Roth IRA – 5-year hold
I have a client giving me pushback on the Roth IRA 5-year hold period –
Specifically, he is stating that there is a separate (new) 5-year rule (for the purposes of tax-free distributions of earnings) for each conversion – for owners older than 59 ½
I explained that (I think) he is confusing the 10% recapture tax rules – applies to those Roth IRA owners, under age 59 ½ that take a distribution within 5 years of a conversion. Furthermore, a new 5-year period applies to each conversion. The hold period is irrelevant upon attaining age 59 ½ because the penalty no longer applies
I explained there is one single 5-year hold period for life for the purposes of qualified distributions – starting with the first contribution or conversion.
Assuming, I am correct -can you direct or provide IRS resource or IRC section?
For reference, the client is referencing this article What is the Roth IRA 5-year rule and how does it work? | Fidelity
Permalink Submitted by Alan - IRA critic on Thu, 2025-05-22 16:41
You are correct.
Parts of the Fidelity article are poorly worded including the 5 year holding period for qualified distributions in the paragraph addressing conversion holding period. Earnings on any conversion are never tracked separately from earnings on any Roth balance. People are constantly confused over the two 5 year holding periods and if Congress had a different holding period for qualification and conversions (eg making qualification 6 years), people would not be mixing up the two as often.
Not sure if Pub 590B would make this any clearer, but if client is over 59.5 and the first Roth contribution of any kind was prior to 2021, the Roth is completely tax and penalty free, and Form 8606 would not have to be completed to report Roth distributions any longer.