TIRA to Roth Five Year Rule
Retiring at the end of the year at 69 ½ years old. Company retirement plan consists of traditional 401k with $130,000 and a Roth 401k with $80,000. Have an existing TIRA with $450,000 and a Roth IRA with $70,000 that was opened ten years ago. In January 2022, will have the plan direct transfer the $130,000 to the TIRA account and the $80,000 to the Roth IRA account. Due to being in a lower tax bracket in retirement, will begin annual $40,000 rollovers from TIRA to Roth IRA beginning later in 2022. Will pay the taxes on these conversions from an external source. How does the five-year holding rule apply to these TIRA-Roth conversions? Will it be necessary to keep track of the basis for each annual conversion to ensure that any earnings are not withdrawn prematurely? Would it make sense to open a separate Roth IRA for these conversions? Thank you for your advice.
Permalink Submitted by David Heuring on Mon, 2021-11-15 13:39
Found the following answer to a similar quesition from a past post. Is it still valid?“The rules for taking qualified or tax-free distributions from Roth IRAs can be complicated. There are two separate five-year holding periods, but in your situation, neither five-year period will be a problem. All of your distributions from any of your Roth IRAs will be tax and penalty free forever because you are over age 59 ½ and you have held a Roth IRA for more than five years. You can’t mess that up, even if you try!”If so, I have a follow up question. If I did a rollover of the $70,000 in the existing Roth IRA to a newly created Roth IRA (so that that the TIRA and Roth IRA are with the same custodial), would the existing Roth’s five-year qualification transfer to the new Roth? If so, how would this be documented since the existing Roth would no longer be used?Much appreciated!
Permalink Submitted by Alan - IRA critic on Mon, 2021-11-15 15:30
That post is correct. Your Roth IRAs are fully qualified, and any new conversions or contributions are also qualified and tax free if distributed. All earnings are likewise tax free. Therefore you no longer have any holding periods to meet, and this holds true regardless of how many new Roth accounts you open. All your Roth accounts are treated as one combined Roth for tax purposes.
While the IRS rarely ever asks, they know your age already, and all you would need to document meeting the 5 year holding period is a Form 5498 showing a contribution of any type at least 5 years ago. You should keep your 5498 forms, but if you didn’t a copy of an old Roth statement for any year prior to 2017 should also suffice.