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Roth Conversion Accounts - Recordkeeping
Old 11-30-2023, 05:31 AM   #1
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Roth Conversion Accounts - Recordkeeping

For those of you who make annual Roth conversions over multiple years, I was wondering if you establish a new Roth account each year to help keep track of when you made the conversion in order to comply with the 5-year rule? Please explain your method of recordkeeping for these conversions.
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Old 11-30-2023, 05:43 AM   #2
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No new account. They are pretty well recorded in my Fidelity account info.
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Old 11-30-2023, 05:51 AM   #3
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No new account. I do record the conversions in a spreadsheet, including the ongoing cost basis from IRS form 8606
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Old 11-30-2023, 06:06 AM   #4
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If you are over 591/2 and have owned your Roth account for more than 5 years, no need to set up separate accounts.

Post on Bogleheads:

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
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Old 11-30-2023, 06:55 AM   #5
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Don't the statements have all the transactions? Mine do.
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Old 11-30-2023, 06:58 AM   #6
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fund your first Roth account by age 54.5, don't withdraw until age 59.5 or later, and never worry about record-keeping.
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Old 11-30-2023, 09:34 AM   #7
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I only established one Roth account to accept conversions, now 5 years in. I have recorded my conversions in a spreadsheet, but they are well documented at VG and in all my prior tax documents. I'm not worried about record keeping.
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Old 11-30-2023, 10:33 AM   #8
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I started a spreadsheet back in 2008 showing all conversions, contributions, distributions, rollovers, etc. Having looked at it, I'm surprised to see that we've made over $300K of conversions over the years. A bunch of that was of the annual "backdoor" conversions.

Not needed anymore for tax purposes, but I keep up the spreadsheet because I have a compulsion with keeping up my spreadsheets.
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Old 11-30-2023, 10:40 AM   #9
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The bank/credit union/brokerage is required to keep RothIRA records for contributions and conversions, not you. You can always consult their records.

Roth conversions are always recorded on an IRS form and mailed to you on a yearly basis - I keep this info with my tax records.
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Old 12-04-2023, 03:50 PM   #10
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Quote:
Originally Posted by VanWinkle View Post
If you are over 591/2 and have owned your Roth account for more than 5 years, no need to set up separate accounts.

Post on Bogleheads:

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
Got it. Thanks!😊
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Old 12-04-2023, 04:17 PM   #11
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Quote:
Originally Posted by PERSonalTime View Post
For those of you who make annual Roth conversions over multiple years, I was wondering if you establish a new Roth account each year to help keep track of when you made the conversion in order to comply with the 5-year rule? Please explain your method of recordkeeping for these conversions.
Like most others, I just have a spreadsheet keeping track of contributions and conversions.

Note that for purposes of the 5 year conversion rule, a conversion made any time throughout the year is treated as being made on January 1st. So you only need to keep track of the amount of the conversion(s) and the year(s), not the dates within the year.

Finally, having separate Roth accounts doesn't really help. For purposes of the five year rule, it is the *dollar amount* converted that is available five years later. Any earnings that happen on those converted dollars in that five year time frame go into the third bucket.

In other words, suppose you convert $10K on April 15, 2023 and put it into a separate Roth account. On 1/1/2028 (five years after 1/1/2023), let's say the account is worth $15K. You're eligible to withdraw tax- and penalty-free only the $10K converted, not the $15K it grew to in the interim. (Unless you're over age 59.5, of course).
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Old 12-04-2023, 05:00 PM   #12
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A related note question.
My mom had a Roth account many years ago but closed it and transferred out the monies.
I am setting up a new Roth account this year as she is 90 years old (for tax arbitrage purposes for a few of the siblings when she passes).
If she passes before the 5 year window, are the beneficiaries (over 59.5 y.o.) subject to the earnings tax component, or they can just wait until the 5 year window passes within the required 10 year distribution requirement?
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Old 12-04-2023, 05:23 PM   #13
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Quicken, annual statements from Fidelity and Vanguard, and tax returns are our record keeping methods.
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Old 12-04-2023, 06:15 PM   #14
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Quote:
Originally Posted by Dtail View Post
A related note question.
My mom had a Roth account many years ago but closed it and transferred out the monies.
I am setting up a new Roth account this year as she is 90 years old (for tax arbitrage purposes for a few of the siblings when she passes).
If she passes before the 5 year window, are the beneficiaries (over 59.5 y.o.) subject to the earnings tax component, or they can just wait until the 5 year window passes within the required 10 year distribution requirement?
My understanding is that her first Roth counts. So if she opened that first Roth more than five years ago (which it sounds like is the case), then beneficiaries can withdraw anything anytime tax free within that 10 year window.

