Five Year rule rolling?
an outside planner has consulted our client to create a Roth IRA over a 6 year period. Currently she is 81 and her IRA is worth $250,000. If she converts $42,000 a year I assume the 5 year rule applies to each conversion and not just the first conversion in 2010? Thus stretching her eligibility period out to five years after the last partial conversion which would take place in 2016?
Permalink Submitted by Anonymous (not verified) on Tue, 2010-11-09 18:27
Assuming she does not have a Roth already (contributory), her 5-year period begins Jan. 1, 2010 (year of the first conversion). There are no multiple 5-year periods after 59 1/2. Thus, she has tax-free access to each conversion immediately. Ofcourse she owes the taxes each year or this year she can split between 2011 & 2012. All the earnings are tax-free beginning Jan 1. 2016 or if she never distributes anything – the whole account. There are no prematue distribution penalties after 59 1/2.
pko
Permalink Submitted by Alan Spross on Tue, 2010-11-09 19:44
Roth would be fully qualified 1/1/2015, not 2016, even though the conversions have not been completed. 2010 counts as the first year even if the conversion is done in 12/2010.