Roth Conversions after Earlier Contribution
An investor opens up an account and contributes $1000 to a Roth IRA in 2008.
He then does a series on conversions during 2015, 2016, 2018 into that same account.
The investor turned 59 and 1/2 during 2016.
When do the earnings on the three conversion become qualified (tax free)?
Permalink Submitted by Alan - IRA critic on Mon, 2018-04-16 23:28
His Roth became fully qualified and tax free when he reached 59.5. Conversions done after that are also immediately qualified, so all earnings will be free from tax. He also no longer has any conversion holding period so could take out the conversion money tax and penalty free anytime.
Permalink Submitted by Scott Carbaugh on Tue, 2018-04-17 16:38
Thank you for the response. Would the situation be different if the 2008 $1000 transaction were a conversion (not a contribution)? If so, Why? Thanks again!
Permalink Submitted by Alan - IRA critic on Tue, 2018-04-17 16:45
No, the situation would be the same. The first Roth contribution can be either a regular contribution or a conversion, but it cannot be an excess contribution. In other words, if his income was too high for the 2008 regular contribution, that contribution does not count and in addition to an excess contribution, the 5 year clock would not have started.