Roth IRA resets 5 year clock with each new conversion Y/N

Submitted by Ray Bragg on Mon, 2014-06-16 15:38

I read somewhere that after each new conversion from a IRA to a Roth IRA the 5 year clock is reset. As I try to convert each year an amount within my tax allowances thereby negating any tax liability this is of interest to me if it is true. PLEASE TELL ME THE FACTS REGARDIN THE ABOVE.
Many thanks in advance
RB



Submitted by Alan - IRA critic on Mon, 2014-06-16 20:28

There are two different and unrelated 5 year holding periods. The first is measured from the first year of any Roth contribution and never changes. Along with reaching 59.5, this holding period determines when the Roth is qualified and earnings are tax free. The second holding period applies to each conversion and only affects when that conversion can be distributed without a 10% penalty. This is the one you read about and this conversion holding period stops after 5 years from each conversion or age 59.5, whichever is reached first.



Submitted by tomtom on Tue, 2014-06-17 22:45

There is a part 2 to “the second holding period” iracritic mentions. While the after age 59.5 Roth IRA conversion amount may be distributed (or inherited) without penalty, the earnings of that conversion require 5 years to be qualified. Please correct me if this detail is misunderstoodRegardsTomtom



Submitted by Alan - IRA critic on Tue, 2014-06-17 22:54

What you indicated to be a part 2 of the second holding period is the first holding period I described.



Submitted by Ray Bragg on Wed, 2014-06-18 14:41

Clarification please“holding period stops after 5 years from each conversion or age 59.5, whichever is reached first.”So any conversion after 59.5 does not reset 5yr clock on earnings withdrawal for all or any earnings related to the account.



Submitted by Alan - IRA critic on Wed, 2014-06-18 16:14

  • The conversion 5 year holding penalty has nothing to do with earnings. It only affects the 10% penalty if you withdraw that particular conversion before 5 years. And it stops at 59.5. Therefore, if you convert at age 56.5, you only need to hold that conversion 3 years because you will hit 59.5 in 3 years. And if you convert after 59.5, the holding period no longer applies at all. The holding period for earnings is not affected by conversions, other than if your first Roth contribution of any type was a conversion, the 5 year clock on earnings runs alongside the 5 year holding period for that conversion.
  • Also, your conversions come out in order of when they were made. So all conversions done prior to 2010 have already met the 5 year conversion holding period. You would not reach later conversions until all your regular contributions and all your older conversions had already been distributed.
  • In summary, no conversion regardless of when done does not reset the 5 year clock for earnings to be tax free. That clock began to run 1/1 of the year you made your first Roth contribution, whether regular or conversion.


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