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401k to Roth IRA Conversion over 60- 5 year rule?

Yes. You’re correct that the 5-year holding period does not restart with each contribution or conversion. So, there is no need to open a new one for the new conversion purpose.

Brian175
New Member

401k to Roth IRA Conversion over 60- 5 year rule?

For unqualified Roth withdrawal over 59.5 years.

$25K gain/125K total acct value = 20% of account value not yet qualified.

20% of the $50K withdrawal (or $10K) is therefore taxable.  No penalties since you are over 59.5

 

Each conversion has its own 5 year clock.  If you do multiple conversions (say $100K/yr every year for 5 years), you will want 5 IRA's to keep clock record keeping simple.  In this example, the withdraw should come from the unqualified IRA that has the smallest total gain.  That is, if your five unqualified IRA's are worth $125K, $118K, $142K, $105K and $134K, take your withdrawal from the $105K IRA to minimize taxes.

dmertz
Level 15

401k to Roth IRA Conversion over 60- 5 year rule?

@Brian175 , I think you misunderstand several aspects of Roth IRAs.

 

Although it's common for those who have met the qualification requirements to call their Roth IRAs qualified or not, it's actually distributions from a Roth IRA are either qualified or nonqualified, not the accounts themselves.  Distributions from any of the individual's Roth IRAs are qualified distributions if made after 5 years have elapsed since the beginning of the year for which the individual first made a Roth IRA contribution and the individual is over age 59½.

 

Distributions from Roth IRAs are subject to Roth IRA ordering rules.  There is no such thing as prorating distributions between qualified and nonqualified portions.  A qualified distribution is nontaxable.  A nonqualified distribution could be partially or fully taxable depending on the application of the individual's basis in Roth IRA contributions and conversion.

 

The only purpose of the 5-year conversion clocks is to determine if a nonqualified distribution of taxable conversion basis is subject to a recapture of the 10% early-distribution penalty,  Since there is no early distribution penalty for distributions made after age 59½, the conversion clocks become entirely meaningless upon reaching age 59½.

 

Your statements more closely, but not entirely, align with the rules for a designated Roth accounts in an employer's qualified retirement plan since distributions from a designated Roth account do not follow the Roth IRA ordering rules and designated Roth accounts in different employer plans are not aggregated.  However, this subject of the original thread here is Roth IRAs, not designated Roth accounts.

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