existing roths that are no longer funded
Can a client use the establsihment date of an existing roth although it is nor longer funded to start his five year wait or is it that each contibution or conversion starts a new “wait period”?
Can a client use the establsihment date of an existing roth although it is nor longer funded to start his five year wait or is it that each contibution or conversion starts a new “wait period”?
Permalink Submitted by Jose Morales on Mon, 2008-12-15 17:33
The 5 year period for contributions begins the first year that the first Roth contribution is made by an individual. It is not based on each seperate account.
Permalink Submitted by Miles J. O'Mailia on Mon, 2008-12-15 17:39
So for example I have a client that has been retired for about 5 years and had a Roth IRA from which he has taken all of the assets. However, with the assets in his IRA down at this praticular point in time we are looking at doing a conversion for some of his positions and paying the taxes. When does his 5 year wait start? With the conversion date or the date the Roth was established? Thanks a lot!
Permalink Submitted by Alan Spross on Mon, 2008-12-15 20:56
There are TWO 5 year holding periods for Roth IRAs:
1) Holding period for distributions to be qualified making the earnings tax free. This one starts with the first Roth IRA owned. The IRS has not ruled in the case of a total distribution, that a new 5 year period would be required. Until that happens, consider that this period continues to run from the original contribution despite a period of a -0- Roth balance.
2) Conversion 5 year holding period – this holding period applies to each separate conversion with respect to the early withdrawal penalty. There are various penalty exceptions that can apply to waive the early withdrawal penalty, such as reaching age 59.5. As a retiree, perhaps he has reached 59.5, making this requirement moot.
In this case the first holding period above is not very material, because if the conversion is done, all those conversion dollars would have to be distributed prior to any earnings on those conversions. But if that happened, the year of the first Roth contribution would start the 5 year clock.
Permalink Submitted by charles lore on Tue, 2008-12-16 00:55
Has it been at least 5 years from the beginning of the
year in which you first set up and contributed to a Roth
IRA?
This is from pub 590. Thus if you made your first Roth contribution on 12/31 of a given yr it is deemed for 5 yr rule purposes you made it on Jan. 1 of that same calendar. yr. Potentially this can make the waiting period 4 yrs and a day.