Roth IRA 5 year rule... can't find an answer

[always_learning]

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?

[RunningBum]

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. 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.

[SecondCor521]

I agree with RB.

[donheff]

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.

[always_learning]

Quote:

Originally Posted by RunningBum 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 I agree with RB.

Thanks.

[always_learning]

Quote:

Originally Posted by donheff 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.

[gauss]

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]

Quote:

Originally Posted by always_learning 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

[always_learning]

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!