5 year rule on ROTH Conversions
I have a client who is 65 years old and opened a ROTH IRA in 2017 with $25k. (this is his only ROTH IRA he has) He did a $50k ROTH Conversion in December of ’21 and another $50k ROTH conversion in December of 2022.
He is buying a summer home and wants some cash for a down payment. I know he can take the first $25k out tax free as he has met his 5 year window and is over 59 1/2. My question is, are the two $50k conversions also able to be taken out tax free or does each one have a new 5 year window. I don’t want him to take a distribution and then have there be taxes on top of this so I want to make sure I give him the correct information.
Thank you in advance for your help.
Permalink Submitted by Alan - IRA critic on Mon, 2023-04-10 17:47
Any distribution taken will be tax and penalty free. Conversion 5 year holding periods all end at 59.5, therefore the entire Roth balance is available without tax or penalty. If client is retired and in a lower bracket, it would make more long term sense to take some of this distribution from a TIRA and preserve more of the Roth.
Permalink Submitted by Tony Paper on Mon, 2023-04-10 19:29
Thanks. He doesn’t want to take money from his TIRA as this adds income to year end totals and increases his medicare payments. Trying to keep income down as he has a nice pension and dividend income from UPS where he worked.