Roth IRA Clock

[rsherry8]

Imagine 25 years ago, a person put some money into  a Roth IRA. He took the money out, along with his gains. At that time, he was under 59.5 years of age and the money was not in long enough for his Roth  IRA clock to reach 5 years.

Now today, he is over 60 and he puts money into a new Roth IRA (with a different broker) and then takes it out a few weeks latter including some profits. I am thinking those profits  should be tax free because he is over 59.5 and it has been more than 5 years since he first put money into a Roth  IRA. Am I  right about that?

Also, assuming that I am right,  how does the IRA know that he put money more than 5 years ago?

[dmertz · Accepted solution]

As long as the distribution many years ago was not a return of contribution (code JP or J8 on the For 1099-R) but was instead a regular distribution, and the original contribution was not an excess contribution, that contribution started the 5 year clock which has by now been completed.  (Returned contributions and excess contributions do not start the 5-year clock.)  Assuming that's the case, you are correct that any distribution now from any of that person's Roth IRAs would be a qualified distribution because the person is now over age 59½ in addition to satisfying the 5-year clock.  Even though the Roth IRA custodian will use code T for a distribution from the new Roth IRA, because it's a qualified distribution no Form 8606 Part III is needed.  The distribution just needs to be present on Form 1040 line 4a (but excluded from line 4b)  2023 TurboTax will do this when the person answers Yes to the question that asks if the person had a Roth IRA before 2019.

IRA contributions are reported to the IRS (and the person) by the IRA custodian on Forms 5498 so there would be a 1998 Form 5498 for a Roth IRA contribution made 25 years ago.  (1998 was the first year for Roth IRAs.)