Earnings on Multiple Roth Conversions – Some over 5 yrs, some not

Submitted by Mobey on Wed, 2017-12-06 18:34

Hello,

Thanks in advance.

A gentleman wants to pull as much out of his Roth as possible without taxes. He’s over 59-1/2 so no problem there.

He’s made multiple conversions into the Roth; most less than 5 years but some over 5 years.

It’s easy enough to separate contributions vs gains in aggregate, but how is one supposed to apportion the gains so that he can take principal and gains for those made over 5 years ago, and only principal for those made under 5 years ago



Submitted by David Mertz on Wed, 2017-12-06 19:06

He can take out any amount he wants, entirely tax free.  Because he is over age 59½ and it has been at least 5 years since the beginning of the year for which he first made a Roth IRA contribution, *any* distribution from the gentleman’s Roth IRAs will be a qualified distribution.  The conversion dates are no longer relevant.

Submitted by Mobey on Wed, 2017-12-06 19:17

I thought each conversion begins a new 5 year clock vs “new money” which is governed by the single 5 year requirement. No?

Submitted by David Mertz on Wed, 2017-12-06 19:47

The conversion 5-year clock is only used to determine when the original conversion amount is no longer subject to an early-distribution (recapture) penalty if distributed before age 59½.  Once someone reaches age 59½, there is no 5-year conversion clock to consider.

Submitted by Mobey on Wed, 2017-12-06 20:37

Excellent – come on here to learn from folks smarter than me and just learned something new.Appreciate it.

Submitted by Alan - IRA critic on Wed, 2017-12-06 21:00

If his first contribution of any type was before 2013, his Roth is entirely qualified and tax and penalty free. Next month, his Roth will be qualified if the first contribution was before 2014. Once qualified, the distribution is reported only on line 15a of Form 1040 with Form 8606 not required.

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