5 year rule on Roth to Roth account transfers?
Before I retired, I opened a Roth IRA in 2015 to ‘start the clock’ on the 5 year rule. I made yearly contributions into that account until I retired in late 2019. After I retired, I opened a second Roth IRA in 2020 with a different brokerage company so I could start converting parts of my Rollover IRA with that company into the new Roth using the “convert in kind” method to move fund shares from one account to the Roth preserving my total fund share holdings.
How does the 5 year rule apply to the funds from the newest account being transferred to the older Roth that is over 5 years old? Are the individual conversion deposit dates transferred, reset, or ignored?
Permalink Submitted by Alan - IRA critic on Sat, 2023-02-18 22:10
If you are over 59.5 all your Roth IRAs are now qualified and totally tax free. If not yet 59.5 all distributions follow the Roth ordering rules but you must know what your regular contribution totals are and your conversion totals in order to report your distributions on Form 8606. All your accounts are treated as a single combined account. After your regular contributions have come out first tax and penalty free, then your conversions with oldest conversions first. Conversions less than 5 years old distributed prior to 59.5 are tax free but incur a 10% penalty. Transfers between accounts have no effect since all your accounts are treated as if combined. Once you reach 59.5 all this tracking is no longer needed since your Roths will be qualified.