Roth conversions over age 59.5…
I would like to max out a client’s 15% federal tax bracket by converting traditional IRA $ to an existing Roth IRA for 2009. The client’s age is 65. Am I correct in that after the conversion, the client will not have to wait 5 years to withdraw $ from the Roth IRA conversion to avoid the penalties…5 year rule does not apply to both principal and interest if over 59.5?
Permalink Submitted by Alan Spross on Fri, 2009-07-24 18:09
Right on one 5 year rule and not right for the other one.
The 5 year holding period for Roth conversions ends at age 59.5 even if the conversion is done prior to 59.5. Client can withdraw the conversion dollars any time he wants tax and penalty free.
However, when you refer to “interest” there is another different 5 year rule, the one that applies to a Roth IRA becoming “qualified”. This 5 year period starts with the year of the client’s first Roth conversion of any type. This must be completed prior to any earnings or interest coming out tax free. But since earnings come out last, this would not be an issue until client had already removed all his regular and conversion contributions. This client’s entire Roth would only be qualified at this time if the first contribution was made prior to 2005.
The 100,000 income limit applies to Roth conversions this year, and then it disappears.