Dear Liz: When I retired, I had a 401(k) with roughly $12,000. Instead of moving that into an IRA, I opted for a distribution and paid taxes on it. I didn’t need the money immediately, so I later opened a new IRA account and deposited the remaining funds.
Looking back, I feel like putting that money into a Roth IRA would have been better to avoid double taxation. It’s honestly a bit frustrating, and I’m wondering if there’s any way to transition that money into a Roth without facing taxes again.
Answer: You did make an error, but it might not be what you think.
If you don’t have earned income, you’re unable to contribute to an IRA, including a Roth IRA. So, if you’re fully retired, reach out to your IRA administrator and ask to withdraw your “excess contributions” along with the earnings from those contributions.
If you donated within the year, you can take out your funds penalty-free before the tax filing deadline, which is usually April 15, 2026. However, if you contributed in the prior year, you might face a 6% excise tax for every dollar remaining in your account.
Just a note about financial mistakes: they can happen more frequently as you age, which can be pretty concerning—especially for those who typically manage their finances independently. As you transition into retirement, it’s wise to set up some safeguards to protect both yourself and your assets.
Hiring a tax accountant should be your next step. Any matters concerning retirement funds should be guided by a professional to ensure you adhere to the tax regulations.
Dear Liz: In a recent piece about advanced directives, I noticed that it was mentioned a free version is available at PrepareForYourCare.org. However, I discovered there’s a fee. Does this apply to all online directives?
Answer: Prepare is indeed a free resource, funded by donations and grants. If you encounter a fee, it’s likely you either clicked on the donate button or weren’t on the correct site.
