By Andy Ives, CFP®, AIF®
IRA Analyst
Follow Us on X: @theslottreport

The investment advisory firm of Bad Santa & the Grinch continues to disseminate misinformation and lousy, no good, rotten-to-the-core IRA advice. As we saw in “Bad Santa & The Grinch Offer Horrible IRA Advice – Part 1” (Slott Report, November 29), these two unsavory characters take great joy in fouling up not only your holiday, but also the qualified status of IRAs. Here are more fish bones, brown banana peels, coffee grinds and raccoon meals from their dented trash can of “IRA assistance.”

Bad Santa: UNDER 59.5 and converting your IRA? Have the taxes withheld and it will be a glorious Roth day! No, sir. Bad advice. For anyone doing a Roth conversion under age 59 ½, do NOT have taxes withheld from the IRA. Why? Those taxes never get converted. Technically, they are an early withdrawal and will be subject to a 10% penalty (assuming no exception applies). Be sure to have available cash from another account to cover the taxes due.

The Grinch: A Backdoor Roth is a marvelous technique, to cherry-pick dollars for the tax-free conversion you seek. Untrue. For anyone with a mix of pre-tax and after-tax (non-deductible) dollars in the combined total of ALL their IRAs, SEPs and SIMPLE plans, the pro-rata rule must be considered. You definitively cannot cherry-pick the after-tax dollars for conversion. Pro-rata dictates that any conversion will include a mix of pre- and after-tax dollars based on the ratio between the two.

Bad Santa: 60-day rollovers are the best way to go – and you can do as many as you want – how could you not know? No, and no. The safest way to move money between IRA accounts is via direct transfer. This is a non-reportable transaction that eliminates the possibility of missing the 60-day rollover window and all the consequences that follow. Additionally, while direct transfers are unlimited, you can only do one 60-day IRA-to-IRA rollover per 12 months. Try to do another within that period and it will be a distribution that cannot be reversed.

The Grinch: Within your IRA, buy a cozy Swiss chalet, and when you vacation at that location, ‘twill be a wondrous stay. No, it will not, because this is a prohibited transaction. You cannot use IRA money, while it is within the IRA, to benefit you personally. Owning a rental property within your IRA is perfectly acceptable, but you cannot use the property. In fact, your spouse cannot stay at the property nor can any lineal decedent (e.g., children, parents) as they are all considered “disqualified persons.” This will result in a complete distribution of the account.

Bad Santa: ‘Tis the season for giving, and the halls we shall deck. Then late in the year, write your QCD check. For those with checkbook IRAs, it is not a good idea to wait until the last minute to write your QCD (qualified charitable distribution) check to charity. Why? The custodian may not recognize the distribution until after the check is cashed. Checks written to a charity will qualify as a QCD, but the check must be cashed before year end to qualify for 2023.

Bad Santa & the Grinch can wreck an IRA – which would surely put a damper on the holiday. Shake your presents and listen. Bad-advice snakes could be boxed up and hissin’! Like the terrible, no-good guidance above, such “gifts” are delivered with absolutely no love. Let’s hope Bad Santa and the Grinch find their way. Maybe their hearts will grow three sizes someday.