Tricky Roth IRA 5 year rule question

Forum|Forum|4 years ago
December 26, 2021
11 replies
90 views

I am over 60. I opened a Roth IRA over 10 years ago. I just rolled over the Roth into another company. It has got only 2K in it and AGI is < from the $198K married contribution limit.

If I convert 5K from my traditional IRA into my Roth now in 2021 and withdraw 5K in 2022, will this amount be exempt from the 5 year rule? Will any earnings withdrawn from the 5K be exempt from the 5 years rule?

Same question with an additional contribution of 2K now in 2021. Let say that in addition to the 5K conversion avobe I contribute an additional 2K and withdraw $6K in 2022, is anything subject to the 5 year rule or would the entire amount be treated tax free?

I am under the impression I would be tax free all around including the earnings because I held the initial Roth for over 5 years and am over 60.

Best answer by dmertz

After age 59½ the 5-year holding period for conversions no longer applies. Since you've met the separate 5-year holding period for qualified distributions, your Roth IRA distributions are now tax and penalty free.

DaveF1006

Level 15

According to Publication 590-B, " if a distribution was made after the 5-year period beginning with the first tax year for which a contribution was made to a Roth IRA set up for your benefit, the entire distribution is tax free." It is a qualified distribution since the IRA was created 10 years ago.

Please review publication 590-B at the following link for further details.

[ Edited 12/28/21| 04:00 PM PST]

**Say "Thanks" by clicking the thumb icon in a post. **Mark the post that answers your question by clicking on "Mark as Best Answer"

Opus 17

Level 15

You have satisfied the 5 year rule, you don't have to satisfy it for each separate account or contribution.

A conversion is not a contribution, no matter how much you convert in 2021, you could contribute up to $7000 of new funds (or up to your compensation from working, if less than $7000.)

But the conversion from traditional to Roth IRA will be a taxable event.

And beware the timing, it is very late in the year. If you request a contribution or conversion in 2021 but the custodian does not process it until 2022, it will count for 2022, not 2021. Make sure your custodian can execute the moves you are planning in the days remaining to the year.

What is the purpose of making a Roth IRA contribution in 2021 if you are planning to withdraw it in 2022. The withdrawal would be non-taxable but the contribution is not deductible, it sounds like a transaction with no purpose.

Serge11_2Author

Level 4

"What is the purpose of making a Roth IRA contribution in 2021 if you are planning to withdraw it in 2022. The withdrawal would be non-taxable but the contribution is not deductible, it sounds like a transaction with no purpose."

The purpose is to get any capital gain on invesments purchased in that year to be tax free in Roth wheras it would taxed in the traditional IRA upon withdrawal. So the purchase of stock/bonds assets allows a tax free gain and I actually can throttle the distribution from my IRA based on my tax situation for that year . i would hold this for the whole 2022 year at least in ROTH

FangxiaL

Level 10

Each conversion has its own 5-year period. Each contribution's 5-year holding period starts from the initial contribution. In your case, any new Roth IRA contribution has met the 5-year holding period because you set up your Roth IRA account 10 years ago. But if you convert $5,000 from Traditional IRA to Roth IRA in 2021, the 5-year period started in 2021. That conversion will satisfy the 5-year holding period starting in 2026.

@Serge

**Say "Thanks" by clicking the thumb icon in a post. **Mark the post that answers your question by clicking on "Mark as Best Answer"