How are existing 5 year clocks handled when transferring assets from one Roth IRA to another?
My wife recently passed away and I inherited her Roth IRA. Both Roth accounts were opened in 2014, so they are long past any 5 year rule entanglements. I chose to take over her Roth account, then transfer the assets in-kind to mine. Other than occasional cash deposits, these accounts are not active.
I have a second Roth account opened in 2019 when I retired and have been slowly converting assets from a Rollover IRA with that financial company making sure to control the additional taxes.
My question is this: If I were to transfer the 2014 Roth accounts into the Roth account that has had recent conversion activity, how would the 5 year clocks on assets be handled after the merger? Or should I just “Keep It Simple Stupid”, and not complicate the 5 year clocks on the combined assets?
Permalink Submitted by Alan - IRA critic on Tue, 2025-03-18 17:12
Sorry to hear of your loss.
All of your Roth accounts are treated as combined for tax purposes, therefore there is no tax benefit for maintaining separate Roth IRAs. If you are over 59.5, all your Roth IRAs are now qualified and 5 year clocks no longer apply. Very simple.
But if you are under 59.5, your Roths will not be qualified until you reach 59.5. If you took a distribution before 59.5, you would have to report it on an 8606 and show the contribution basis on line 22, and the conversion basis on line 24 if the distribution exceeded the amount on line 22. There might be taxes and penalty due if your distributions exceeded line 22.
And direct transfers between accounts change nothing with respect to Roth holding periods or taxes. These transfers also do not generate a 1099R, and therefore no tax reporting on your 1040.
Permalink Submitted by Jim Tonchick on Wed, 2025-03-19 14:16
Thanks for the quick reply. Since all separate Roths are handled as one, then there’s no reason NOT to consolidate. That will make it much more simple to manage from one financial organization.