Inherited Roths are not subject to RMDs. Unless there is some specific reason otherwise, I think leaving the account untouched as long as possible to maximize tax free earnings is the way to go. If your Mom passed away today (of course I hope she doesn't - just saying for example), that would mean leaving the account until 12/31/2033.
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Old 12-04-2023, 06:31 PM   #15
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Quote:
Originally Posted by SecondCor521 View Post
My understanding is that her first Roth counts. So if she opened that first Roth more than five years ago (which it sounds like is the case), then beneficiaries can withdraw anything anytime tax free within that 10 year window.

Inherited Roths are not subject to RMDs. Unless there is some specific reason otherwise, I think leaving the account untouched as long as possible to maximize tax free earnings is the way to go. If your Mom passed away today (of course I hope she doesn't - just saying for example), that would mean leaving the account until 12/31/2033.
Yes more than 5 years ago.
Agree on the 2nd point for me, but not sure what the siblings will do for themselves, so wanted to know in case it comes up.
Thanks for the response.
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Old 12-05-2023, 11:10 AM   #16
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Quote:
Originally Posted by Dtail View Post
..
My mom had a Roth account many years ago but closed it and transferred out the monies.
I am setting up a new Roth account this year as she is 90 years old (for tax arbitrage purposes for a few of the siblings when she passes).
...
Can you explain this tax arbitrage, and how you think it will work ?

I'm wondering if some relatives should do this, or that it doesn't really matter as inherited IRA's have a 10 year span to withdraw from in general terms.
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Old 12-05-2023, 11:20 AM   #17
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Originally Posted by SecondCor521 View Post
My understanding is that her first Roth counts. So if she opened that first Roth more than five years ago (which it sounds like is the case), then beneficiaries can withdraw anything anytime tax free within that 10 year window.

Inherited Roths are not subject to RMDs. Unless there is some specific reason otherwise, I think leaving the account untouched as long as possible to maximize tax free earnings is the way to go. If your Mom passed away today (of course I hope she doesn't - just saying for example), that would mean leaving the account until 12/31/2033.
I think inherited Roth IRAs ARE subject to RMDs, in that the entire amount must be withdrawn in ten years.
Unclear is some needs to be withdrawn each year or not.

BUT......there are no income taxes due on those withdrawals...
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Old 12-05-2023, 01:20 PM   #18
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Can you explain this tax arbitrage, and how you think it will work ?

I'm wondering if some relatives should do this, or that it doesn't really matter as inherited IRA's have a 10 year span to withdraw from in general terms.
So 2 of my siblings are in a higher tax bracket than my mom. They are both still working. So by converting some of the TIRA at a marginal tax bracket of 22%, there will be tax savings for them vs them paying taxes on the inherited IRA with its forced 10 year RMD period.
I do have to balance the IRMAA aspect of it too.
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Old 12-05-2023, 01:23 PM   #19
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I think inherited Roth IRAs ARE subject to RMDs, in that the entire amount must be withdrawn in ten years.
Unclear is some needs to be withdrawn each year or not.

BUT......there are no income taxes due on those withdrawals...
I believe you are correct in that it must be depleted within 10 years but no forced yearly RMD's.
This rule is for non spouses.
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Old 12-05-2023, 02:58 PM   #20
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So 2 of my siblings are in a higher tax bracket than my mom. They are both still working. So by converting some of the TIRA at a marginal tax bracket of 22%, there will be tax savings for them vs them paying taxes on the inherited IRA with its forced 10 year RMD period.
I do have to balance the IRMAA aspect of it too.
But this will mean that the other siblings who are at a lower tax rate will effectively be paying higher taxes, than if they inherited the IRA and did it themselves.

Also, have you talked over their plans, I could see someone inherits and IRA and thereby decides to stop work a couple of years early, knocking their tax rate to near zero, and using the IRA money as a bridge.
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