Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Roth conversion/withdrawal Question
Old 06-11-2018, 11:29 AM   #1
Recycles dryer sheets
 
Join Date: Apr 2011
Location: Castro Valley
Posts: 429
Roth conversion/withdrawal Question

I currently have a Roth IRA that's been established for greater than 5 years and I'm currently 60. I want to withdraw about $40k from my IRA in 2020. My question is: Can I convert $40k from my IRA to the Roth IRA in 2019 and withdraw the $40k from the Roth in 2020 without penalty? Does the $40k converted in 2019need a 5 year wait period?


thanks
__________________

jkern 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 06-11-2018, 12:10 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: 18,109
Since you are over 59 1/2, you don't have to worry about penalties for either a tIRA or a Roth.
__________________

__________________
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 online now   Reply With Quote
Old 06-11-2018, 12:47 PM   #3
Recycles dryer sheets
 
Join Date: Apr 2011
Location: Castro Valley
Posts: 429
Quote:
Originally Posted by pb4uski View Post
Since you are over 59 1/2, you don't have to worry about penalties for either a tIRA or a Roth.

Since I'm over 59 1/2, does that mean there are no more 5 year wait periods for any Roths?
jkern is offline   Reply With Quote
Old 06-11-2018, 01:29 PM   #4
Full time employment: Posting here.
 
Join Date: Jan 2018
Location: Tampa
Posts: 770
Quote:
Originally Posted by jkern View Post
Since I'm over 59 1/2, does that mean there are no more 5 year wait periods for any Roths?
See the excellent article below.
https://www.kitces.com/blog/understa...d-conversions/
__________________
TGIM
Dtail is offline   Reply With Quote
Old 06-11-2018, 01:38 PM   #5
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 3,088
from the fairmark.com site by kawill

Re: Roth IRA Rules - Table Approach
Posted by: KAWill (IP Logged)
Date: October 14, 2010 11:57PM

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

Note: The table is not applicable to timely distributions of excess contributions or return of regular contributions.
kaneohe is offline   Reply With Quote
Old 06-11-2018, 06:18 PM   #6
Dryer sheet wannabe
whaleknives's Avatar
 
Join Date: Apr 2018
Posts: 17
Or, you can look at Figure 2-1 in IRS Publication 590-B (2017), Distributions from Individual Retirement Arrangements (IRAs). A Roth distribution is qualified (not subject to tax or penalty) if the answer to both these questions is Yes:
  1. Has it been at least 5 years from the beginning of the year for which you first set up and contributed to a Roth IRA? (emphasis added)
  2. Were you at least 59-1/2 years old at the time of the distribution?
Multiple 5-year clocks only apply if you're less than 59-1/2.
__________________

Maritime signal flag W-Whiskey, "I require medical assistance."
Technically not early retirement in 2015 at 64-1/2: 42% of men and 48% of women claim Social Security at 62.
whaleknives is offline   Reply With Quote
Old 06-12-2018, 09:15 AM   #7
Recycles dryer sheets
 
Join Date: Apr 2011
Location: Castro Valley
Posts: 429
Thanks for the responses. I'm still a little confused on one item. If a Roth conversion is done after 59 1/2, is there a 5 year wait period to access the earnings tax free?
jkern is offline   Reply With Quote
Old 06-12-2018, 10:48 AM   #8
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 3,088
Quote:
Originally Posted by jkern View Post
Thanks for the responses. I'm still a little confused on one item. If a Roth conversion is done after 59 1/2, is there a 5 year wait period to access the earnings tax free?
OVER AGE 59.5
LESS THAN FIVE YEARS SINCE OPENING FIRST ROTH IRA

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
kaneohe is offline   Reply With Quote
Old 06-12-2018, 10:48 PM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Sunset's Avatar
 
Join Date: Jul 2014
Location: Spending the Kids Inheritance and living in Chicago
Posts: 5,516
As long as you are over 59.5 and had any Roth in your lifetime for over 5 years (not necessarily the one you convert the money into), then withdrawals of money is tax free and penalty free.
__________________
Fortune favors the prepared mind. ... Louis Pasteur
Sunset is offline   Reply With Quote
Old 06-13-2018, 12:18 AM   #10
Thinks s/he gets paid by the post
gcgang's Avatar
 
Join Date: Sep 2012
Posts: 1,042
Quote:
Originally Posted by jkern View Post
I currently have a Roth IRA that's been established for greater than 5 years and I'm currently 60. I want to withdraw about $40k from my IRA in 2020. My question is: Can I convert $40k from my IRA to the Roth IRA in 2019 and withdraw the $40k from the Roth in 2020 without penalty? Does the $40k converted in 2019need a 5 year wait period?


thanks
I think the answer is no wait, no penalty for you.

Anticipated (2019 Y > 2020 Y)?

Why would you withdraw and incur taxable income in 2019 instead of 2020?
__________________
In theory, there's no difference between theory and practice. In practice, there is. YB
gcgang is offline   Reply With Quote
Old 06-13-2018, 09:21 AM   #11
Recycles dryer sheets
 
Join Date: Apr 2011
Location: Castro Valley
Posts: 429
I messed up and din't ask the correct question. I really wanted to know if the earnings were tax free if the 5 year wait period wasn't met on conversions.
jkern is offline   Reply With Quote
Old 06-13-2018, 09:30 AM   #12
Administrator
Alan's Avatar
 
Join Date: Jul 2005
Location: Eee Bah Gum
Posts: 22,189
Quote:
Originally Posted by jkern View Post
I messed up and din't ask the correct question. I really wanted to know if the earnings were tax free if the 5 year wait period wasn't met on conversions.
Yes.


