Roth conversion, then followed by planned withdraw

Submitted by Greg Bennett on Thu, 2020-05-21 12:47

In March of 2020, a person converts 30K from regular IRA to Roth – this person is 78 years old with the Roth being in place over 10 years. No taxes were withheld on this conversion. This person now would like to withdraw from the roth which consists of prior conversions (original contributions were withdrawn prior along with some past conversions), and meaningful gains on those conversions, including substantial gains on the March 2020 conversion. Is this allowed as a tax and penalty free withdraw?

Thanks!



Submitted by Alan - IRA critic on Thu, 2020-05-21 15:01

Yes. Once the Roth IRA was qualified, all subsequent Roth IRA distributions are tax and penalty free. Form 8606 does not have to be completed to report the distribution either. It goes directly on Form 1040, line 4a only. The person must need these funds badly to withdraw Roth money after just converting since he is giving up all future tax free gains by reducing the Roth balance.

Submitted by DAVID STONE on Thu, 2020-05-21 19:30

I thought there is a five-year rule for any an IRA conversion, even if the money went into an old-enough Roth IRA. I’ve read many differing descriptions of this issue online and find it very confusing.

Submitted by DAVID STONE on Thu, 2020-05-21 21:43

I don’t think I stated my question very well. Here’s my situation. Age 77, have a RolloverIRA and a Rith IRA (opened when Roths were first available).If I convert part of the IRA to a Roth, my intention is to leave the money there to accumulate. But if I did decide to withdraw some or all of the Roth, is there a penalty if the withdrawal ocurrs before five years have passed?Thanks.

Submitted by Alan - IRA critic on Thu, 2020-05-21 23:03

  • There is never a penalty after age 59.5. The conversion 5 year holding period ends after 5 years or age 59.5, whichever comes first. In addition, your Roth is fully qualified and all distributions are tax free as well as penalty free.  You can convert and remove the conversion the next day without tax or penalty. 
  • If you are 77 and made your first Roth contribution in 1998, the first year Roths were available, your Roth has been fully qualified since 2003 or 2004 when you had held a Roth 5 years and you had also reached 59.5.

Submitted by DAVID STONE on Thu, 2020-05-21 23:54

Thanks for your help. I’ve looked at several online sources and even asked my guy at Fidelity, but was never able to get a clear, definitive answer. The tax code is too complicated, right!

Submitted by DAVID STONE on Sun, 2020-05-24 02:09

This same topic caame up on the Humble Dollar site this week.Jonathan Clements wrote:There are two different five-year rules — one for conversions and one for regular annual contributions. The five-year clock for regular annual contributions starts when you open the account and doesn’t get reset with subsequent contributions. But with conversions, each time you convert you start a five-year clock for that conversion. This is too confusing.

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