Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Benefit of Segregating Roth Conversions?
Old 10-01-2018, 04:39 PM   #1
Recycles dryer sheets
 
Join Date: Nov 2017
Location: Green Bay
Posts: 118
Benefit of Segregating Roth Conversions?

I retired in 2017 and did my first Roth Conversion. I am planning to do significant Roth Conversions in 2018 and each of the next several years.

In researching old threads, some folks recommended putting each Roth conversion into a separate account. I can see that might simplify things if a recharacterization is done. However, now that recharacterizations are no longer available, are there any benefits to segregating each conversion into it's own account?
__________________

Splash is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 10-01-2018, 04:46 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 23,441
I think that may have had something to do with the old horse race strategy.

I have done Roth conversions the last 5 years... all to the same account.... so no benefits that I know of.
__________________

__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...60/35/5 AA
pb4uski is offline   Reply With Quote
Old 10-01-2018, 05:04 PM   #3
Recycles dryer sheets
 
Join Date: Sep 2016
Location: Way up North
Posts: 243
If you are younger than 54.5, there is a strategy for getting penalty free access to IRA funds before age 59.5. There is a 5 year "conversion clock" on each individual conversion. If you have satisfied 5 years elapsed since conversion you can draw out the original conversion (not the accrued gains though) penalty free.

Once you are 59.5, the "conversion clock" doesn't apply, so there is no benefit to keeping conversions made after age 54.5 segregated.
__________________
Retiring in mid 2020 at age 61 from Evil Mega Big Oil Corp (EMBO corp)
Planning on living on:
Social Security +
Modest private pension +
Modest nest egg, 60/40 indexed +
My good looks and sparkling conversation
bada bing is offline   Reply With Quote
Old 10-01-2018, 05:12 PM   #4
Thinks s/he gets paid by the post
gauss's Avatar
 
Join Date: Aug 2011
Posts: 2,581
Quote:
Originally Posted by bada bing View Post
If you are younger than 54.5, there is a strategy for getting penalty free access to IRA funds before age 59.5. There is a 5 year "conversion clock" on each individual conversion. If you have satisfied 5 years elapsed since conversion you can draw out the original conversion (not the accrued gains though) penalty free.

Once you are 59.5, the "conversion clock" doesn't apply, so there is no benefit to keeping conversions made after age 54.5 segregated.
+1

And if you plan to withdrawal any of these conversions before age 59 1/2 you do have to keep track of the history of all of your conversions, the amounts, and the dates. You can view the last section of page 2 IRS Form 8606 for details.

I never thought to setup separate Roth accounts for each conversion. I did spend lots of time documenting all my conversions however.

-gauss
gauss is offline   Reply With Quote
Old 10-01-2018, 05:40 PM   #5
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 3,813
Quote:
Originally Posted by bada bing View Post
If you are younger than 54.5, there is a strategy for getting penalty free access to IRA funds before age 59.5. There is a 5 year "conversion clock" on each individual conversion. If you have satisfied 5 years elapsed since conversion you can draw out the original conversion (not the accrued gains though) penalty free.

Once you are 59.5, the "conversion clock" doesn't apply, so there is no benefit to keeping conversions made after age 54.5 segregated.
Even if you segregate conversions, each conversion soon becomes "contaminated" w/ earnings so , as Gauss noted, you need to keep good records anyway. Pooling the conversions together is not a problem since the ordering rules say contributions come out first, then conversions and finally earnings.
kaneohe is offline   Reply With Quote
Old 10-01-2018, 07:12 PM   #6
Full time employment: Posting here.
corn18's Avatar
 
Join Date: Aug 2015
Posts: 596
As others have said, the IRS doesn't care if you have 100 Roth accounts or 1. You must keep very accurate track of conversion dates and amounts of each type of what was converted. I have a spreadsheet that I keep track of everything. I also line up the ordering rules in case I need to make withdrawals. I am 52 and my oldest Roth is 3 years old. I have this for both me and my wife by date and amount.

Ordering (BD=BackDoor MBD=MegaBackDoor)
2015 BD Conversion Taxable 603.29 (Tax=No, Penalty=Yes)
2015 BD Conversion Non Taxable 11,000.00 (Tax=No, Penalty=No)
2016 BD Conversion Non Taxable 6,500.00 (Tax=No, Penalty=No)
2016 MBD Conversion Taxable 71.08 (Tax=No, Penalty=Yes)
2016 MBD Conversion Non-Taxable 15,011.62 (Tax=No, Penalty=No)
2017 BD Conversion Taxable 22.98 (Tax=No, Penalty=Yes)
2017 BD Conversion Non Taxable 6,500.00 (Tax=No, Penalty=No)
2017 MBD Conversion Taxable 1,062.63 (Tax=No, Penalty=Yes)
2017 MBD Conversion Non-Taxable 16,581.86 (Tax=No, Penalty=No)
2018 BD Conversion Non Taxable 6,500.00 (Tax=No, Penalty=No)
2018 MBD Conversion Non-Taxable 19,070.44 (Tax=No, Penalty=No)
All Gains 7,723.06 (Tax=Yes, Penalty=Yes)

