5 Year Aging Rule – For Multiple Roth Rollovers to Roth IRA
I am a retiree over 59.5 years old. In 2020, I performed backdoor rollover (from an After Tax Account) from my workplace Fidelity 401k to a retail-side Fidelity Roth IRA; to accept this rollover I still have two Roth accounts remaining in my workplace, my Roth 401K and a Catch-Up Roth 401K accounts; that I plan to rollover to the Roth IRA that I opened in 2020. My understanding the Roth Rollover has a separate 5 year clock (separate from Roth Conversions’ 5 Year Aging Clock). I understand the any subsequent workplace Roth 401K rollovers (e.g. say this year but no later than my RMD) to the 2020 Roth IRA would be subject to the 5 year aging clock established in 2020. Therefore as long I rollover my Roth 401k and Catch-Up Roth 401K funds into the 2020 Roth IRA the 5-year aging clock already started. So distributions would penalty free in Jan 2025. However, if I opened another Roth IRA to accept these rollover funds, the 5 year aging clock would reset based the new Roth IRA when opened.
Permalink Submitted by Alan - IRA critic on Mon, 2021-03-22 19:49
Since you are over 59.5, there is no longer a conversion 5 year holding period, so you are exempt from any 10% recapture tax, and only need be concerned with the income tax should you distribute any Roth IRA earnings before your Roth IRA has been held 5 years. If you first contributed to any Roth IRA prior to 2017, then your Roth IRA is qualified including any funds rolled into it from a Roth 401k.
Now let’s say you have no Roth IRA prior to 2020, so your Roth IRA would not be qualified until 2025. If you took a Roth IRA distribution, all amounts are tax and penalty free up to the earnings, which come out last. If your Roth 401k accounts are separately qualified (first contribution prior to 2017), when rolled into your Roth IRA the entire amount rolled in would be treated as Roth IRA contribution basis. If your Roth 401k was not qualified, the amounts you contributed to it but not the earnings would be treated as Roth IRA contribution basis. While the bookeeping can be complex until your Roth IRA is qualified, if you calculate your Roth IRA basis, you could distribute a high % of the account tax free. Could be more specific if you advised the first year you contributed to the Roth 401k and the first year you contributed to a Roth IRA. There is no benefit to opening an additional Roth IRA account.