Roth basis and ordering rules
Best practices for management of a Roth IRA account include the need to (1) track basis in the Roth IRA, (2) follow ordering rules when accounting for distributions from the Roth IRA and (3) wait 5+ years after a Roth conversion before distributing the converted funds. Assuming one has owned a Roth IRA account for 5+ years, is there any reason to continue these practices after age 59-1/2, either for the account owner or beneficiaries?
My first Roth IRA account was opened in 1999 and I am now 69 years old. Over the years, I’ve added funds to Roth IRAs via a combination of direct contributions; rollovers of contributions and earnings from a Roth 401(k); conversions of 401(k) after-tax contributions and earnings; and taxable and non-taxable conversions from traditional IRAs. I’ve been tracking all this but expect the bookkeeping to become more complicated when I begin taking distributions, especially if the ordering rules still apply. Since I’m over 59-1/2, do I need to track Roth basis, apply ordering rules when taking Roth distributions, and/or hold funds in the Roth account for 5 years after conversion?
Permalink Submitted by Alan - IRA critic on Sun, 2022-02-06 15:01
No, and you did not have to maintain this tracking for the last 10 years since your Roth was qualified upon reaching 59.5. Once your Roth is qualified you no longer need to report distributions on Form 8606, which is the form that applies the ordering rules. All you need to do is enter the gross distribution on line 4a of Form 1040. However, I would retain just one copy of Form 5498 or an old Roth statement for any year prior to 2018 as documentation that you have met the 5 year holding period in the unlikely event the IRS ever questions your holding period.