Roth IRA 5 year clock

Submitted by Beth Lewis on Fri, 2023-07-07 00:04

A roth conversion was done within a 401k 4 years ago at age 60. Now retired, just rolled 401k over to a roth ira and a traditional ira. Does a new 5 year clock start with the rollover to the roth IRA if no Roth IRA existed – only the roth 401k? Current age 64. Thank you.



Submitted by Alan - IRA critic on Fri, 2023-07-07 01:43

  • The Roth 401k was not qualified and the Roth IRA will not be qualified until 2028. Until that time the Roth IRA regular contribution basis will be the amount of the in plan Roth rollovers and any other contributions that were made to the Roth 401k. Any Roth IRA distributions will be tax free up to the amount of those contributions, and that figure will be shown in Box 5 of the 1099R reporting the direct rollover to the Roth IRA.
  • Roth IRA distributions will have to be reported on Form 8606 with the Roth IRA basis listed on line 22. After 2027 distributions will no longer have to be shown on Form 8606, and the entire Roth IRA will be qualified and tax free including all gains in the Roth IRA from now to 2028.
  • There are no conversion holding periods since the person is over 59.5.

Submitted by PaulC on Fri, 2023-07-07 14:58

This situation is another confirmation of the case for opening a Roth IRA sooner rather than later, if one doesn’t have one already. Even if a person isn’t eligible for a direct contribution to a Roth IRA due to income limitations, it can still be possible to fund a Roth with a conversion from a traditional IRA.  The conversion amount would be taxable income, but it doesn’t have to be a significant amount. It could just be $500 or whatever minimum amount is required by the Roth custodian. Opening that account will get the five year clock ticking for all future Roths.

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