More Roth conversion question
- Thread starter garyt
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I got this from NerdWallet:
Similar to the rule above, withdrawals of money from the conversion of a traditional IRA or 401(k) to a Roth IRA are subject to a five-year waiting period to avoid a penalty.
For this rule, the five-year period begins the first day of the tax year in which you converted money from a traditional IRA (or did a rollover from a qualified retirement plan) to your Roth IRA. For example, if you do a conversion in the month of May, the rule for that conversion begins on the prior Jan. 1. Each conversion or rollover you make is subject to a separate five-year waiting period.
If you don’t wait the requisite five-year period from conversion to withdrawal, you may have to pay a 10% penalty, along with any income taxes owed. The same exceptions apply to the five-year rule of withdrawals of conversions as any other type of early distributions.
Similar to the rule above, withdrawals of money from the conversion of a traditional IRA or 401(k) to a Roth IRA are subject to a five-year waiting period to avoid a penalty.
For this rule, the five-year period begins the first day of the tax year in which you converted money from a traditional IRA (or did a rollover from a qualified retirement plan) to your Roth IRA. For example, if you do a conversion in the month of May, the rule for that conversion begins on the prior Jan. 1. Each conversion or rollover you make is subject to a separate five-year waiting period.
If you don’t wait the requisite five-year period from conversion to withdrawal, you may have to pay a 10% penalty, along with any income taxes owed. The same exceptions apply to the five-year rule of withdrawals of conversions as any other type of early distributions.
Yea, I found that also. What really hurts is that your withdrawals are counted as contributions first, then conversions, then earnings. Another thing I didn't know. So this really hurts me as I plan to empty my Roth in the next 3-4 years to qualify for ACA subsidies. But now I guess the conversion will be counted in the 2nd or 3rd year or so.
So now I guess I better go read about recharacterizing a Roth(is that what it's called). I guess that's why you need to know the rules to a tee before you make a move.
So now I guess I better go read about recharacterizing a Roth(is that what it's called). I guess that's why you need to know the rules to a tee before you make a move.
Ok, I found this:
The five-year period starts running on Jan. 1 of the year of conversion, so, depending on when the conversion takes place during the year, the actual waiting period can be as little as four years and a day. If you turn 59-1/2 during the five-year period, then the penalty no longer applies after that date, even if the five years haven't elapsed.
I'm over 59 1/2 so I'm good?
The five-year period starts running on Jan. 1 of the year of conversion, so, depending on when the conversion takes place during the year, the actual waiting period can be as little as four years and a day. If you turn 59-1/2 during the five-year period, then the penalty no longer applies after that date, even if the five years haven't elapsed.
I'm over 59 1/2 so I'm good?
I like this table by kawill from the fairmark.com site:
(almost no thinking required!); for clarification........conversions are withdrawn (after contributions)
in chronological order starting w/ the earliest. Within each conversion, there may be 2 parts...the taxable
part and the non-taxable part (if there was basis.....non-deductible contributions). Within each conversion,
the taxable part is withdrawn first, then the non-taxable part.
Re: Roth IRA Rules - Table Approach
Posted by: KAWill, March 12, 2018 06:27PM
......................
Roth IRA Distribution Table
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
The Roth IRA Distribution Table shows the ordering rules as presented in IRS Publication 590-B.
This table is not applicable to timely distributions of excess contributions, return of regular contributions, or the Roth IRA Exceptions listed in IRS Publication 590-B.
Top
(almost no thinking required!); for clarification........conversions are withdrawn (after contributions)
in chronological order starting w/ the earliest. Within each conversion, there may be 2 parts...the taxable
part and the non-taxable part (if there was basis.....non-deductible contributions). Within each conversion,
the taxable part is withdrawn first, then the non-taxable part.
Re: Roth IRA Rules - Table Approach
Posted by: KAWill, March 12, 2018 06:27PM
......................
Roth IRA Distribution Table
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
The Roth IRA Distribution Table shows the ordering rules as presented in IRS Publication 590-B.
This table is not applicable to timely distributions of excess contributions, return of regular contributions, or the Roth IRA Exceptions listed in IRS Publication 590-B.
Top
There are 2 types of 5 yr clocks. For younger folks, the 5 yr conversion clocks runs first but after you turn 59.5, the 5 yr age of the first Roth opened takes over.
See the table.
see the table above. Once you turn 59.5, the age of the conversion no longer matters. It is the age of the first Roth opened that matters.......however if your first Roth was that conversion, the the 5 yr rule for first Roth is still ticking.....
so problem taking out the conversion, but there will be taxes on the earnings from that conversion.
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
steelyman
Moderator Emeritus
While not relevant to this thread’s specifics, it made me think of Roth conversions (only two) that I’ve done.
The first was the year the Roth was established (1998, I think). The contribution limit was pretty low, $2K as I recall. I’d read in some magazine that you could double your contribution by contributing the limit to a traditional IRA for the prior year (because you have till April 15) and immediately convert to a new Roth. Worked well and that was my 5-yr start date.
The other was when I moved from a state that doesn’t tax retirement income (including IRA withdrawals) to one that does. I thought that was a good reason to convert funds up to my then-bracket and lower the tax charged.
Going forward, and this is an individual decision not for everyone, I’m maintaining a 50/50 split between tax-deferred and tax-free amounts in my retirement accounts. I recently added the calculation in my retirement spreadsheet to tell me how much to withdraw from each type to maintain the split, or as close to it as possible.
The first was the year the Roth was established (1998, I think). The contribution limit was pretty low, $2K as I recall. I’d read in some magazine that you could double your contribution by contributing the limit to a traditional IRA for the prior year (because you have till April 15) and immediately convert to a new Roth. Worked well and that was my 5-yr start date.
The other was when I moved from a state that doesn’t tax retirement income (including IRA withdrawals) to one that does. I thought that was a good reason to convert funds up to my then-bracket and lower the tax charged.
Going forward, and this is an individual decision not for everyone, I’m maintaining a 50/50 split between tax-deferred and tax-free amounts in my retirement accounts. I recently added the calculation in my retirement spreadsheet to tell me how much to withdraw from each type to maintain the split, or as close to it as possible.
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I have multiple Roths of varying ages with the same brokerage. The oldest is over 10 years old and the newest is a year old. I had opened them as separate accounts in order to be able to recharacterize if needed. Now for simplicity sake I'd like to merge them all. If I roll all of these various accounts into the oldest one, are they then all considered that vintage or is the whole pot reset to the age of newest one transferred in? I'm not planning on withdrawing anything from Roths until after I'm 59 1/2, but that is fast approaching.
