Roth IRA
I have a client who is 93. We’ve done 3 Roth conversions over the last two years. The first one was 12/29/2022.
My understanding is even though she is over 59.5, if we withdraw more than the basis between now and 12/29/2027, she will owe taxes on the earnings and if she passes away before 12/29/2027, the five-year won’t apply anymore. Am I looking at this correctly?
Permalink Submitted by Alan - IRA critic on Fri, 2024-12-27 13:21
Sounds like the first conversion was her first Roth IRA contribution of any type. If so, the Roth IRA will not be qualified until 1/1/2027. The 5 years actually starts on 1/1/2022 (first day of the conversion year).
If she passes before 1/1/2027, the 5 year count continues and the entire inherited Roth IRA will be tax free to the beneficiary as of 1/1/2027.
Quite often, a Roth beneficiary will find it difficult to determine when the 5 year holding period started, and even more difficult to determine the inherited Roth IRA basis which must be reported on Form 8606 for a NQ distribution. But if the beneficiary knows when the 5 year holding period is complete, they can avoid having to determine the basis by simply delaying distributions until the inherited Roth is qualified as Form 8606 is no longer needed to report qualified distributions.