Q: My son is disabled, and I plan to name him as a beneficiary of my IRAs. Will he be required to use the 10-year rule immediately after my passing, or are their options to enable him to lengthen the time he can make withdrawals?

A: Under the SECURE Act, beneficiaries with certain disabilities are allowed to lengthen the withdrawal time. They are considered “eligible designated beneficiaries,” meaning they can use their life expectancy to calculate yearly required minimum distributions (RMDs) rather than the 10-year option. The SECURE Act permits IRA owners to pass on retirement assets to a special needs trust, and I recommend that you touch base with an attorney familiar with this type of trust.

Q: I plan on distributing up to $200,000 to some relatives in order to help them pay for their education. Will the beneficiaries have to pay taxes on the gifts? What are the tax implications for me? How do I handle the gifts in order to minimize any income taxes?

A: In 2024, you are allowed to gift up to $18,000 per year to an individual without any tax consequences. If you are making the gifts from your spouse as well, the two of you can gift a combined $36,000 per year to one individual whether they are a relative or not. If you make a gift over these limits to one individual, you should file IRS Form 709.

Under current regulations, you are allowed to gift $13.61 million tax free over your lifetime. The regulations are scheduled to decrease in a few years, but if your total gifts over your lifetime are less than a million dollars, you will not have tax consequences, but you do have to file form 709 whenever any of your individual annual gifts exceed the $18,000/$36,000.

The limits change on an annual basis. Your attorney should be able to keep you up to date regarding the yearly gift limits, and the updated regulations that modify the limits associated with lifetime gifts. The recipients of your gifts will not owe any income taxes.

Note that money paid on another’s behalf directly to an education institution for tuition expenses is not considered a taxable gift.

Q: I am confused about the five-year restrictions associated with Roth conversions. I am over 59 1/2. If I make several conversions, to what extent will I be able to withdraw the amounts I converted without penalty?

A: Individuals older than 59 1/2 can withdraw earnings from a Roth IRA tax free only after five years from the tax year in which they made their first contribution to that account, whether it was directly or through a conversion. Once the five-year rule has been satisfied, you can withdraw all of the amount in the converted Roth account after five years, including dividends, interest and increases in value. You will not have any penalties or income tax for any subsequent Roth conversions you enter into.

Q: You frequently discuss the advantages of Roth conversions. I am in my 80s and have been taking RMDs for several years. I still have substantial traditional IRAs I have not converted. At my age, should I continue to convert traditional IRAs to Roth IRAs?

A: Although IRA expert Ed Slott highly recommends Roth conversions, he does not recommend them once you have reached the age at which you are required to take minimum distributions. The advantages of Roth conversions are primarily for younger owners of traditional IRAs who are not subject to RMDs.

Q: I have already documented the beneficiaries of my IRAs. I have not used trusts for any of these beneficiaries. Should I consider trusts?

A: In general, it is not a good idea to use trusts when you designate beneficiaries. In his books, Ed Slott points out the disadvantages and identifies which types of trusts may be beneficial. You should not use trusts unless you are working with an attorney who is very knowledgeable concerning which trusts may have advantages specific to your case.

(Elliot Raphaelson welcomes your questions and comments at raphelliot@gmail.com.)