Ed Slott IRA Quiz Continued: EDU #2612

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Mar 25, 2026

They run through tricky IRA rules from a well-known quiz, focusing on recharacterization deadlines and custodian mechanics. They unpack Roth five-year timing, including a surprising surviving-spouse wrinkle. They explain which IRA dollars can move into employer plans and a common timing trap that can undo efforts to separate after-tax basis from pre-tax funds.

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ADVICE

How To Recharacterize An IRA Contribution Correctly

Recharacterize IRA contributions by instructing your custodian and include attributable gains or losses in the transfer calculation.
Use the NIA worksheet in IRS Publication 590-A or ask the custodian to compute the net income attributable before October 15 of the following year.

INSIGHT

Roth Conversions Are Irreversible Since 2018

Roth conversions can no longer be undone by recharacterization since the 2018 Tax Cuts and Jobs Act, so conversion decisions are final for the tax year converted.
The old strategy of over-converting then recharacterizing the excess (the "flour cup" technique) was eliminated, increasing timing risk for conversions.

INSIGHT

Two Different Roth Five-Year Rules

There are two distinct five-year Roth rules: one for qualified distributions of earnings and one for each conversion to avoid the 10% early withdrawal penalty.
The conversion five-year clock is per conversion and stops applying once you reach age 59½.

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Note: In this episode some information regarding the 5-year rule was misstated – one must get through the fifth, not just be in the fifth year. Jim and Chris clarify on the April 4, 2026 Q&A #2614 episode.

If you would like to skip over Jim and Chris’s banter on the weather, that manages to touch on Colorado water rights (an issue many east of the Mississippi probably find baffling), then you can start listening at (11:45).

Chris’s Summary
Jim and I continue our look through the Ed Slott IRA quiz, covering IRA recharacterization rules, how a surviving spouse may use a deceased spouse’s five year period following a spousal rollover, which IRA funds can roll into an employer plan, and the timing trap that can unravel the strategy of using an employer plan to separate after-tax basis from pre-tax funds.

Jim’s “Pithy” Summary
Chris and I are continuing our run through the Ed Slott IRA quiz — the questions Ed sends out after his twice-yearly training sessions to make sure advisors know not just the right answer but the reasoning behind it. That reasoning is where most people get tripped up, and this episode has several good examples of exactly that.

We start with IRA recharacterization rules — the deadline, what has to happen at the custodian level, how attributable gains or losses factor into the math, and a conversion planning tool that Congress took away in the 2018 Tax Cuts and Jobs Act. It was a strategy that made conversion timing far more forgiving than it is today, and the fact that it is gone still stings. From there we get into the Roth IRA five-year rules — specifically a spousal rollover scenario with a twist that most people, including Chris, do not see coming. The answer turns on a benefit the tax code extends to surviving spouses that is easy to overlook if you are not specifically looking for it.

We wrap up with which IRA funds can actually be rolled into an employer plan and why that distinction matters if you are sitting on after-tax basis inside a traditional IRA. There is a clean strategy for separating it, but there is also a timing mistake that catches people who think they have successfully pulled it off — when they have not. More people fall into that trap than you would expect, and the consequences are not trivial.

The post Ed Slott IRA Quiz Continued: EDU #2612 appeared first on The Retirement and IRA Show.