roth conversion 5 year rule
A question:
Our client is 72 years old. He wants to convert his IRA to a Roth IRA. He currently has no Roth IRA account…and so the Roth IRA will be a new account.
How does the 5 year rule Roth waiting ruleapply in this situation?
1. Must the client wait 5 years before he can make withdrawals?
2. If the client makes withdrawals during this initial 5-year period, is any part of the withdrawal taxable
3. If the client makes withdrawals during this initial 5-year period, is there a penalty for taking these contributions??
thanks
kathy
Permalink Submitted by Alan Spross on Tue, 2010-11-30 02:55
1. Must the client wait 5 years before he can make withdrawals?
No. But if he converts this year and takes any distributions prior to 2012, he will accelerate the year the income taxes on the conversion are due. When the conversion income would be reported 50-50 in 2011 and 2012, if he takes out 10% in 2011, it will accelerate the income to 60% in 2011 and 40% in 2012. Otherwise, there is no problem taking distributions right after converting. The income acceleration issue only applies to 2010 conversions, not to conversions done after 2010.
2. If the client makes withdrawals during this initial 5-year period, is any part of the withdrawal taxable
Other than the acceleration on 2010 conversions noted above, there would be no tax or penalty until the entire amount of the conversions were taken out, and then he started to tap into earnings. The earnings would be taxable in the first 5 years.
3. If the client makes withdrawals during this initial 5-year period, is there a penalty for taking these contributions??
No, never an early withdrawal penalty for those over 59.5.