Tax and financial advice from the Silicon Valley expert.

Developments and planning ideas for Roth IRA and Regular IRA accounts

Stock Market’s Down! Convert to Roth Now?

The weak stock market might be an opportunity for taxpayers who want to convert their taxable traditional retirement accounts to tax-free Roth accounts.

On Monday, April 21, 2025, the S&P 500 sank 2.4%. The index at the center of many 401(k) accounts has retreated 16% below its record set two months ago.

The other stock market indexes, bond prices (including U.S. Treasury bonds) and the dollar have also fallen.

Reasons for the market weakness might be uncertainty as a result of President Trump’s imposition of tariffs of 145% to 245% on imports from China, broad-based 10% tariffs on other imports, and more tariffs on imports from other countries after a 90-day pause, together with his threat to fire Federal Reserve Chair Jerome Powell. Firing Chairman Powell threatens the independence of the Federal Reserve, which helps stabilize world financial markets.

With securities prices down, this could be a great time to make a Roth conversion.

What if securities prices fall even more? Timing financial decisions is problematic. Securities prices could fall even more if Trump actually fires Chairman Powell and goes ahead with many of Trump’s proposed tariffs that have been “paused.” Securities prices could improve if Trump reconsiders these threats and proposals and decides to not go ahead with them. Or, something else could happen. We just don’t know what will happen in the future.

We do know prices have already fallen, creating a potential opportunity to save taxes with a Roth conversion.

Why make a Roth conversion?

  1. After a short waiting period, most earnings and appreciation inside a Roth account are tax-free. . The earnings and appreciation inside a traditional retirement account are tax-deferred until distributions are made. (There is an exception for “unrelated business taxable income” that doesn’t apply to most taxpayers.)

2. Distributions from a Roth account after age 59 1/2 are tax-free, and so are many distributions before age 59 1/2. Distributions from a traditional retirement account in excess of any non-deductible contributions are generally taxable.

3. There are no required minimum distributions for a Roth account during the lifetime of the account owner (unless the retirement plan specifies otherwise.) Required minimum distributions generally must be made from a traditional retirement account when the account owner reaches the “applicable age”, currently age 73.

4. When the account owner dies after the required beginning date (April 1 of the year after reaching the “applicable age”), required minimum distributions must be made to the beneficiaries of a traditional retirement account. Since there is no required beginning date for Roth accounts (except Designated Roth Accounts of some employer plans), required minimum distributions don’t apply for most inherited Roth accounts. (Inherited Designated Roth Accounts can be rolled over to beneficiary Roth IRA accounts to avoid having to make required minimum distributions.) (Both traditional and Roth retirement accounts are subject to the requirement to be distributed by the end of the tenth year after the death of the account owner, with some exceptions.)

5. Distributions to beneficiaries from inherited Roth accounts are generally tax-free. Distributions to beneficiaries from inherited traditional retirement accounts are generally taxable, except for the recovery of any nondeductible contributions.

Since required minimum distributions don’t qualify for Roth conversions, taxpayers who have reached their required beginning date MUST TAKE THEIR REQUIRED MINIMUM DISTRIBUTION FOR THE YEAR BEFORE MAKING A ROTH CONVERSION.

A Roth conversion is currently taxable. Planning to have the cash available to pay the income taxes relating to the conversion is critical. You might want to consult with a tax consultant or financial planner to estimate in advance what the tax will be and decide how much to convert.

There can be other “side effects” of a conversion. For example, the additional income can reduce itemized deductions for medical expenses and can result in higher Medicare premiums. Get advice to “look before you leap.”

Now that tax return filing season is over, it’s tax planning season. Whether to make a Roth conversion during 2025 should be a topic on the agenda for a tax planning meeting for everyone who has a traditional retirement account.

Should a surviving spouse roll over an inherited retirement account?

When someone passes away is one time it's essential to consult with an estate planning lawyer, a tax advisor like a CPA or enrolled agent, and possibly a financial planner.

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Final regulations issued for Required Minimum Distributions

The IRS has issued final regulations (TD 1001) and proposed regulations (REG-103529-23) relating to Required Minimum Distributions from traditional and Roth qualified retirement plans, including Section 401(k) plans, and IRAs.

The regulations explain the rules for required minimum distributions under the SECURE Act of 2019 and SECURE 2.0 Act of 2022.

The final regulations are mostly the same as previously-issued proposed regulations with some minor changes in response to comments received by the IRS.

Notably, the final regulations didn’t change a controversial rule in previously-issued proposed regulations requiring that distributions be made annually when the plan participant dies after the required beginning date and annual required minimum distributions already applied during their lifetime. (This rule doesn’t apply to Roth account participants, because there is no required beginning date during their lifetimes.)

In most cases, that means when a plan participant dies after the required beginning date and annual required minimum distributions already applied during their lifetime, life expectancy distributions continue for the next nine years and the balance of the account is distributed during the tenth year after death. See your tax advisor for exceptions for “eligible designated beneficiaries” (including the surviving spouse) and non-designated beneficiaries.

See your tax advisor about how the new regulations apply for you and your family.

California FTB follows IRS with November 16 due date as California storm relief

The California Franchise Tax Board announced the evening of October 16, 2023 it is following the IRS by adopting a November 16, 2023 due date for 2022 income tax returns and payments for taxpayers who previously qualified for the October 16, 2023 due date. The relief applies to 55 of 58 California counties.

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At the last minute, IRS further extends 2022 filing and payment date for California storm victims

For residents of 55 of California's 58 counties that previously qualified for extended filing relief, the IRS has announced TODAY the tax-filing and tax-payment deadline has been further extended to November 16, 2023.

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Roth requirement for 401(k) catch-up contributions postponed

The IRS has announced a two-year administrative transition period for catch-up contributions to a qualified retirement plan (including a Section 401(k) plan) by highly compensated employees, permitting them to continue to be made on a pre-tax basis for taxable years beginning before January 1, 2026.

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Age 72 during 2023? You might get an extra IRA rollover

If you received a scheduled required minimum distribution from an IRA because you reached age 72 this year, the IRS just gave you a "mulligan". (This relief also applies for a surviving spouse.) The IRS has announced you may roll the distribution back to the account no later than September 30, 2023.

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Tax and financial advice from the Silicon Valley expert.