Roth IRA question

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lawman

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I opened a Roth IRA 20 years ago with a $5000.00 deposit..I've made no contributions since then. Today I moved $20,000 shares from my brokerage money market account into the Roth..When can I draw that out without a penalty?
 
How does one move $20,000 into a Roth when the 2023 contribution limit is $7,500? Was this a Conversion of money from a traditional IRA to your Roth?
 
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lawman said:
SORRY..I misspoke..I moved it from my traditional IRA to my Roth IRA. Does the 5 year rule apply to the money I moved today?
Click to expand...
A five year rule applies, but perhaps not the 5 year rule that concerns you. :)

Because you are >59.5 years old and have had a Roth IRA for more than 5 years, any withdrawal from a Roth IRA is tax and penalty free for you.
 
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I ran across a good discussion yesterday from Ed Slott yesterday. While I thought I understood the 5 year rule, he says it is actually 2 clocks. This cleared it up for me.
https://www.irahelp.com/slottreport/turning-back-clocks-and-revisiting-roth-ira-five-year-clocks
Says there are 2 clocks, first is to determine if you pay a 10% penalty for early withdraw. Since you are past the 59.5 your clear on this one.

Second click is to determine if you pay taxes on the withdraw. Since you have had a Roth IRA for over 5 years, any Roth, it would not be subject to taxes.
 
RetireBy90 said:
I ran across a good discussion yesterday from Ed Slott yesterday. While I thought I understood the 5 year rule, he says it is actually 2 clocks. This cleared it up for me.
https://www.irahelp.com/slottreport/turning-back-clocks-and-revisiting-roth-ira-five-year-clocks
Says there are 2 clocks, first is to determine if you pay a 10% penalty for early withdraw. Since you are past the 59.5 your clear on this one.

Second click is to determine if you pay taxes on the withdraw. Since you have had a Roth IRA for over 5 years, any Roth, it would not be subject to taxes.
Click to expand...

Thank you for sharing the link to Ed Slott’s explanation. It cleared up a lingering question that I had.
 
lawman said:
SORRY..I misspoke..I moved it from my traditional IRA to my Roth IRA. Does the 5 year rule apply to the money I moved today?
Click to expand...

No, because you are over 59-1/2 and the Roth account has been open more than 5 years.
 
Agreed that you should have unrestricted access to all $25,000 without penalty because this would be a qualified Roth distribution (code Q on 1099-R).

It is only when you take non-qualified distributions that you need to worry about the basis in contributions, conversions and the various 5 year conversion clocks.

Being age 59 /12 or older and having your first Roth IRA opened at least 5 years ago will ensure all your future Roth IRA distributions are qualified. There are other, less common ways to achieve this status also (ie disability).

For a married couple, each individual would need to determine separately if they have attained Roth qualified status yet I believe.

Even if for some reason down the line a Roth IRA custodian does not code your 1099-R with the code Q, you can still fix this on your tax return as long as you know that you meet the requirements for a qualified Roth distribution.

This could happen if the Roth IRA custodian does not know that you are age 59 1/2 and have had your first Roth IRA opened at least 5 years ago. In these cases you may receive a code J or Code T on the 1099-R instead of the code Q, but as described above you can fix it.
 
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Roth IRA 5 year rule

In 2020 we decided to sell some rental property and we put the proceeds into a TD Ameritrade account. Somewhere I was reading about the IRA rule of 5 years and decided to start the clock with a $100 deposit into a Roth IRA. We just retired last year and are using the rule of 55 to withdrawal funds from my 401K penalty free. At the end of 2024 I will be 59.5 and plan to pull all funds (pre-tax and roth) from my 401K and put them into an IRA and Roth IRA. If I decide to put that money somewhere other than TD Ameritrade (now Schwab actually) do I need to prove to them that my clock started 3 years earlier? Or this just the honor system but be prepared to prove that if ever audited?
 
You have the records for when the Roth was started. You are good. FYI, this is not an audit red flag.
 
Kendoo said:
In 2020 we decided to sell some rental property and we put the proceeds into a TD Ameritrade account. Somewhere I was reading about the IRA rule of 5 years and decided to start the clock with a $100 deposit into a Roth IRA. We just retired last year and are using the rule of 55 to withdrawal funds from my 401K penalty free. At the end of 2024 I will be 59.5 and plan to pull all funds (pre-tax and roth) from my 401K and put them into an IRA and Roth IRA. If I decide to put that money somewhere other than TD Ameritrade (now Schwab actually) do I need to prove to them that my clock started 3 years earlier? Or this just the honor system but be prepared to prove that if ever audited?
Click to expand...

Technically you wouldn't be required to, but I would try to communicate that to them (with documentation) if they will accept it. Otherwise they may give you a code T distribution code on your 1099-R instead of a code Q for a qualified distribution if you haven't had the Roth IRA with them for 5 years.

Either way, I think you can fix it on your tax return, but why set yourself up for more hassle. I wrote some more about this today in another thread. See post #17 in this thread.

-gauss
 
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Where is this code Q? My Roth has been open for over 10 years and I am 62. I looked at the 1099 from last year and I don't see a code Q. There is a code 7 for normal distribution
 
Romer said:
Where is this code Q? My Roth has been open for over 10 years and I am 62. I looked at the 1099 from last year and I don't see a code Q. There is a code 7 for normal distribution
Click to expand...

Last year my Roth distribution was reported on my 1099-R in box 7 as a Q. I was age 67.

I took my first distribution at age 61 and looking at the 1099 for that year it was a Q in box 7.
 
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Romer said:
Where is this code Q? My Roth has been open for over 10 years and I am 62. I looked at the 1099 from last year and I don't see a code Q. There is a code 7 for normal distribution
Click to expand...

If that 1099-R is actually for a withdrawal from a Roth IRA, your account custodian screwed up. The instructions for how to fill out a 1099-R specifically say "Do not use Code 7 for a Roth IRA." (ref https://www.irs.gov/pub/irs-pdf/i1099r.pdf)

You should check the account number on the 1099-R and make sure it's for the account you think it's for. If you did a Roth Conversion, then the 1099-R is for the IRA you converted from, and in that case the 7 is correct. If you also did a Roth withdrawal in the same year, you should have a separate 1099-R for that account with a code Q.

If there is an error, you also need to check your tax return and make sure it wasn't treated as taxable income, which is what the 7 indicates. There should also be a form 8606 in your tax return.
 
Threads merged.
 
interesting. It said code 7 and the IRS accepted it. If they come back latter I will address it.

I will make sure the 1099 says Q this year

My records show I opened it in 2014
 
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