5 Year Aging Rule on Earnings – For Multiple Roth IRAs
Does the 5 year rule start on earnings when the FIRST of ANY Roth IRA was opened? I opened a Roth IRA with T Rowe Price back in 2008, and recently another in 2020 with Fidelity to address my workplace funds. The T Rowe Price opened in 2008 meets the 5 year rule on any subsequent Roth conversions or contributions, but when I perform subsequent 401K to Roth conversions in my Fidelity Roth IRA, do I have to wait to Jan 2005 to withdrawal earnings?
Does each of my Roth IRA accounts’ earning has a separate 5 year aging clock? Or the 5 year aging rule was met, because my FIRST Roth IRA was opening, in 2008?
Permalink Submitted by Alan - IRA critic on Sun, 2021-02-21 18:26
Your first contribution to any Roth account starts the 5 year clock for the earnings to be tax free on all of them, however you also have to be 59.5. Separately, for the purposes of the conversion 5 year holding period to avoid the 10% penalty, each conversion has it own 5 year holding period. These also end at 59.5. If you are not yet 59.5 you can withdraw all your regular Roth contributions and conversions over 5 years tax and penalty free. Conversions under 5 years are subject to the 10% penalty. Earnings come out last subject to tax and penalty, so they should not be withdrawn before your Roth has 5 years and you are 59.5.
Permalink Submitted by Donald Diotallevi on Sun, 2021-02-21 22:26
I am 66. So if I understand your response correctly the earnings on subsequent 401k Roth Conversions to my Fidelity Roth IRA (opened in 2020), can be distributed as a qualified distribution; and not subject to penality or taxes, since I am over 59.5 year old. The 5 year aging on conversions is moot in my case. Thank you.
Permalink Submitted by Alan - IRA critic on Mon, 2021-02-22 14:44
Yes, that is correct. Your Roth is fully qualified with all distributions tax and penalty free. You can report them directly on line 4a of Form 1040. Form 8606 is no longer needed to report distributions, but will be needed to report any future conversions.