Roth Conversion
If I start converting my TIRA to Roth over the next 8 years, converting a portion each year, when will the 5yr clock start and will I have new 5yr clock for each converted portion if they are each converted into the same Roth account?
Permalink Submitted by Alan - IRA critic on Tue, 2015-03-17 01:57
Makes no difference whether you convert into a new or existing account. 5 year period for qualified distributions starts with your first Roth contribution of any type (regular or conversion). For the conversion 10% penalty 5 year holding period, a new clock starts with each conversion. By the time you get to the 6th year, the first conversion will have met the 5 year clock for that conversion. All conversion 5 year clocks end when you reach 59.5 as well.
Permalink Submitted by Don Warnke on Wed, 2015-03-18 12:05
are saying that if i am already over 59.5 when i start the roth conversions there is no 5 yr clock?
Permalink Submitted by Alan - IRA critic on Wed, 2015-03-18 18:11
No conversion holding period and all 10% penalties are gone after 59.5. But for earnings to be tax free, you still need 5 years from the year of your first Roth contribution.
Permalink Submitted by William Ott on Wed, 2015-03-18 19:01
Are you saying that if it has been over 5 years from my first Roth contribution, earnings from all of my Roth conversions that I have done (even recent ones) are already tax free and I never have to worry about the 5 year rule (over 60 years old)? If I die and my son (35) inherits, he doesn’t need to be concerned either?
Permalink Submitted by Alan - IRA critic on Wed, 2015-03-18 19:40
Yes, if your first Roth contribution of any type occurred prior to 2011, your Roth IRA is now fully qualified and tax free. You can convert and withdraw the conversion next week if you want, totally tax free. All distributions including a total distribution would be tax free and you do not need to report them on an 8606 any longer. Beneficiaries will also inherit a totally tax free Roth. A non spouse beneficiary must take RMDs, but they will all be tax free.
Permalink Submitted by William Ott on Fri, 2015-03-20 16:38
Starting in 2010 I have been doing an IRA to Roth IRA conversion each year. All funds are at a single institution, and I never touch the money. All conversions have been done after reaching the age of 60. Each year I have converted a portion of my IRA into a new account (thinking I had to maintain their identity until each was a Roth for 5 years). Since I had also formed a Roth with yearly contributions prior to 2010, I understand that none of that was necessary. Are there any rules regarding merging multiple accounts into a single account (e.g. like you can only do one account per year)? Thank you very much for your time and your help.
Permalink Submitted by Alan - IRA critic on Fri, 2015-03-20 17:32
You should merge them by direct transfer only, and save the one 60 day rollover for a true emergency. With direct transfers, you can also get this done very quickly, and no tax reporting will be needed. You should not even get a 1099R for a direct transfer.You might leave the latest conversion alone if there is any chance you might recharacterize any part of it since for recharacterizations, the math would not involve a large commingled account. After the recharacterization deadline passes or you are positive you will not recharacterize, you can merge that one also.