Roth IRA – 5-year rule

Submitted by Mike Mihuc on Wed, 2022-12-28 00:55

Hello:

I already have a Roth IRA with Fidelity that is over 5-years old. Since I am no longer with my employer who has my 401k, I am planning to transfer the funds to an IRA ( hoping to do it as a tax free transfer to the IRA) then move a portion of that over to my existing Roth IRA which has already satisfied the 5-year rule. Would that money be subject to a new 5-year satisfaction time clock?

On page 260 of Ed’s book “The New Retirement Savings Time Bomb” I think I would be able to do that since the 5-year rule has been already satisfied with my existing Roth IRA. I realize I need to pay income taxes on the amount being transferred to the Roth.



Submitted by Alan - IRA critic on Wed, 2022-12-28 01:48

  • Your first legal Roth contribution starts the 5 year clock for determining when your Roth becomes qualified, but you also must reach 59.5 or be disabled. 
  • That said, there is also a separate and different 5 year holding requirement for Roth conversions with respect to the 10% penalty, not the income tax. This holding period applies separately to each year’s conversions, but if you reach 59.5 before the conversion has been held 5 years, the holding requirement then ends.
  • So two separate and different 5 year holding periods that apply to different aspects of taxing a non qualified Roth IRA distribution. 

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