Roth 5 year rule on multiple conversions
If a client age 67 does a Roth Conversion in 2018 and this is their first Roth IRA I understand that they have to wait 5 years before taking earnings or it’s a taxable distribution.
Please confirm I’m correct there.
2nd The client then does conversions to the same Roth IRA in 2019, 2020, 2021.
Does each conversion have its own 5 year wait? If so, how is that tracked? If not-whew!
Permalink Submitted by Alan - IRA critic on Tue, 2018-11-20 02:48
You are correct, but if the conversion is the first Roth contribution, the earnings will be quite small, and client could withdraw the entire conversion amount anytime without tax or penalty. Conversion waiting periods apply only to the 10% penalty and there is never a penalty after 59.5, so effectively none of this client’s conversions have a waiting period.The only thing this client needs to track now is that any earnings will be taxable if withdrawn prior to 2023, but earnings come out last, so client will have tax and penalty free access to most of the Roth balance (all but earnings) before 2023.