Roth Conversion 5 year rule
Are my assumptions correct:
Age – 70
Did Roth conversion in 2008 from traditional IRA of $100,000
Account has grown to $105,000
Am I correct in saying that the $100,000 can be withdrawn with no penalty – no tax consequences. at anytime however, the $5,000 would be taxable if withdrawn prior to the 5 year holding period?
What would happen if the Roth owner died? Would beneficiary be under the same “rule” regardless of age?
Thank you.
Permalink Submitted by Alan Spross on Wed, 2010-01-06 20:43
Someone over 59.5 can convert and withdraw the converted amount tax and penalty free with no waiting period, so you are correct. IF the earnings are withdrawn they are subject to tax unless 5 years has passed from the year of the original Roth contribution, making the Roth qualified.
If the Roth owner dies, the beneficiary must meet the 5 year holding requirement when added to that of the owner, to avoid taxation of the earnings.
If the owner dies, all distributions are penalty free, but the 5 year holding requirement continues in order for the distributions of earnings to also be tax free.