Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Roth Conversion and Withdrawal
Old 05-05-2021, 05:12 PM   #1
Dryer sheet wannabe
 
Join Date: Sep 2012
Posts: 24
Roth Conversion and Withdrawal

Hey all ,

I am considering converting some of my IRA funds to a Roth this year. I plan to do the same in 2022 and 2023, if my current situation sustains. Let's say DW and I decide to convert $80,000 each year.

I am over the requisite 59.5 age threshold and don't expect to have any earned income in 2021.
  1. Is there a five year wait time before we can start taking distributions from my Roth conversion? If so, then for the money converted in 2021, when can I withdraw without penalty - 2026 or 2027?
  2. If the above is true, is it advisable to create a separate account for each year's Roth conversion... to avoid any IRS complications.

Cheers,
GB
__________________
Due to the rising cost of early retirement... and ammo, no warning shots will be fired. Sorry for the inconvenience.
goneboarding 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 05-05-2021, 05:37 PM   #2
Thinks s/he gets paid by the post
Dash man's Avatar
 
Join Date: Mar 2013
Location: Limerick
Posts: 3,287
Quote:
Originally Posted by goneboarding View Post
Hey all ,

I am considering converting some of my IRA funds to a Roth this year. I plan to do the same in 2022 and 2023, if my current situation sustains. Let's say DW and I decide to convert $80,000 each year.

I am over the requisite 59.5 age threshold and don't expect to have any earned income in 2021.
  1. Is there a five year wait time before we can start taking distributions from my Roth conversion? If so, then for the money converted in 2021, when can I withdraw without penalty - 2026 or 2027?
  2. If the above is true, is it advisable to create a separate account for each year's Roth conversion... to avoid any IRS complications.

Cheers,
GB

There is a five tax year period from the opening of your first Roth before you can withdraw without paying taxes on the earnings. You can withdraw Roth contributions at any time. Earnings withdrawn in less than five tax years (Jan 1-Dec31) are taxable. There is no penalty being over 59 1/2.
Dash man is online now   Reply With Quote
Old 05-05-2021, 05:39 PM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
SecondCor521's Avatar
 
Join Date: Jun 2006
Location: Boise
Posts: 5,457
1. Provided your first Roth was opened 5 years ago or more (probably), then no.
2. No. The IRS tracks dollars converted; doesn't matter one whit what happens inside the Roth once the dollars are in there.

As an aside, you don't take distributions from your Roth conversion. You take distributions from your Roth IRA. IRS rules dictate that it's contributions dollars first, then Roth conversion dollars second (oldest to newest), then all other dollars last.
__________________
"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 offline   Reply With Quote
Roth Conversion and Withdrawal
Old 05-05-2021, 05:44 PM   #4
Thinks s/he gets paid by the post
Dash man's Avatar
 
Join Date: Mar 2013
Location: Limerick
Posts: 3,287
Roth Conversion and Withdrawal

Quote:
Originally Posted by goneboarding View Post
Hey all ,

I am considering converting some of my IRA funds to a Roth this year. I plan to do the same in 2022 and 2023, if my current situation sustains. Let's say DW and I decide to convert $80,000 each year.

I am over the requisite 59.5 age threshold and don't expect to have any earned income in 2021.
  1. Is there a five year wait time before we can start taking distributions from my Roth conversion? If so, then for the money converted in 2021, when can I withdraw without penalty - 2026 or 2027?
  2. If the above is true, is it advisable to create a separate account for each year's Roth conversion... to avoid any IRS complications.

Cheers,
GB


Thereís no reason to create separate accounts for each tax year, just separate accounts for you and your wife if applicable. Open a Roth for the first time anytime in 2021 and you can withdraw earnings anytime in 2026, but you can withdraw the conversion contributions anytime because you have to pay the tax in the year of the conversion.
Dash man is online now   Reply With Quote
Old 05-06-2021, 07:23 AM   #5
Dryer sheet wannabe
 
Join Date: Sep 2012
Posts: 24
Thanks for the clarification, all! So...

