Roth Distribution after 59 1/2
We have a client over the age of 59 1/2…looking to do a Roth converstion this year. Client is thinking about purchasing a vehicle and may need to withdraw from the Roth IRA. If client does the Roth conversion, does the client have access to the conversion funds immediately to enjoy the tax free priveleges or must these funds be seasoned?
Permalink Submitted by Alan - IRA critic on Tue, 2013-04-30 18:09
Yes, client has immediate access. Since client is over 59.5, conversion funds can be withdrawn immediately without tax or penalty, ie there is no 5 year holding requirement for conversions once client reaches 59.5. Earnings on the conversion would be taxable until 5 years has passed from the year of the first Roth contribution.
Permalink Submitted by Wendy Mommaerts on Tue, 2013-04-30 20:07
Your last sentence states Earnings on the conversion would be taxable until 5yrs have passed from the year of the first Roth contribution…did you mean the first conversion? I should have mentioned that our client only has conversions in her Roth no actual contributions. What would be your response if the client did not reach the age of 59 1/2?
Permalink Submitted by Alan - IRA critic on Tue, 2013-04-30 22:28
If client only has conversions and no regular Roth contributions, the first distributions would come from the oldest conversion. If that conversion had been held less than 5 years, there would be a 10% penalty, but that penalty would stop at age 59.5. Once all the conversion money is distributed, then earnings come out. Prior to 59.5, the earnings are taxable and subject to 10% penalty. After 59.5 the penalty on earnings ends, but the earnings would still be taxable unless 5 years had passed since the first conversion.