ROTH IRA DISTRBUTION RULES AND COMBINING IRAS: TODAY’S SLOTT REPORT MAILBAG

Thursday, April 18, 2024

By Ian Berger, JD
IRA Analyst
Follow Us on X: @theslottreport

Question:

Can you please clarify a question I have about whether I should take a Roth IRA withdrawal? 

I am much older than age 59 ½, and my first Roth IRA was opened over 20 years ago. I now own a second Roth which holds recently converted funds from my 403(b) account. I am planning to make added Roth conversions over the next couple of years and pay the tax on these conversions. If I make a subsequent withdrawal from my Roth IRA, will it be tax- and penalty-free? I think so from what I have read, given my age and the fact that my first Roth account was opened over 5 years ago. However, some commentators seem to think that any Roth withdrawal must wait 5 years from the conversion in order to avoid being taxed on earnings. I don’t think this is correct and hope you can help. 

Paul


Answer:

Hi Paul,

The Roth IRA distribution rules are confusing. You are correct that any Roth IRA withdrawal you take will be completely free of taxes and the 10% early distribution penalty. That’s because you are over 59 ½ and have had a Roth IRA for at least 5 years. The rule about waiting 5 years to withdraw a Roth conversion only applies to the 10% penalty (not taxation of earnings) and doesn’t apply to folks over 59 ½ like you.


Question:

I have a client with a traditional IRA and a SIMPLE IRA opened in 2020 that she is no longer contributing to. Should these accounts remain separate? She also has a small 401(k) that she needs to roll over to an IRA. Can all of these accounts be consolidated?


Answer:

There is no reason why the traditional IRA and SIMPLE IRA can’t be combined. (SIMPLE IRAs can be rolled over to non-SIMPLE accounts after 2 years of participation in the SIMPLE.) And, the 401(k) can also be rolled over into the combined traditional/SIMPLE account.

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