DW and I already have a Roth account each, created some 15 years ago.
So, I can use my existing Roth account to receive the funds from my regular IRA. Paying the necessary taxes in the year of conversion, of course. Same for my wife.
Since I am over 59.5, all funds in the account (contribution, conversion, earnings) are immediately available without restriction.

Please correct anything I may have misunderstood.

Thanks!
__________________
Due to the rising cost of early retirement... and ammo, no warning shots will be fired. Sorry for the inconvenience.
goneboarding is offline   Reply With Quote
Old 05-06-2021, 07:31 AM   #6
Thinks s/he gets paid by the post
Dash man's Avatar
 
Join Date: Mar 2013
Location: Limerick
Posts: 3,287
Quote:
Originally Posted by goneboarding View Post
Thanks for the clarification, all! So...



DW and I already have a Roth account each, created some 15 years ago.

So, I can use my existing Roth account to receive the funds from my regular IRA. Paying the necessary taxes in the year of conversion, of course. Same for my wife.

Since I am over 59.5, all funds in the account (contribution, conversion, earnings) are immediately available without restriction.



Please correct anything I may have misunderstood.



Thanks!


Correct. You can also open a new Roth if you prefer, as the five year clock is from the opening of the first Roth.
Dash man is online now   Reply With Quote
Old 05-06-2021, 09:03 AM   #7
Recycles dryer sheets
 
Join Date: Feb 2021
Location: Puget Sound
Posts: 456
Interesting, so you can open a second roth and draw conversions back out immediately if you want. I never considered that.
__________________
Class of 2023
skyking1 is offline   Reply With Quote
Roth Conversion and Withdrawal
Old 05-06-2021, 09:31 AM   #8
Thinks s/he gets paid by the post
Dash man's Avatar
 
Join Date: Mar 2013
Location: Limerick
Posts: 3,287
Roth Conversion and Withdrawal

Quote:
Originally Posted by skyking1 View Post
Interesting, so you can open a second roth and draw conversions back out immediately if you want. I never considered that.

We opened our first Roth IRAs years ago at USAA, which have since moved to Schwab. DWís 401k is with Fidelity, so for simplicity when doing Roth conversions from her 401k, she open a new Roth IRA with Fidelity. If desired, she could withdraw all the funds tax free if she desired because sheís over 59 1/2.

https://www.investopedia.com/ask/ans...periodroth.asp
Dash man is online now   Reply With Quote
Old 05-06-2021, 10:51 AM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 29,421
Quote:
Originally Posted by Dash man View Post
Correct. You can also open a new Roth if you prefer, as the five year clock is from the opening of the first Roth.
Since he has had a Roth for over 5 years and is over 59 1/2, there is no 5-year clock for him... he can take it all out the day after the conversion if he wants to.
__________________
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...target 65/35/0 AA TBD
pb4uski is offline   Reply With Quote
Old 05-06-2021, 02:02 PM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
SecondCor521's Avatar
 
Join Date: Jun 2006
Location: Boise
Posts: 5,457
Quote:
Originally Posted by skyking1 View Post
Interesting, so you can open a second roth and draw conversions back out immediately if you want. I never considered that.
The other poster can remove the conversions immediately because they are over 59.5 and their first Roth was opened more than 5 years ago.

Opening a second Roth IRA has nothing to do with it. The IRS considers all Roth IRAs with the same owner to be one single large Roth IRA for tax purposes (*) so there is no tax benefit to multiple IRA accounts.

