Roth contributions vs conversions and 5 year period
Is the definition of contribution for the 5 year period the same for Roth conversions as regular Roth contributions? Someone said that it did not matter when the clock started ticking for someone over 59 1/2. See below for more details.
The 5-year period and 10% pre 59 1/2 penalty are not the same. Someone over 59 1/2 could be subject to the ordering rule for nonqualified distributions if the Roth is not held for 5 years and not be subject to the 10% penalty. As such the beginning of the 5 year period is important for someone over 59 1/2. If the conversion period starts with the date of each conversion rather than the first, then some income would be taxable in year 6 if there was a conversion every year.
Can we do conversions every year and withdraw all tax free in year 6 for someone over 59 1/2?
Thank you … Mary Dean
Permalink Submitted by Alan Spross on Wed, 2007-10-17 23:38
Once age 59.5 has been reached, any conversion that has been made or will be made can be withdrawn tax free and without penalty, therefore the 5 year holding period for conversions is moot. The early withdrawal penalty on earnings also expires at age 59.5.
However, the earnings amounts themselves will still be taxable if the original 5 year holding period of the first valid Roth contribution has not been satisfied, and if earnings are withdrawn under the ordering rules. That initial 5 year period starts on Jan 1 of the year of the first contribution. All Roth accounts are fully qualified now if opened prior to 2003 and owner has reached 59.5 at the date of distribution.
The answer to your final question is therefore “Yes”.