Roth conversion
If one converts an ira to a roth and then dies a year later does the 5 year rule for the tax on the gains still apply?
If one converts an ira to a roth and then dies a year later does the 5 year rule for the tax on the gains still apply?
Permalink Submitted by Alan Spross on Wed, 2010-03-24 19:26
Tax on earnings ends when the Roth becomes qualified. This happens after 5 years from the original contribution year of the decedent and the clock continues to run after the Roth owner passes. Therefore, if someone made any regular or conversion prior to the current conversion, the clock would have started back on that year.
But if the conversion is the first Roth contribution of any type, then the 5 year clock would start at that time and continue to run. The beneficiary Roth would be qualified in another 4 years after inheriting after the first year. But until that time, the beneficiary would not be tapping earnings until the entire conversion would have been distributed tax and penalty free.