Roth Conversion 5 yr Rule
I’m 61 and have twice partially converted traditional IRA’s to Roths and both of those conversions have passed the 5yr point. I want to do another conversion this year and want to know if this will “reset the clock” to 5 more years on my previous conversions? If not, do I need to put this year’s conversion in a separate fund to segregate it from the previous conversions? Thanks for any help you can provide. Greg
Permalink Submitted by Alan Spross on Mon, 2008-07-28 04:20
Greg,
Since you have attained age 59.5, the 5 year holding period for Roth conversions no longer applies to you. You could withdraw conversion funds now without tax or penalty if you needed to.
In fact, since your first Roth contribution was over 5 years ago, your Roth is now fully qualified, meaning any withdrawals you take are tax and penalty free.
The only reason to put new conversions in a separate account is for ease of calculating earnings should you decide to recharacterize the conversion. Some people recharacterize if their investment dropped and they do not want to be taxed on phantom income. Others find that their income exceeded 100,000 of modified AGI and they have to recharacterize. One way to handle this is to convert to a new account, and after you are totally sure you will not be recharacterizing, transfer the balance in the new account to your other Roth. Keep the empty account open for making future conversions etc.
Again, this only reflects recharacterization processing simplicity, not tax issues since your Roth is now fully qualified.
Permalink Submitted by Gregory Konrad on Mon, 2008-07-28 18:33
Alan, Thanks for answering my questions. Looks like there are no strings attached to follow on conversions. Greg