By Andy Ives, CFP®, AIF®
IRA Analyst
The Ed Slott team has answered literally tens of thousands of IRA and retirement plan questions over the past few years. That is not hyperbole—we track it all. The questions we’re asked run the gamut from basic to extremely complex. Most inquiries are honest and straightforward: “What is the rule about this?” “How do I do that?” and so on. On occasion, however, we get some zingers. Just off the top of my head, here are some of the craziest questions and scenarios I’ve encountered.
A gentleman, over age 70½, wanted to donate $90,000 to his two grandchildren’s school via a QCD (qualified charitable distribution). This was a perfectly reasonable request. With a QCD, the donation goes directly from the IRA to the receiving organization, and no goods or services can be accepted for the donation. I was then asked if, upon the grandfather making the donation, could each grandchild receive a $45,000 scholarship? Um, no.
I was at a speaking engagement teaching the crowd of financial advisors that, if a person under the age of 59½ does a Roth conversion, you should not have the taxes withheld from the IRA. Why? Those taxes withheld are technically an early withdrawal, and there is a 10% penalty on the withheld taxes. An advisor approached me during the next break and admitted that he always had the taxes withheld on Roth conversions, even for young people. Regarding the pending 10% penalty, he asked, “Do you think anyone will notice?”
Speaking of Roth conversions, an advisor called to discuss a conversion strategy for his elderly client. He was excited about the prospect of his client having tax-free earnings and eliminating future required minimum distributions (RMDs). I asked who the beneficiaries were and was told the woman had no spouse and no children. Everything was going to charity. I said, “Stop. No more conversions. Charities don’t pay taxes. Don’t make her pay the tax on all these dollars.”
A person set up a 529 college savings plan for each of his two children. Both accounts were now funded with over $300,000 each. Dad asked if he could immediately roll over all $300K into a Roth IRA for each child. No deal. 529-to-Roth rollovers are capped at $35K lifetime, and annually up to the IRA contribution limit. (First-world problems for those kids, huh?)
I had another 529 situation where the account held over $500,000. The crazy part was, the owner had no children and no grandchildren, and apparently no one in his immediate circle who needed funds for education. How and why the heck was this account ever established?
Another person had a QCD check rejected because the charity no longer existed. The dollars still showed as being paid out as a QCD, and the IRA owner wanted to pocket the money. The person’s bright idea was to establish a bogus charity, intentionally have future QCD checks rejected, keep the cash, and pay no tax. C’mon, man! This won’t work. The IRA custodian said the account was out of balance and they were required to redeposit the rejected QCD check into the IRA.
Be careful out there, people. It’s crazy.
If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.
https://irahelp.com/the-craziest-stuff-ive-heard/