5 year rule
I have opened my Roth this year. next year I will be Rolling over a 403b to this same Roth. For any subseqent growth in the total Ira, will any growth be tax free starting from the first year or will the 5 year start be applied to the begining of the 403b deposit?
Permalink Submitted by Alan Spross on Thu, 2010-09-16 21:18
There are two totally different 5 year holding periods for a Roth IRA:
1) For earnings to be qualified (tax free) along with reaching 59.5. This starts on Jan 1 of the year of your first Roth contribution of any type, ie 2010 in your case. It will be completed as of 1/1/2015
2) For a specific conversion to be penalty free if you withdraw those conversion dollars. This one ends at age 59.5. In your case it would end 1/1/2016 unless you reach 59.5 first.
Note that if you meet #1 above, you do not have to worry about #2 since you will be 59.5.
Permalink Submitted by victor navon on Sun, 2010-09-19 01:16
In response, I am 73 years old. I assume that the 5 year rule applies to the start of 2010 for all subseqent contribution gains in the Roth. True? Thanks.
Permalink Submitted by Alan Spross on Sun, 2010-09-19 01:34
Yes.
Since your first Roth contribution is for 2010, the 5 year holding period starts 1/1/2010. Any earnings that are generated in your Roth will not be tax free until 1/1/2015. But if you want to take a distribution before then, the earnings come out LAST. So there would be no tax on any distributions until you pulled out your entire amount of regular and conversion contributions.