her income is low this year, so I advised her to roll back her defined contribution pension with her previous employer into her Roth IRA and consolidate her retirement savings. Will this conversion affect the maximum amount I can donate to her Roth beyond the normal rules regarding maximum donations?

answer: Conversion doesn’t just affect her ability to serve Ross. It could also increase her tax bill, reduce her eligibility for financial assistance, and affect the health insurance subsidies she receives. Converting can still be a smart move. Roth IRA offers tax exemption But she needs to understand all the implications before following your advice.

Amounts your daughter converts from a 401(k) or other defined contribution plan are considered taxable distributions and are treated as income. It could affect her eligibility for tax relief, such as the Education Tax Credit and Affordable Care Act grants, and her ability to contribute to the loss. will be phased out between adjusted adjusted gross incomes of $138,000 and $153,000.)

Also, to be eligible to make a donation, she (or you) must earn at least as much as the amount she (or you) intends to donate. Retirement plan distributions are not considered earned income, so you must have wages, salaries, tips, bonuses, commissions, or self-employed income to qualify.

Conversion may affect her financial aid in the future. Federal aid calculations are based on her two-year-old tax return, so from 2025, if she’s still in school for the 26th school year, the 2023 tax return will count towards her subsidy. It can affect gold.

Also, she needs to figure out how to pay the conversion tax. Changing a regular retirement account to Roth makes sense if you expect higher tax rates later, but if the retirement account itself has to be raided to pay taxes. , the calculations start to fall apart.

Your daughter should check her situation and consult a tax professional who can provide individualized advice.

Old non-cash policy

Dear Liz: What advice can you offer to people who come across old life insurance policies that have never been cashed?

answer: My brother and I have personal experience with this after coming across two policies in our late father’s paper. One policy was found to have actually been redeemed, but a second policy was purchased in his 1930s for $5,000 face value and was still in effect.

Search engines can usually be used to determine if an insurance company is still in business or has changed its name or merged with another company. (Not surprisingly, the insurance company that issued the policy in the 1930s was involved in several mergers in the decades that followed, but it took only seconds to find what it is today. .) If you have trouble tracking a company, please contact your insurance company. The state regulator in which the insurer was originally located.

Once you have your current insurer name and contact information, you can call and ask if your policy is still valid. If the policy has value, the insurance company can dictate how it is billed.

Divorce survivor benefits and remarriage

Dear Liz: I am a divorced man receiving Social Security survivor benefits based on my late ex-wife’s income records. I am he 63 years old. Can I continue to receive benefits after getting married?

answer: yes. People who receive survivor benefits can remarry after age 60, but they do not lose their benefits.

Survivor benefits are based on the income records of the deceased spouse or former spouse. This is not the same as spousal benefits. divorced spouse benefits, Based on the income records of someone still alive. A person receiving divorced spousal benefits cannot remarry without losing those benefits.

Liz Weston is a certified financial planner and personal finance columnist. nerd wallet. Questions can be directed to 3940 Laurel Canyon, No. 238, Studio City, CA 91604 or by using the “Contact Us” form below. asklizweston.com.

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