Does Each Roth IRA Need Its Own Five-Year Clock?

By Beverly DeVeny and Jeffrey Levine
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This week’s Slott Report Mailbag answers whether each separate Roth IRA needs its own five-year clock and if you can convert non-deductible Traditional IRA funds to a Roth IRA. As always, we recommend that you work with a competent, educated financial advisor to keep your retirement nest egg safe and secure. You can find one in your area here.


This has probably been asked before, but I am unclear on whether each separate Roth IRA account needs its own five-year “clock” for earnings to be withdrawn tax free, or if the “clock” for the first-opened Roth IRA counts for all subsequent Roth IRAs, no matter what institution is custodian. I looked on but wasn’t able to determine from the language what the law says.


Cheryl Gardner

Earnings from a Roth IRA are not subject to tax if the distribution is made after you have had any Roth IRA for five years and you are over the age of 59 ½, disabled, deceased, or taking the funds for first home purchase. Each Roth IRA that you open does not have its own five-year period or clock. Instead, for all your Roth IRAs, you will use the five-year period that began when you opened your first Roth IRA to determine when distributions of earnings may be tax-free.

Your confusion likely stems from the fact that there is another Roth IRA 5-year rule that is applied separately to each account. That rule, however, is only concerned with whether the 10% penalty applies to pre-59 ½ distributions, not with whether earnings are tax free.


From 1992-1996, most of the monies I contributed to my traditional IRA were non-deductible. Each year, I filled out IRS Form 8606. I retired in 1996. The basis on the final IRS Form 8606 was $8350. I never had a Roth; don’t think they were invented yet.

Question for you: Is there a way that I can convert the non-deductible $8350 to a Roth, and will that conversion be tax-free? I realize none of the growth will be converted tax-free. 

If your answer is NO, I can’t do it, what do I do with the $8600 of non-deductible funds?

I’ll be 70 ½ in 3 years and will have to take RMDs (required minimum distributions). I want to do this NOW, so the Roth can start to grow tax free, and not be involved with the RMDs. Other than the $8350, do you have any suggestions to minimize the tax burden of taking the RMDs, and paying taxes on those distributions?  

Yes. You may convert any of your Traditional IRA funds to a Roth IRA, including non-deductible contributions. The non-deductible contributions will not be taxed when you convert. However, Traditional IRA distributions, including those you convert, are prorated to consist partially of your non-deductible contributions and partially of your earnings and pre-tax contributions (if any). You cannot convert just the non-deductible contributions. Converting your Traditional IRA to a Roth IRA will eliminate the need to take RMDs when you reach age 70 ½ because Roth IRAs are not subject to the RMDs rules. You will have to decide if the downside of paying some taxes now when you convert your Traditional IRA is outweighed by the future benefits of converting to a Roth IRA, including no RMD requirements and tax-free earnings. Everyone’s situation is different. You may want to meet with a financial advisor who is knowledgeable about IRAs to discuss whether conversion makes sense for you.

Question: I now have about $500,000 in my IRAs and 403(b) rollovers, and 401(k) rollovers. I would like to pay and then convert the bulk of this PRE-Tax money to a Roth. I think it should cost about $160,000 in taxes on the distributions to convert to the Roth, but will I also have to pay additional taxes on the distributions, just because I am taking a distribution from pre-tax monies. In other words, will I be taxed double – once for the conversion of the distributions to a Roth, and once just because I’m taking a distribution for ANY reason?

No. You will not be taxed double. When you convert funds from a Traditional IRA to a Roth IRA, the funds are taxed once when distributed from the Traditional IRA. There is no additional taxation that occurs when the funds are deposited to a Roth IRA as a conversion.

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