Individual is well past 59.5 yrs old and legally made all Roth contributions.
On 12/31/2015, he created a Roth and funded it with $1.
On 1/1/2017, he did a Roth conversion of $100,000.
When can he take the $100k out per the 5-year rule?
Suppose the $100k made a return of $25k during 2018. When can he withdraw the $25k per the 5-year rule?
Thanks
Let me try this scenario about the 5-yr Roth rule:I am 60 yrs old on 1/1/21. I plan to open my first Roth IRA on 12/31/2021 and fund it with $1.00.I plan on adding $100k to the Roth – via a Roth conversion – on 1/1/22. This $100k amount will earn $25k on 1/1/23.I assume I can withdraw the $1 and the $100k at any time without penalty as these are my contributions.When can I withdraw the $25k without any penalty?Thanks, again.
OK, but let’s simply use January instead of 1/1 and December instead of 12/31. Making contributions right around year end is risky because they often do not get done, and 1/1 is a Holiday anyway.
If your first Roth contribution is in Dec 2021, your Roth is qualified as of 1/1/2026. This means any gains are tax free starting in 2026. Yes, your Dec 2021 contribution is treated as if it were made on 1/1/2021, so the entire year of 2021 counts as the first year.
Correct, you can withdraw 100,001 anytime you wish without tax and penalty, but any gains generated will be taxable (no penalty after 59.5) until 2026. Note that gains come out last, so if you request a distribution of 100,001 anytime, you would report it on Form 8606, showing 1 as your regular contribution basis (line 22), and 100k as your conversion contribution basis (line 24). Starting in 2026, you would no longer need an 8606 to report distributions and would no longer need to keep track of your Roth basis.
Permalink Submitted by Alan - IRA critic on Fri, 2021-08-27 13:46
The 5 year holding period for Roth conversions ends upon reaching 59.5. Individual’s Roth has been held 5 years, therefore the Roth is qualified and entirely tax and penalty free for the total balance in the account.