Roth Conversion combined
Hi, A client is 75 years old and does a Roth Conversion each year. The ultimate goal is to have fewer accounts. Can a Converted Roth, more than five years, be combined with a Contributory Roth? Best, CS
This example says the client continues to make conversions…. even though a contribution/conversion had been made more than five years ago and the client is >59.5 years, isn’t there a new five year waiting period for each converted amount to avoid tax on the related earnings (from that specific conversion)? (I have found confusing info on this issue “out there”…)Assuming there is that new five year countdown for each one, do you always suggest isolating each individual conversion for its five year period? Some investment firms seem to discourage setting up separate conversion accounts, but the calculations can be complex…
- Once the Roth is qualified, there are no more 5 year waiting periods for past conversions or future conversions. Client can continue conversions and could withdraw them the next week including any earnings on the conversion – tax and penalty free.
The 5-year waiting period for Roth conversions has to do only with a recapture of the early-distribution penalty when converted funds are distributed before the end of the 5-year period for the particular conversion. Because there is no early-distribution penalty after age 59½, the 5-year Roth-conversion waiting period no longer applies after age 59½.
Permalink Submitted by Alan - IRA critic on Mon, 2023-07-24 23:41
Yes, since client is over 59.5 and first contributed to a Roth (either regular or conversion) over 5 years ago, all Roth accounts are qualified and tax free. All 5 year holding periods have been satisfied and there is no reason to keep the conversion Roth separate from the contributary Roth. They can be combined into either of the Roth accounts, best done by a direct transfer.