ROTH Conversion
If client converts 100K in 2018 to a ROTH IRA (newly established) & 100K in 2019, does the 5 year earnings clock restart each year?
Thanks,
Aaron
If client converts 100K in 2018 to a ROTH IRA (newly established) & 100K in 2019, does the 5 year earnings clock restart each year?
Thanks,
Aaron
Permalink Submitted by Alan - IRA critic on Wed, 2018-08-15 19:57
No. There are two 5 year clocks. The 5 year period to determine when the Roth is qualified and tax free (along with reaching 59.5) starts just one time on 1/1 of the year in which the first Roth contribution of any kind (regular or conversion) was made. The other 5 year clock relates to the 10% penalty for removing a conversion before 5 years. That holding period is separate for each year’s conversions.
Permalink Submitted by Bob Hughs on Thu, 2018-08-30 02:51
I had a Roth for over 5 years with contributions. I am 67 so older than 59.5. I have too much money in IRA money. I was going to convert about 10K a year for several years to lower my RMD. I am taking SS so the tax is heavy if I am not careful. if I could convert more tax efficient I would. Year 2017 I converted 10K, 2018 I converted 10k. Not that I need the money. Last year if I needed another 10K the taxes were 25+SS 85% of 25. If I was to withdraw money from the conversion Roth do I still have a timer for each years conversion? I know you can pull out the converted amount but what about the earnings. Sounds easy to mess up. In reading other Ed Slott articles I don’t think the clock counts. Also talked to Ric Plum with WealthED. thanks.
Permalink Submitted by David Mertz on Thu, 2018-08-30 10:32
hugh7656, the 5-year clock for conversions does not apply to someone over age 59½. Since you have had a Roth IRA for more than 5 years, *any* distribution you make from a Roth IRA is a qualified distribution, tax and penalty free, and therefore is not reported on Form 8606 or Form 5329. It will appear only on (2018 and later) Form 1040 line 4a but be excluded from line 4b.