Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Roth IRA 5 year rule... can't find an answer
Old 03-24-2018, 05:44 PM   #1
Recycles dryer sheets
always_learning's Avatar
 
Join Date: Feb 2017
Posts: 142
Roth IRA 5 year rule... can't find an answer

I have scoured the internet for an answer and I have failed to find one. If one is out there and I just didn't use the correct terms to find it, if someone would be so kind as to point me in the right direction, I would greatly appreciate it.

This is regarding the 5 year rule for a Roth IRA(age of account).

Here is the set up: A Roth IRA is opened, contributed to for a few years, then a total distribution is made six or seven years into the age of the Roth, taking it to a zero balance.

Several years after the total distribution is made, the same person wants to open a Roth IRA. Does the 5 year rule for the account's age start anew, or has it already been met?

If it matters, the Roth account has long since vanished from the person's brokerage firm's website but the person has original brokerage papers showing the account being opened more than a decade ago.

Can anyone help with this puzzler?
__________________

always_learning 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 03-24-2018, 06:00 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 8,958
I looked at the IRS pub on this. https://www.irs.gov/publications/p59...link1000231061

Quote:
What Are Qualified Distributions?

A qualified distribution is any payment or distribution from your Roth IRA that meets the following requirements.
  1. It is made after the 5-year period beginning with the first taxable year for which a contribution was made to a Roth IRA set up for your benefit, and


Emphasis mine; to me that says once you've set up a Roth IRA, the 5 year rule starts. I know that if you still had that one active, and started a new Roth IRA, both would be under the same clock that started with the first one.



Figure 2-1 below it is also consistent with that. There's no caveat that the first one must still be active.



My first instinct is that this is unusual, but I've helped my 20something son with a Roth. I could see him draining it to buy a house, and then years later starting a new account.


I'm not tax expert, but the rules seem clear here, that the clock starts in the year of your first Roth IRA contribution. Period.
__________________

RunningBum is offline   Reply With Quote
Old 03-25-2018, 01:10 AM   #3
Thinks s/he gets paid by the post
SecondCor521's Avatar
 
Join Date: Jun 2006
Location: Boise
Posts: 3,921
I agree with RB.
__________________
"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.
SecondCor521 is online now   Reply With Quote
Old 03-25-2018, 08:06 AM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
donheff's Avatar
 
Join Date: Feb 2006
Location: Washington, DC
Posts: 9,577
Too late to help the OP but, for the rest of us, it seems like the prudent thing to do is leave enough in your Roth to keep the account open. Then there would be no question.
__________________
Every man is, or hopes to be, an Idler. -- Samuel Johnson
donheff is offline   Reply With Quote
Old 03-25-2018, 09:38 AM   #5
Recycles dryer sheets
always_learning's Avatar
 
Join Date: Feb 2017
Posts: 142
Quote:
Originally Posted by RunningBum View Post
I looked at the IRS pub on this. https://www.irs.gov/publications/p59...link1000231061[/LIST]Emphasis mine; to me that says once you've set up a Roth IRA, the 5 year rule starts. I know that if you still had that one active, and started a new Roth IRA, both would be under the same clock that started with the first one.



Figure 2-1 below it is also consistent with that. There's no caveat that the first one must still be active.



My first instinct is that this is unusual, but I've helped my 20something son with a Roth. I could see him draining it to buy a house, and then years later starting a new account.


I'm not tax expert, but the rules seem clear here, that the clock starts in the year of your first Roth IRA contribution. Period.
Thanks RB. I kept looking at that code and I read it the same way, so I'm happy to have confirmation that I wasn't just interpreting it wrong.

Quote:
Originally Posted by SecondCor521 View Post
I agree with RB.
Thanks.
always_learning is offline   Reply With Quote
Old 03-25-2018, 09:44 AM   #6
Recycles dryer sheets
always_learning's Avatar
 
Join Date: Feb 2017
Posts: 142
Quote:
Originally Posted by donheff View Post
Too late to help the OP but, for the rest of us, it seems like the prudent thing to do is leave enough in your Roth to keep the account open. Then there would be no question.
I absolutely agree.

In this situation, though, the account had to be fully drained as it was being used for a loss harvest and the owner was under 59.5 Fully emptying the account prevented the penalty. Since it was many years ago, I can't remember all of the details, but it was a necessary evil.
always_learning is offline   Reply With Quote
Old 03-25-2018, 12:29 PM   #7
Thinks s/he gets paid by the post
gauss's Avatar
 
Join Date: Aug 2011
Posts: 2,625
I agree that the original Roth IRA will start the 5 year clock. If withdrawals are made after age 59 1/2 they would meet the requirements to be considered Qualified distributions.

The problem, however, that you will run into (and it is not really a problem), is that a new Roth IRA custodian who issues a 1099-R for a distribution after age 59 1/2 may use Code T as opposed to Code Q.

Code T will cause your tax software or your tax preparer to ask additional questions about when your first Roth IRA was opened so that they can determined if it is Qualified or not.

Code Q can simply be used "as is" because it communicates that the IRA custodian knows that all the requirements for a Qualified distribution have been met.

Details can be found on pg 17 in the instructions for form 1099-R.
gauss is offline   Reply With Quote
Old 03-25-2018, 12:35 PM   #8
Thinks s/he gets paid by the post
gauss's Avatar
 
Join Date: Aug 2011
Posts: 2,625
Quote:
Originally Posted by always_learning View Post

If it matters, the Roth account has long since vanished from the person's brokerage firm's website but the person has original brokerage papers showing the account being opened more than a decade ago.

Can anyone help with this puzzler?
The original Roth IRA custodian should have issued you an IRS form 5498 for the year the Roth IRA was opened and for subsequent years.

If the original Roth IRA has been closed for less than 10 years, you may wish to order IRS "Wage and Income Transcripts" for the years that it was open. The 5498's should provide documentation that the IRS was notified about the original account and that it indeed was a Roth IRA.

The 5498s would have also been mailed to the Taxpayer during the summer months (ie May) for these years. Further info on IRS transcripts are available here.


I believe the original brokerage paperwork documenting the existence of the original Roth IRA would also work.

-gauss
gauss is offline   Reply With Quote
Old 04-05-2018, 06:29 PM   #9
Recycles dryer sheets
always_learning's Avatar
 
Join Date: Feb 2017
Posts: 142
Thanks gauss.

I was able to go back and find papers to show the original opening date. It was reported to the IRS by the brokerage company and it shows on the 1040 that Turbo Tax spit out, so it seems that bases are covered, should the need arise to prove the age of the account.

All of this is likely moot but it's nice to know it's there if needed.

Thanks again!
__________________

always_learning is offline   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
Can I do both Backdoor Roth IRA and Mega Backdoor Roth IRA? growerVon FIRE and Money 8 07-30-2015 02:04 AM
Can't find answer to simple question! JinAZ Hi, I am... 5 09-30-2012 04:25 PM
I really only joined to find an answer to one question. AmartA Hi, I am... 7 09-08-2011 09:18 AM
Your reasoning skills are better than 1/2 of all 50 year olds if you can answer this! Mulligan Other topics 16 05-28-2011 11:02 AM
Can I max out my Roth IRA, Trad. IRA, and SIMPLE IRA? thefed FIRE and Money 9 09-24-2007 05:52 PM

» Quick Links

 
All times are GMT -6. The time now is 02:37 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2020, vBulletin Solutions, Inc.
×