(*) Well, technically one could do a SEPP from one Roth IRA and have a second in reserve, but SEPPs from Roth IRAs are a colossally bad idea, so practically speaking this exception can be ignored.
__________________
"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 offline   Reply With Quote
Old 06-05-2021, 05:42 PM   #11
Dryer sheet wannabe
 
Join Date: May 2021
Posts: 11
Ok I have a question about this I have a after tax 401k plan is that considered a Roth Account since its after tax money as it doesn't give it a name?
mebden is offline   Reply With Quote
Roth Conversion and Withdrawal
Old 06-05-2021, 05:46 PM   #12
Thinks s/he gets paid by the post
Dash man's Avatar
 
Join Date: Mar 2013
Location: Limerick
Posts: 3,287
Roth Conversion and Withdrawal

Quote:
Originally Posted by mebden View Post
Ok I have a question about this I have a after tax 401k plan is that considered a Roth Account since its after tax money as it doesn't give it a name?


Call it Fred. Itís just a 401k that allows after tax contributions. Should you choose to roll the 401k into an IRA, the after tax contributions can go into a Roth IRA, but not the earnings. Earnings have to go into a tIRA.
Dash man is online now   Reply With Quote
Old 06-05-2021, 06:14 PM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
SecondCor521's Avatar
 
Join Date: Jun 2006
Location: Boise
Posts: 5,457
Quote:
Originally Posted by mebden View Post
Ok I have a question about this I have a after tax 401k plan is that considered a Roth Account since its after tax money as it doesn't give it a name?
It's an after-tax 401(k).

Since all that fancy stuff came along after I FIREd, I am not up to snuff on them. It *might* be that there are some differences between an after-tax 401(k) and a Roth 401(k), because both of those types of accounts can exist at a single employer. What those differences are I have no idea, but they might have to do with contribution limits(?) The idea of rolling the after-tax into a Roth IRA sounds right. The part about earnings having to go into the trad IRA also sounds right.
__________________
"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 offline   Reply With Quote
Old 06-05-2021, 06:28 PM   #14
Dryer sheet wannabe
 
Join Date: May 2021
Posts: 11
Quote:
Originally Posted by SecondCor521 View Post
It's an after-tax 401(k).

Since all that fancy stuff came along after I FIREd, I am not up to snuff on them. It *might* be that there are some differences between an after-tax 401(k) and a Roth 401(k), because both of those types of accounts can exist at a single employer. What those differences are I have no idea, but they might have to do with contribution limits(?) The idea of rolling the after-tax into a Roth IRA sounds right. The part about earnings having to go into the trad IRA also sounds right.
Ok so if anyone out has an idea what I'm aloud to do with this money I'd appreciate it as if I cant roll the whole amount including the profits over to my after tax account I have with TD Ameritrade I'm better of leaving it where its at till I retire as I wont have to pay taxes on it
mebden is offline   Reply With Quote
Old 06-05-2021, 06:43 PM   #15
Thinks s/he gets paid by the post
Dash man's Avatar
 
Join Date: Mar 2013
Location: Limerick
Posts: 3,287
Quote:
Originally Posted by mebden View Post
Ok so if anyone out has an idea what I'm aloud to do with this money I'd appreciate it as if I cant roll the whole amount including the profits over to my after tax account I have with TD Ameritrade I'm better of leaving it where its at till I retire as I wont have to pay taxes on it

As I said earlier, the after tax contributions to a 401k can be rolled into a Roth IRA. The earnings must be rolled into a tIRA along with pretax contributions.

Iíve done it and itís very easy.
Dash man is online now   Reply With Quote
Old 06-05-2021, 06:59 PM   #16
Thinks s/he gets paid by the post
 
Join Date: Jul 2017
Location: Long Island
Posts: 1,564
I rolled my Roth 401(k) initial contributions, with growth, into a Roth IRA. It was reported as a non-taxable event.
__________________
Use it up, wear it out, make it do or do without.
MarieIG is offline   Reply With Quote
Old 06-05-2021, 07:00 PM   #17
Dryer sheet wannabe
 
Join Date: May 2021
Posts: 11
Quote:
Originally Posted by Dash man View Post
As I said earlier, the after tax contributions to a 401k can be rolled into a Roth IRA. The earnings must be rolled into a tIRA along with pretax contributions.

