Roth IRA. 5 year Rule
I have been looking at the 5 year rule for distributions coming out of a Roth IRA to be qualified distribution in 2018. The client did a rollover from an IRA in June of 2013 to establish a Roth IRA. It was the understanding at the time that an initial contribution to a Roth in June, 2013 was treated as if made on January 1 of 2013 for purposes of the five year rule.
Now we are in 2018. The taxpayer wants to use the earnings from the Roth for personal use. Because the taxpayer wants to comply with the Roth distribution rules there is a reexamination of the five years for a Roth to be in existence for the to be a qualified distribution from the Roth and therefore, tax free.
The taxpayer is 70 year of age currently.
Any comments would be appreciated.
Permalink Submitted by Alan - IRA critic on Tue, 2018-01-02 16:03
The 5 years starts 1/1 of the first contribution year of 2013. Therefore, as of 1/1/2018 client’s Roth is qualified and completely tax free since client is also over 59.5. Distributions from now on get reported only on line 15a of Form 1040. Form 8606 no longer is needed. Of course, by liquidating the Roth IRA, the client is giving up all future tax free earnings that the account would generate and also with no RMDs. He might want to consider using other sources of funds first at least for some of the distributions needed. If he has any pre tax retirement accounts, he must start RMDs at this time as well, although those distributions would be taxed.