Roth IRA
I have two questions
1. For the purpose of the 5 year rule as to conversion to Roth from a Traditional IRA, if the conversion is done during the year, say November 10, 2010, does the 5 years commence on (a) the actual date of conversion (November 10, 2010) or (b) the year of the conversion (as of January 1, 2010)?
2. If a Roth IRA owner dies at age 65, after satisfying the 5 year rule, and his 50 year old spouse beneficiary elects to become the owner of deceased spouses IRA, is the spouse then subject to the 5 year/age 59 1/2 rule with respect to the Roth IRA? If yes,(a) does this mean that all withdrawals by the spouse prior to attainment of age 59 1/2 are considered unqualified withdrawals? (b) does a new 5 year requirement commence with respect to the spouse when the election to the IRA owner is made? (c) does the new 5 years, if any, commence on the actual date of election to be the owner, or January 1st of the year in which the election is made?
Permalink Submitted by Alan Spross on Mon, 2009-09-21 22:25
1) The clock starts on January 1 of the year of conversion.Therefore a conversion done on any date in 2010 has met the 5 year holding period as of 1/1/2015.
2) This is a good question. In a year the surviving spouse has elected to assume ownership of the inherited Roth, any distributions taken are deemed to come from the owner’s Roth IRA. This means that the origination date of the deceased spouse’s IRA becomes immaterial. Taxation is based on when the survivor first contributed to a Roth IRA in their own name. If the survivor did not have any prior Roth of their own, then the clock starts on January 1 of the year that the survivor assumed ownership. This might mean a 5 year wait for earnings to become qualified.
However, the surviving spouse also has the option of maintaining the Roth IRA in inherited form unless the agreement automatically makes the survivor the owner. If maintained as an inherited IRA, then all distributions are qualified because the deceased has met the 5 year holding requirement and death makes the account fully qualified to the beneficiary.
b) Answer is that it does if the survivor does not have older owned Roth IRAs.
c.) 1/1 of the year of the election
Note that RMDs may become due if the Roth is maintained in inherited form rather than owned. First RMD would be for the year that the owner would have reached 70.5.