Tax Due on Roth Conversion

Submitted by Phillip Moore on Thu, 2020-05-14 19:44

I have a few questions pertaining to taxes on earnings on a new ROTH Conversion performed at age 59 1/2. For the record, I established my first ROTH IRA account in 2010 with a Traditional IRA to ROTH IRA Conversion. I am 56 years old now . At age 59 1/2 I would like to roll over some funds from a former employers 401K plan to a Traditional IRA and then convert these funds to a ROTH IRA for possible withdrawal. I know that since I will be 59 1/2 I will be able to withdrawal my original conversion and earnings at age 59 1/2 penalty and tax free. My question is since I established my first ROTH IRA account years earlier will I be able to do a new 401K to ROTH Conversion at age 59 1/2 and withdraw the converted amount plus earnings tax free immediately or will there be a 5 year holding period which means I will have to wait until age 64 1/2 in order for the earnings to be withdrawn tax free?



Submitted by David Mertz on Thu, 2020-05-14 20:18

Once you reach age 59½ there is no longer a 5-year conversion holding period.  Since the first year for which you made a Roth IRA contribution (by Roth conversion in this case) was 2010, *any* regular distribution you receive after you reach age 59½ will be a qualified distribution, tax and penalty free.

Submitted by Phillip Moore on Thu, 2020-05-14 20:52

Thanks for the reply.  Since the conversion amount will come originally from a pretaxed 401k account then rolled over to a Traditional IRA and then lastly converted to the ROTH I assume that since I had never been taxed for the funds in this account I will have to report the conversion as income on my tax return even if I am 59 1/2 and had already established an original ROTH account.?  In other words tax still has to be paid on a ROTH Conversion no matter the age or situation and even if age 59 1/2 or older?

Submitted by Alan - IRA critic on Thu, 2020-05-14 21:58

Yes, tax is always due unless the conversion was entirely done from non deductible IRA contributions or after tax 401k amounts. But if 59.5, there is no 5 year holding period and no penalty for withdrawing prior conversions anytime. Also, if you have other TIRA accounts, they all count as one combined TIRA. Therefore, if you made non deductible TIRA contributions in the past and reported them on Form 8606, then rolled over a pre tax 401k to a rollover IRA and converted the rollover IRA, you must take both IRA accounts into consideration. Your conversion in that case would not be fully taxable due to the prior non deductible contributions you made to the other IRA.

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