Been there and done that, and continue to do so. Living in the UK the double tax treaty with the US allows lump sum transfers between retirement accounts to be only taxable in the country where the accounts reside, so to minimize taxes I do a lump sum IRA to Roth conversion every year while also taking some distributions from the Roth which is tax free in both countries. Only 4 years left before all of our IRA money is converted, just before we start collecting UK and US SS.
__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Now it's adventure before dementia
Alan is offline   Reply With Quote
Old 06-13-2018, 09:31 AM   #13
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 3,088
Quote:
Originally Posted by jkern View Post
I messed up and din't ask the correct question. I really wanted to know if the earnings were tax free if the 5 year wait period wasn't met on conversions.
As the table mentioned previously shows, there are 2 types of 5 yr clocks.
If you are < 59.5 y.o., the clock(s) are 5 yr clocks on each Roth conversion.
Once you are > 59.5 y.o., the only 5 yr clock that is relevant is the age of your 1st Roth ever opened.
kaneohe is offline   Reply With Quote
Old 06-13-2018, 09:37 AM   #14
Recycles dryer sheets
 
Join Date: Sep 2006
Location: clearwater
Posts: 227
You’ve not met the 5-year rule but you are over age 59 : Earnings withdrawn will be included as income and subject to income taxes but will not be subject to a 10% penalty tax.

Conversions have. a new 5 year rule, separate from regular roth contributions.
rothlev is offline   Reply With Quote
Old 06-13-2018, 10:26 AM   #15
Recycles dryer sheets
 
Join Date: Apr 2011
Location: Castro Valley
Posts: 429
Thanks everyone.
jkern is offline   Reply With Quote
Old 06-13-2018, 02:43 PM   #16
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 3,088
Quote:
Originally Posted by rothlev View Post
Youve not met the 5-year rule but you are over age 59 : Earnings withdrawn will be included as income and subject to income taxes but will not be subject to a 10% penalty tax.

Conversions have. a new 5 year rule, separate from regular roth contributions.
OP is > 59.5. OP's OP states that Roth is > 5 yrs old. Since OP is > 59.5,
conversion age doesn't matter anymore, only age of 1st Roth account.
All withdrawals are now qualified......no taxes/no penalty.
kaneohe is offline   Reply With Quote
Old 06-13-2018, 03:41 PM   #17
Recycles dryer sheets
 
Join Date: Jul 2013
Posts: 465
I feel like maybe there is a missing piece to this question-



Quote:
Originally Posted by jkern View Post
Can I convert $40k from my IRA to the Roth IRA in 2019 and withdraw the $40k from the Roth in 2020 without penalty?


If the real question is- Can I withdraw the funds from the ROTH and not have to pay taxes on the gains, that is true.


But you will pay income taxes on the entire amount when you convert it to a ROTH. The backdoor Roth is not a path to eliminate paying income tax on the funds in a traditional IRA.



Any gains while the money is in the Roth would be tax free.
__________________
In alcohol's defense- I've made some pretty bad decisions while completely sober.
Clone is online now   Reply With Quote
Old 06-13-2018, 04:54 PM   #18
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Sunset's Avatar
 
Join Date: Jul 2014
Location: Spending the Kids Inheritance and living in Chicago
Posts: 5,516
I suspect OP has high low income in 2019 so can add the conversion to his tax bill, but will have high income in 2020 and a need for extra $$$, so wants a tax free way to get extra money in 2020 (vs take it from the IRA).
__________________
Fortune favors the prepared mind. ... Louis Pasteur
Sunset is offline   Reply With Quote
Old 06-13-2018, 06:48 PM   #19
Recycles dryer sheets
 
Join Date: Sep 2006
Location: clearwater
Posts: 227
example:

Sally is 58. She opens her first ever Roth and contributes $6,000 and converts $50,000 from a Traditional IRA to this Roth IRA. Two years later, Sally reaches age 60 with a Roth IRA worth $60,000. She cashes it all in to buy a motor home.

Sally pays no tax on her $6,000 of contributions and pays no income tax or 10% penalty tax on her $50,000 from conversions because she already paid tax at the time she converted and has no penalty since she is over age 59 .]She only pays income tax on the $4,000 attributable to earnings because she has not met the 5-year rule.

If Sally had only withdrawn $56,000, none of it would be taxable, and the earnings could be left for another 3 years when she could have withdrawn it tax-free.
rothlev is offline   Reply With Quote
Old 06-13-2018, 06:58 PM   #20
Thinks s/he gets paid by the post
gauss's Avatar
 
Join Date: Aug 2011
Posts: 1,982
Under current Federal law, all Qualifed Distributions from Roths are tax-free and penalty free.

To be Qualified:
#1) You must be 59 1/2
and
#2) Your first Roth IRA must have been setup at least five years ago.

Non-qualified distributions are more complicated, but if you meet the Qualified criteria above, you don't need to worry about the non-qualified complications.

-gauss
__________________

gauss 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
Roth 401K hardship withdrawal, to 60 day rollover to Roth IRA workburnout FIRE and Money 5 09-29-2017 06:49 AM
Can I do a Roth IRA conversion if my AGI is over the Roth limit? starsfan18 FIRE and Money 20 01-03-2012 02:39 PM
Roth - Traditional - Roth Conversion??? CorporateSoldier FIRE and Money 4 03-10-2011 09:07 PM
Strategy for Roth 401k to Roth IRA conversion and withdrawals sweng85 FIRE and Money 9 04-21-2009 10:28 PM
Roth conversion question REWahoo FIRE and Money 14 10-07-2006 07:48 AM

 

 
All times are GMT -6. The time now is 04:31 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2018, vBulletin Solutions, Inc.