Roth IRA and Roth Contributory IRA

[fh2000]

I have a Roth IRA with Vanguard. I have a Roth Contributory IRA with Charles Schwab. I googled the difference. Looks like just how the account is funded. My Vanguard Roth IRA was funded through conversion from traditional IRA. My Charles Schwab Roth Contributory IRA was funded through Nondeductible IRA. I really do not know what the difference is between these 2 conversions.

I like Charles Schwab Chat support. You can get an answer really quick any time of day. I also have a debit card with no foreign transaction fee from them. So, I would like to transfer Vanguard Roth IRA to Charles Schwab Roth Contributory IRA.

I chatted with Charles Schwab. The agent said they are the same Roth accounts, so it is fine. But I have no experience so would like to see if anyone encountered any issues to transfer between these types of accounts.

 

[fh2000]

Continue doing my own research, and found a Roth IRA 5 year rule, table view. Since I am over 59.5 so only below 2 conditions apply:

"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"


I am thinking merging 2 kinds of Roth accounts should be fine, as long as I leave the funds there for at least 5 years after the merge. I may leave them forever and pass on to the heir.

 

[cathy63]

It's fine to merge the accounts. You don't need to leave the funds for 5 years after the merge. Since you are already over 59.5, all of your withdrawals from any Roth you have will be fully tax free 5 years after the first Roth was opened, even if that account has since been closed.

Also, this is 5 tax years, not calendar years. All contributions are treated as being made on January 1 of the tax year when you made them. So if you made your first Roth contribution on April 1 2020 for tax year 2019, you will reach 5 years on January 1, 2024.

 

[fh2000]

It's fine to merge the accounts. You don't need to leave the funds for 5 years after the merge. Since you are already over 59.5, all of your withdrawals from any Roth you have will be fully tax free 5 years after the first Roth was opened, even if that account has since been closed.

Also, this is 5 tax years, not calendar years. All contributions are treated as being made on January 1 of the tax year when you made them. So if you made your first Roth contribution on April 1 2020 for tax year 2019, you will reach 5 years on January 1, 2024.

Thank you, Cathy.

So the key is to track when the first Roth was opened. When will this information be used? Does IRS track this thru tax filings?

 

[gauss]

The IRS should have a record of it when form 5498 is filed by your IRA custodian whenever you made a contribution.

The 5498's are issued after Apr 15 to both the account owner and to the IRS. You can view a record of the last 10 years of 5498/1099/W2 filings by requesting a "Wage and Income" Transcript from the IRS.

I would also retain a copy of your Roth IRA statement from when it was opened or at least 5 years ago to be on the safe side.

If the Roth IRA custodian, knows that you are 59 1/2 and have had a Roth IRA open for at least 5 years, any distributions from the Roth IRA should be reported on 1099-R with code 'Q' in box 7. This is the simplest case that will allow you to receive the distribution tax free.

-gauss