ROTH 5 Year Holding Period
I just did a ROTH conversion from a TIRA. Will the earnings be subject to the 5 year holding period in order to be tax free ? I have two other ROTH IRA’s that are in separate accounts. One of those accounts is more than 5 years old. Also, are new contributions to an exisiting account subject to the 5 year holding period ? I meet the 59.5 age requirement as far as not being subject to a 10% penalty so that should not be an issue.
Permalink Submitted by Alan Spross on Thu, 2009-03-26 03:33
You no longer need to be concerned with any of the 5 year holding requirements because your Roth is now fully qualified. Your Roth is qualified because you meet both these requirements:
1) Your first Roth IRA of any kind was opened prior to 2005
2) You have reached 59.5
Since your Roth is qualified, you could withdraw the entire account tomorrow and it would all be tax and penalty free including any earnings.
Permalink Submitted by Anonymous (not verified) on Fri, 2009-03-27 03:50
Thank you. One question. Why 2005 ?
Permalink Submitted by Alan Spross on Fri, 2009-03-27 05:02
Because if the first Roth was opened prior to 2005, it has met the 5 year holding requirement. (2004 or earlier-2008). Therefore, there is nothing specific about 2005 other than in 2009 it is the year that the first contribution must precede to meet the 5 year holding period for qualification.
As usual, there is a possible exception. Your first Roth contribution cannot count for this purpose unless it was a permitted contribution. If it was an excess contribution or the contribution was returned, then it would not count, and if it was allowed to stay in a Roth due to paying the 6% excise tax, it would count in the first year it could actually be applied as a proper contribution.
This has also come up in a few cases where someone created their first Roth with a conversion, but it turned out their modified AGI was too high to qualify for a conversion.