Roth 5 year for tax free status
If I established a roth IRA account 4 years ago with broker A and now roll over a traditional IRA to a Roth IRA with broker B, I will pay taxes on the amount rolled over but my question is, will the account with broker b have a 5 year wait period from date of roll over to have its gains become tax free or willl it be just the 1 year as with the account with Broker A???
Thanks
Dean Davis
Permalink Submitted by Alan Spross on Sat, 2008-07-05 22:40
Dean,
For your Roths to become qualified, the 5 year holding period is only one of two requirements. In addition, you must be age 59.5 or disabled along with meeting the 5 year requirement for gains to be tax free. The 5 year requirement starts with your first Roth contribution no matter how many later Roth accounts you open.
If you are 59.5, the new Roth would only have to be open for one year for gains to be tax free.
You did not aski, but there is also another totally different 5 year holding requirement for conversions. This requirement does not apply to gains, but to removal of the conversion itself. If the conversion funds are distributed prior to 5 years for each conversion, there is a 10% early withdrawal penalty. However, this TOO stops at age 59.5.
In both situations, you can see that reaching 59.5 is a requirement. There are a couple other exceptions such as death, disability and up to 10,000 for a first home purchase.
Permalink Submitted by Dean Davis on Sat, 2008-07-05 23:31
Thank you. Exactly the info I was looking for.
Dean