Roth IRA
If you are over age 59 1/2 and withdraw (close) a Roth IRA account in 2008 and now (still 2008) decided you should have kept the Roth IRA open, can you re-open the account with the amount you withdrew and basically, re-instate the Roth IRA?
If you are over age 59 1/2 and withdraw (close) a Roth IRA account in 2008 and now (still 2008) decided you should have kept the Roth IRA open, can you re-open the account with the amount you withdrew and basically, re-instate the Roth IRA?
Permalink Submitted by Alan Spross on Tue, 2008-08-12 19:37
If you are within 60 days of the distribution, you can complete a rollover of the funds. You would tell the IRA custodian that it was a rollover contribution.
But it sounds like you have passed that deadline. You would have to report the distribution depending on whether your first Roth contribution was prior to 2004 or not. If it was, your distribution is qualified and tax free, otherwise any earnings would be taxable. There is no penalty since you are over 59.5.
You could then make a new regular contribution for 2008 if you are eligible and did not make the 2008 contribution previously.
If you closed all your Roths and had a large loss you may be able to take a deduction for that loss. In that case, you should hold off on the new contribution until next year and make it for 2009. If you do not have a loss, then you can make your contribution per above.
Permalink Submitted by Gail Fialkow on Tue, 2008-08-12 19:46
Thanks for your prompt response. What we were trying to do was to “re-fund” the Roth IRA to retain it’s 5+ year longevity. Am I right in thinking that now that it is past 60 days since the distribution, that would be impossible?
Permalink Submitted by Alan Spross on Tue, 2008-08-12 20:59
The IRS has never really clarified whether the Roth holding period starts anew after a total closure or not. At present, the 5 year holding period is not specifically limited by time where the taxpayer has no Roth balance.
Note in the following IRS Regs, there is no apparent suspension or lapse in the 5 year clock brought about by distributions. Therefore, I would conclude that whatever time period a subject taxpayer had attained at the time of closure is not forfeited:
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Q–2. When does the 5-taxable-year period described in A–1 of this section (relating to qualified distributions) begin and end?
A–2. The 5-taxable-year period described in A–1 of this section begins on the first day of the individual’s taxable year for which the first regular contribution is made to any Roth IRA of the individual or, if earlier, the first day of the individual’s taxable year in which the first conversion contribution is made to any Roth IRA of the individual. The 5-taxable-year period ends on the last day of the individual’s fifth consecutive taxable year beginning with the taxable year described in the preceding sentence. For example, if an individual whose taxable year is the calendar year makes a first-time regular Roth IRA contribution any time between January 1, 1998, and April 15, 1999, for 1998, the 5-taxable-year period begins on January 1, 1998. Thus, each Roth IRA owner has only one 5-taxable-year period described in A–1 of this section for all the Roth IRAs of which he or she is the owner. Further, because of the requirement of the 5-taxable-year period, no qualified distributions can occur before taxable years beginning in 2003. For purposes of this A–2, the amount of any contribution distributed as a corrective distribution under A–1(d) of this section is treated as if it was never contributed.
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