ROTH conversion after 59 1/2
OK, I have checked and everyone has a different answere so hopefully | have come to the right place. If I do a Roth conversion and am 62 years old is there a 10% penalty in the 5 year period after the conversion, or can I do whatever with those funds immediately tax and penalty free? I do not have an existing ROTH. PLEASE Answere if if you are POSITIVE about the ruling. Thank you
Permalink Submitted by Alan Spross on Fri, 2009-03-20 18:24
There are two different 5 year holding periods for Roth IRAs, one for your earnings to become tax free and the second to avoid the 10% penalty when you remove conversion dollars. The conversion holding period ends at age 59.5.
What this means for you at age 62 is that you could convert right now, and remove any amount of your conversion you wanted with no waiting period, no tax and no penalty. After you have taken out your entire conversion, any amounts left would be earnings on the conversion. For the earnings to be tax free, the other 5 year requirement applies. This is measured from January 1 of the year for your first Roth contribution, either a regular contribution or a conversion. Therefore, if your first contribution is in 2009, your earnings would be taxable until 2014 if you withdrew them. But, since earnings come out last, it is unlikely that you plan to withdraw the entire conversion amount prior to 2014. Starting in 2014 your Roth is fully qualified and the earnings also become tax and penalty free.
Permalink Submitted by Brittany Koch on Fri, 2009-03-20 18:33
Thanks for the info . I have had others in the industry saying that the five year penalty applies no matter the age. Can you sight what ruling or where in the code this can be obtained?
Permalink Submitted by Alan Spross on Fri, 2009-03-20 19:34
See att’d Pub 590, p 67.
Age 59.5 is the first listed exception to the penalty for the Roth conversion 5 year holding period.
http://www.irs.gov/pub/irs-pdf/p590.pdf
Permalink Submitted by Brittany Koch on Fri, 2009-03-20 21:05
Thank you for clearing this up.