ROTH Conversion Multiple IRA’s / Retirement Plan

Submitted by David Berdow on Wed, 2022-10-26 20:03

A couple is considering converting (over multiple years) their IRA’s to their respective ROTH IRA’s. One ROTH IRA was established last year and the other in 2018.

One spouse has four IRA’s and a SEP IRA. The other has two IRA’s, a SEP IRA, and qualified retirement plan still held with the employer.

Assuming all contributions & growth were/are pre tax are there any rules to be aware of if they begin converting a portion of the accounts over to their respective ROTH IRA’s over time?

Is there any tax reason for each individual to consolidate their IRA’s into one IRA before making conversions?

Is each conversion timed for the five year rule or once the ROTH has been in existence for five years then they have satisfied the five year requirement?

They are considering this as a way to pay the tax now and lower their future RMD’s for for Medicare and Social Security purposes.



Submitted by Alan - IRA critic on Thu, 2022-10-27 00:35

  • Short answer is that they should convert if the marginal rate paid on the converted amount is lower than they expect in retirement on the added income if they do not convert. If the rate paid on the conversion will be higher, they should not convert. If about the same, they may convert a more modest amount to hedge their bet. Determining the tax due on the conversion is rather simple, but estimating what they would pay in the future if they did not convert is much more difficult because situations can change in the meantime. I am not referring to tax rates as much as serious illness, death of a spouse, divorce, or major market dislocations.
  • There is no need to consolidate accounts before converting. Conversions can be done from any of them and are unlimited in number. But there may be other reasons to consolidate.
  • There are two different 5 year holding periods for Roth IRAs. The first starts with the first Roth contribution of any type (regular or conversion) and determines when all Roth accounts are qualified and tax free. Taxpayer must also have reached 59.5 or be disabled along with meeting the 5 year holding period. The second is for conversions completed prior to 59.5 and relates to the 10% penalty for withdrawing converted dollars. After reaching 59.5 there is no need to keep track of past conversion years since the penalty does not apply after 59.5 including prior conversions. Note that once any Roth IRA is qualified, that automatically means that there are no longer any penalties for withdrawing conversions either.

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