Are There Age Requirements To Do a Roth Conversion?

Tuesday, June 30, 2015

By Beverly DeVeny, IRA Technical Expert
Follow Me on Twitter: @BevIRAEdSlott

This is a frequently asked question, and the answer is very straightforward, but it also starts the Roth conversion conversation no matter your age.

First things first. There is no age limit to do a Roth IRA conversion.

Generally, the younger you are, the better off you will be because you have many years of tax-free compounding ahead of you. We discussed the power of compounding all of the way back in January – it’s your friend.

If you are under the age of 59 ½, there is no 10% early distribution penalty on amounts you convert to a Roth IRA. You can convert to a Roth IRA in the year you turn age 70 ½. However, because this is the first year that you have a required minimum distribution (RMD) from your IRA, you will have to take the RMD before you convert any funds to a Roth IRA.

Don’t rule out doing a Roth IRA conversion while you are in your 70s or 80s. If you do not need the funds to live on each year and you have other funds to pay the income tax on the conversion, it could make sense. By reducing the balance in your IRA in the current year, you reduce the amount of your future RMDs. You are also making a “gift” to your heirs of prepaid income tax. You are paying the tax for your heirs, and you don’t even have to report it to the IRS on a gift tax return. It doesn’t reduce your estate tax exemption either.

What about the rule that says that you cannot touch your Roth IRA money for five years? It doesn’t exist!

You can always take a distribution of your Roth IRA contributions and conversions, at any time, income tax free. If you are under age 59 ½, you could owe the 10% early distribution penalty on any converted amounts you withdraw within five years of the conversion date.

You can even take out your earnings before the five years are up. But, if this is your first Roth IRA, you will pay income tax on those earnings. Again, if you are under age 59 ½, you could owe the 10% early distribution penalty on those earnings you withdraw.

Note:  Only IRA owners can convert their IRAs to Roth IRAs. IRA beneficiaries cannot convert their inherited IRAs to inherited Roth IRAs or to their own Roth IRAs.

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