Another 5-year rule question
I have one Roth (since 2003) and one traditional IRA. I’m over 59.5. I make conversions from my traditional to my Roth every year. Are there any waiting periods on these annual conversions or their earnings before I can withdraw them? Thank you.
Permalink Submitted by Alan Spross on Thu, 2011-04-21 02:26
No more holding periods of any type.
Your Roth IRA is fully qualified and the entire balance could be distributed tax and penalty free anytime you wish. If you make future conversions, those funds are also immediately eligible to be distributed tax and penalty free.
You do not even need an 8606 to report your distributions. Just show the gross amount on line 15a and nothing on 15b.
Permalink Submitted by gerard noronha on Thu, 2011-04-21 17:44
alan
I thought i read on the irs website that for trad ira conversion to roth, each conversion starts it’s own 5 year cycle…you can take out the monies early but you will have to pay tax on the earnings, not on the principal put in…..could you clarify…tx
Permalink Submitted by Alan Spross on Thu, 2011-04-21 17:54
Each conversion has a separate holding period to avoid the early withdrawal penalty for removing the converted funds, but this no longer applies once the taxpayer reaches 59.5 and withdrawals are no longer early distributions.
Tax on earnings from any and all contributions only applies to non qualified distributions. This poster had a fully qualified Roth IRA, being over 59.5 and having met the 5 year holding period measured from the year of the first contribution (2003).