Roth IRA
I have clients who opened Roth IRAs in July 2008 and cashed out at a loss in 2010 against my advice. Now they want to open new Roth IRAs. Are there any IRS rules pertaining to new accounts? Will a new 5 year clock start with these Roths? Thanks
Permalink Submitted by Alan - IRA critic on Wed, 2013-06-12 18:50
The IRS has not clearly addressed the issue of non continuous Roth IRA accounts with respect to the 5 year holding period. However, the 8606 Inst indicate that a qualified distribution occurs if you are 59.5 AND the year of your first Roth contribution was prior to 2009. There is no mention of a continuous holding requirement, leading one to believe that there is no such requirement. Note that the 8606 Inst also result in a taxpayer retaining his basis who has closed his Roth in a prior year for less than his basis. This means that if your client contributed 10k to a Roth IRA prior to 2010, and cashed out the Roth in 2010 for 8k, he still has 2k in basis to add to his new contribution. Another way of putting that is if the new contribution has 2k of gains, the old remaining basis of 2k offsets those gains and his new balance is considered to 100% from regular Roth contributions. The exception would be if the client used the 2k toward a misc deduction in 2010.