Iíve done it and itís very easy.
I think I'm understanding what your saying Dash but the account is at $50000 and if I rolled it over to my traditional 401K I'd have to pay taxes on it when I with draw it and if I leave it where its at I'd get it all tax free once I hit the 59 1/2 age
__________________
To be Retired or not to be is the Question
mebden is offline   Reply With Quote
Old 06-05-2021, 07:09 PM   #18
Dryer sheet wannabe
 
Join Date: May 2021
Posts: 11
Quote:
Originally Posted by MarieIG View Post
I rolled my Roth 401(k) initial contributions, with growth, into a Roth IRA. It was reported as a non-taxable event.
I thought that was how it was done as its all after tax money so it should be able to stay in a non taxed fund like the Roth IRA I have with TD Ameritrade
__________________
To be Retired or not to be is the Question
mebden is offline   Reply With Quote
Roth Conversion and Withdrawal
Old 06-05-2021, 07:09 PM   #19
Thinks s/he gets paid by the post
Dash man's Avatar
 
Join Date: Mar 2013
Location: Limerick
Posts: 3,287
Roth Conversion and Withdrawal

Quote:
Originally Posted by mebden View Post
I think I'm understanding what your saying Dash but the account is at $50000 and if I rolled it over to my traditional 401K I'd have to pay taxes on it when I with draw it and if I leave it where its at I'd get it all tax free once I hit the 59 1/2 age

You can split the rollover to go into both your tIRA (pretax contributions and all earnings) and your Roth IRA (after tax contributions).

When I rolled my 401k into IRAs, I had a regular 401k that had pretax and after tax contributions, and a Roth 401k component. The regular 401k after tax contributions and Roth 401k contributions plus earnings went into my Roth IRA. My regular 401k contributions, earnings and after tax earnings all went into my Traditional IRA. There were no taxable events.
Just tell the brokerage you want to rollover the funds to what you want to do and they can handle it.

If you would get it all tax free at 59 1/2, then it must be in a Roth 401k. Ask your administrator if youíre not sure.
Dash man is online now   Reply With Quote
Old 06-05-2021, 07:13 PM   #20
Dryer sheet wannabe
 
Join Date: May 2021
Posts: 11
Quote:
Originally Posted by Dash man View Post
You can split the rollover to go into both your tIRA (pretax contributions and all earnings) and your Roth IRA (after tax contributions).

When I rolled my 401k into IRAs, I had a regular 401k that had pretax and after tax contributions, and a Roth 401k component. The regular 401k after tax contributions and Roth 401k contributions plus earnings went into my Roth IRA. My regular 401k contributions, earnings and after tax earnings all went into my Traditional IRA. There were no taxable events.
Just tell the brokerage you want to rollover the funds to what you want to do and they can handle it.
Yes, Dash I already transferred the before tax money out to my traditional IRA the money left in the account is all after tax money so the last time I checked with them they said tell us when you want that transferred into my Roth Ira I have with them
__________________
To be Retired or not to be is the Question
mebden 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
Roth Conversion Withdrawal Sequence Austin704 FIRE and Money 10 03-27-2021 02:53 PM
ROTH conversion (5 years to withdrawal) Jerry1 FIRE and Money 9 02-14-2019 09:43 PM
Roth conversion/withdrawal Question jkern FIRE and Money 20 06-14-2018 06:05 AM
Roth - Traditional - Roth Conversion??? CorporateSoldier FIRE and Money 4 03-10-2011 10:07 PM
Strategy for Roth 401k to Roth IRA conversion and withdrawals sweng85 FIRE and Money 9 04-21-2009 10:28 PM

» Quick Links

 
All times are GMT -6. The time now is 01:56 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2021, vBulletin Solutions, Inc.