I have to take them out in this order, I cannot cherry pick. All of this is in one Roth account. My wife has the same thing.
corn18 is online now   Reply With Quote
Old 10-01-2018, 07:18 PM   #7
Recycles dryer sheets
 
Join Date: Jun 2018
Posts: 116
There is no 5 year conversion clock for each conversion. The IRS rules state very clearly that it's 5 years from the original.
Kelor is offline   Reply With Quote
Old 10-01-2018, 07:46 PM   #8
Thinks s/he gets paid by the post
gauss's Avatar
 
Join Date: Aug 2011
Posts: 2,581
Kelor, For a non-qualified distribution (ie younger than age 59 1/2 or first ROTH IRA setup less than 5 years ago) I am quite sure you are mistaken.

Care to provide a source for your comment?

-gauss
IRS Certified Volunteer Tax Preparer
gauss is offline   Reply With Quote
Old 10-01-2018, 07:50 PM   #9
Full time employment: Posting here.
corn18's Avatar
 
Join Date: Aug 2015
Posts: 596
Quote:
Originally Posted by gauss View Post
Kelor, For a non-qualified distribution (ie younger than age 59 1/2 or first ROTH IRA setup less than 5 years ago) I am quite sure you are mistaken.

Care to provide a source for your comment?

-gauss
IRS Certified Volunteer Tax Preparer
You are correct. Until you reach 59.5, each conversion carries its own 5 year clock. It's not until you hit 59.5 that the 5 year rule is for the oldest of all Roth accounts.

ORDER OF DISTRIBUTIONS

Regular contributions
Taxable portion of first conversion
Nontaxable portion of first conversion
Each subsequent conversion, in order, with the taxable portion coming out first for each conversion
Earnings (any increase in value occurring inside the Roth IRA)

TAXES AND PENALTIES

UNDER AGE 59.5*
FIVE YEAR CONVERSION HOLDING PERIOD NOT MET*

Contributions: Tax-No; Penalty-No*
Conversions: Tax-No; Penalty-Yes (Taxable Portion)*
Conversions: Tax-No ;Penalty-No (Nontaxable Portion)*
Earnings: Tax-Yes; Penalty-Yes*

UNDER AGE 59.5*
FIVE YEAR CONVERSION HOLDING PERIOD MET*

Contributions: Tax-No; Penalty-No*
Conversions: Tax-No; Penalty-No (Taxable Portion)*
Conversions: Tax-No; Penalty-No (Nontaxable Portion)*
Earnings: Tax-Yes; Penalty-Yes*

OVER AGE 59.5*
LESS THAN FIVE YEARS SINCE OPENING FIRST ROTH IRA*


Contributions: Tax-No ;Penalty-No*
Conversions: Tax-No; Penalty-No (Taxable Portion)*
Conversions: Tax-No; Penalty-No (Nontaxable Portion)*
Earnings: Tax-Yes; Penalty-No*

OVER AGE 59.5*
FIVE YEARS OR MORE SINCE OPENING FIRST ROTH IRA*


All Distributions Are Qualified*

No Taxes*
No Penalties*
corn18 is online now   Reply With Quote
Old 10-01-2018, 07:54 PM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 23,004
Oh god, what a tracking nightmare!

After 59.5 it doesn't matter?

Or you still have a 5 year clock running?

So the simplest thing would be to wait 5 years after your last conversion to withdraw funds even if older than 59.5?
__________________
Retired since summer 1999.
audreyh1 is offline   Reply With Quote
Old 10-01-2018, 07:55 PM   #11
Full time employment: Posting here.
corn18's Avatar
 
Join Date: Aug 2015
Posts: 596
Quote:
Originally Posted by audreyh1 View Post
Oh god, what a tracking nightmare!

After 59.5 it doesn't matter?
59.5 AND your oldest Roth is more than 5 years old.
corn18 is online now   Reply With Quote
Old 10-01-2018, 08:02 PM   #12
Thinks s/he gets paid by the post
gauss's Avatar
 
Join Date: Aug 2011
Posts: 2,581
Distributions after age 59 /12 are Qualified if your first Roth IRA was opened at least 5 years ago.

Qualified distributions are free of taxes/penalties and record-keeping/documentation.

