Roth-IRA
Have a client who started a Roth-IRA in 2000 and never added to it. Its value is approx. $100 (yes, $100). He is now 62 and I was going to surrender it because he is retiring and its value is nothing. However, he has a rollover of approx. $150,000. If he decides to convert any of that amount to a Roth in 2010, is it better to keep the $100 roth active so he can take withdrawals on a taxfree basis since it will be over 5yrs old or it doesn;t matter? hope you can understand the question.
Thank you,
Douglas
Permalink Submitted by Alan Spross on Wed, 2007-08-29 22:26
I don’t think it matters much either way. He has already met the 5 year holding period, and he does not have to start over if he closes his Roth. Since he has passed 59.5, he could withdraw conversion amounts any time he wanted tax and penalty free, and earnings on the conversion would also be tax free because he has met the 5 year holding period whether he closes the small account or not. It is best to make conversions into a separate account so that the earnings on the conversion are obvious in the event of recharacterization.
One reason to keep the account open would be if the custodian is the same, they will know he has met the 5 year holding requirement and should code any 1099R as qualified, meaning no need to report on Form 8606. The only benefit of closing it would be to stop the small account fees from billing each year.