-gauss
gauss is offline   Reply With Quote
Old 10-01-2018, 08:04 PM   #13
Full time employment: Posting here.
corn18's Avatar
 
Join Date: Aug 2015
Posts: 596
Roth IRA's were never meant for FIRE, but if you keep good records, they can be a great source of funds to bridge to a pension or SS. That's my plan.
corn18 is online now   Reply With Quote
Old 10-01-2018, 08:17 PM   #14
Thinks s/he gets paid by the post
gauss's Avatar
 
Join Date: Aug 2011
Posts: 2,581
Mine too!

Seemed easier than setting up a 72(t) SEPP withdrawal scheme.

-gauss
gauss is offline   Reply With Quote
Old 10-01-2018, 08:19 PM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 23,004
Quote:
Originally Posted by gauss View Post
Distributions after age 59 /12 are qualified if your first Roth IRA was opened at least 5 years ago.

Qualified distributions are free of taxes/penalties and record-keeping/documentation.

-gauss
Oh - you only need to track 5 years from your first Roth conversion then, assuming that is when you opened your first Roth IRA.

Our Roth IRAs would likely go to heirs. But then again - who knows.
__________________
Retired since summer 1999.
audreyh1 is offline   Reply With Quote
Old 10-01-2018, 08:24 PM   #16
Thinks s/he gets paid by the post
gauss's Avatar
 
Join Date: Aug 2011
Posts: 2,581
Correct - as long as you are over age 59 1/2.
gauss is offline   Reply With Quote
Old 10-01-2018, 08:28 PM   #17
Thinks s/he gets paid by the post
Fedup's Avatar
 
Join Date: Mar 2014
Location: Southern Cal
Posts: 4,032
I have my Roth account since 2003, same with my husband. In fact, I put both of ours in 5 year CD at the time to make sure it’s longer than 5 years. Now I don’t have to worry about it. Don’t plan to use it until the TIRA is gone. Very simple, there is no need to keep track of anything.
Remember, it’s one Roth account. There is no need to keep track of which chunk of conversion.
Fedup is offline   Reply With Quote
Old 10-01-2018, 08:39 PM   #18
Full time employment: Posting here.
corn18's Avatar
 
Join Date: Aug 2015
Posts: 596
Quote:
Originally Posted by Fedup View Post
I have my Roth account since 2003, same with my husband. In fact, I put both of ours in 5 year CD at the time to make sure itís longer than 5 years. Now I donít have to worry about it. Donít plan to use it until the TIRA is gone. Very simple, there is no need to keep track of anything.
Remember, itís one Roth account. There is no need to keep track of which chunk of conversion.
That works if you are over 59.5.

I started doing Roth conversions at age 49. It will be 7 years before I am fully qualified and no longer have to keep track of anything. I plan to retire at 55, so I have 4.5 years of doing this right via good record keeping. Once I hit 59.5, I won't have to track anything.
corn18 is online now   Reply With Quote
Old 10-01-2018, 08:50 PM   #19
Thinks s/he gets paid by the post
Fedup's Avatar
 
Join Date: Mar 2014
Location: Southern Cal
Posts: 4,032
Quote:
Originally Posted by corn18 View Post
That works if you are over 59.5.

I started doing Roth conversions at age 49. It will be 7 years before I am fully qualified and no longer have to keep track of anything. I plan to retire at 55, so I have 4.5 years of doing this right via good record keeping. Once I hit 59.5, I won't have to track anything.
It’s one Roth IRA account. So if you opened your Roth IRA 7 years ago, you should be good. You don’t have to worry about 59.5 even.

Roth IRA is not the same as Roth 401k, maybe two different things.
Fedup is offline   Reply With Quote
Old 10-01-2018, 08:52 PM   #20
Full time employment: Posting here.
corn18's Avatar
 
Join Date: Aug 2015
Posts: 596
Quote:
Originally Posted by Fedup View Post
Itís one Roth account. So if you opened your Roth 7 years ago, you should be good. You donít have to worry about 59.5 even.
That is wrong. I you do a conversion at age 50 and your oldest Roth is 20 years old, that conversion has a 5 year clock. If you do another conversion at 51, that conversion has its own 5 year clock. Read the ordering rules and taxes I posted.
__________________

corn18 is online now   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Pension Benefit Guaranty Corporation Max Benefit ? Delawaredave5 FIRE and Money 23 12-17-2015 09:12 AM
Is ss Survivor Benefit a Lifetime Benefit? Idnar7 FIRE and Money 2 01-24-2013 07:24 AM
Roth IRA Conversions for Retirees mickeyd FIRE and Money 4 12-17-2005 11:38 AM
Roth Conversions?? stevelb FIRE and Money 18 02-28-2005 05:46 PM
ER Roth conversions unclemick FIRE and Money 8 03-05-2004 11:25 PM

» Quick Links

 
All times are GMT -6. The time now is 09:24 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2019, vBulletin Solutions, Inc.
×