Roth conversions held at separate institutions

[FargoI]

Thank you to all for the plethora of helpful information shared in these forums and thank you in advance for helping obtain clarity on this topic.


> age 59.5.
< age 73.
- Multiple retirement account held by two financial institutions hereafter "A" and "B"
- Retirement fund include funds from employer sponsored accounts and voluntary contribution accounts
- One Roth conversion account held at "A" and one at "B"
- Roth "A" opened in ~ 2023
- Roth "Opened in 2026
-All converted amounts were invested in full, with taxes paid from non-retirement accounts directly to the IRS

Does 2023 become the basis for counting down the five-year rule for all subsequent conversions regardless of the holding institution or does each conversion create its' own "vintage?"

If all accounts pick up the earliest vintage date, how does the IRS know when each converted account has reached "maturity" and is therefore no longer subject to taxation upon withdrawal, death etc.? Along the same lines, how would institution A and B know the first instance of any Roth conversion?

Is there a material benefit in combining all of one's Roth accounts into one account prior to RMD (versus not having all of one's eggs in the same basket)?

Thanks again for sharing your knowledge and experience.

 

[SevenUp]

> age 59.5.
...
Does 2023 become the basis for counting down the five-year rule for all subsequent conversions regardless of the holding institution

Yes, due to the specified age.

If all accounts pick up the earliest vintage date, how does the IRS know when each converted account has reached "maturity" and is therefore no longer subject to taxation upon withdrawal, death etc.? Along the same lines, how would institution A and B know the first instance of any Roth conversion?

They don't unless they audit you. Up to you to follow the law.

Is there a material benefit in combining all of one's Roth accounts into one account prior to RMD (versus not having all of one's eggs in the same basket)?

Roth accounts don't have RMDs.

Combining to one brokerage does simplify things.

 

[FargoI]

Yes, due to the specified age.

They don't unless they audit you. Up to you to follow the law.

Roth accounts don't have RMDs.

Combining to one brokerage does simplify things.

Understood there are no RMDs on a Roth, however isn't there a five-year retention rule to enjoy that status?

 

[engineernerd]

According to IRS Publication 590-B, if you are at least 59.5 years old the only 5-year rule you have to worry about is the one where you have to have had one Roth in your name, with some funds in it, for at least 5 years. The conversion-specific 5-year rules only apply if you are under 59.5 when you wish to withdraw funds.

Link to one of my posts in a very lengthy thread about the 5-year rule(s):

Roth conversion 5-year rule?

Check the Fidelity link in post #5. There is a separate 5 year holding period for each 5 year Roth IRA conversion.

www.early-retirement.org

Whether you combine your accounts or keep multiple ones is entirely up to you, I know of no advantages to either choice that would be hard to find out about.

 

[SecondCor521]

Thank you to all for the plethora of helpful information shared in these forums and thank you in advance for helping obtain clarity on this topic.


> age 59.5.
< age 73.
- Multiple retirement account held by two financial institutions hereafter "A" and "B"
- Retirement fund include funds from employer sponsored accounts and voluntary contribution accounts
- One Roth conversion account held at "A" and one at "B"
- Roth "A" opened in ~ 2023
- Roth "Opened in 2026
-All converted amounts were invested in full, with taxes paid from non-retirement accounts directly to the IRS

Does 2023 become the basis for counting down the five-year rule for all subsequent conversions regardless of the holding institution or does each conversion create its' own "vintage?"

No it doesn't; each conversion has it's own 5-year holding rule.

The earlier poster mentioned 59 1/2, but the test for a qualified (i.e. tax- and penalty-free distribution) is two fold: the taxpayer must be 59 1/2 *and* have opened a Roth account at least five years ago. See IRS Pub 590-B, Figure 2-1, first box.

You meet the first half of that test but you won't meet the second half of that test until 1/1/2028. After that date, all withdrawals will be tax- and penalty-free. Before that date, you'll need to keep track of your conversions and their timing to comply with the 5-year conversion holding rule.

It's confusing, because there are two five year rules - one for conversions, and one for qualified withdrawals. You have to apply and follow both as they apply to your facts and circumstances.

If all accounts pick up the earliest vintage date, how does the IRS know when each converted account has reached "maturity" and is therefore no longer subject to taxation upon withdrawal, death etc.? Along the same lines, how would institution A and B know the first instance of any Roth conversion?

The taxpayer is expected to comply on the honor system. However, both institutions are required to report Roth conversions to the IRS on Forms 1099-R and Form 5498, so in theory the IRS could work out the math.

Is there a material benefit in combining all of one's Roth accounts into one account prior to RMD (versus not having all of one's eggs in the same basket)?

Simplification is nice IMHO. I don't buy the "eggs in the same basket" argument but some people do.

Thanks again for sharing your knowledge and experience.

 

[FargoI]

According to IRS Publication 590-B, if you are at least 59.5 years old the only 5-year rule you have to worry about is the one where you have to have had one Roth in your name, with some funds in it, for at least 5 years. The conversion-specific 5-year rules only apply if you are under 59.5 when you wish to withdraw funds.

Link to one of my posts in a very lengthy thread about the 5-year rule(s):

Roth conversion 5-year rule?

Check the Fidelity link in post #5. There is a separate 5 year holding period for each 5 year Roth IRA conversion.

www.early-retirement.org

Whether you combine your accounts or keep multiple ones is entirely up to you, I know of no advantages to either choice that would be hard to find out about.

Thank you for this information!

 

[engineernerd]

Thank you for this information!

SecondCor521 is correct that you haven't met the 5-year rule, hopefully you won't have to withdraw funds until you do meet it.

 

[SevenUp]

Understood there are no RMDs on a Roth, however isn't there a five-year retention rule to enjoy that status?

No, there isn't. See the colorful chart describing how Roth Distributions are treated.

 

[SevenUp]

No it doesn't; each conversion has it's own 5-year holding rule.

The earlier poster mentioned 59 1/2, but the test for a qualified (i.e. tax- and penalty-free distribution) is two fold: the taxpayer must be 59 1/2 *and* have opened a Roth account at least five years ago. See IRS Pub 590-B, Figure 2-1, first box.

You meet the first half of that test but you won't meet the second half of that test until 1/1/2028. After that date, all withdrawals will be tax- and penalty-free. Before that date, you'll need to keep track of your conversions and their timing to comply with the 5-year conversion holding rule.

Perhaps it's just semantics, but because there is no "sliding scale" (e.g., there is no difference between a 2-year old conversion and a 3-year old conversion, etc.) the only date that matters is the 2023 opening.

Before 1/1/2028, all conversions will be <5 years old. After that, all distributions will be qualified regardless of when a conversions was done.

 

[FargoI]

Perhaps it's just semantics, but because there is no "sliding scale" (e.g., there is no difference between a 2-year old conversion and a 3-year old conversion, etc.) the only date that matters is the 2023 opening.

Before 1/1/2028, all conversions will be <5 years old. After that, all distributions will be qualified regardless of when a conversions was done.

Your explanation is easy to comprehend, thank you. Part 2... how does the IRS know if Roth withdrawals (from one or more institutions) met the five-year, post 595, holding period rule?

 

[SevenUp]

Part 2... how does the IRS know if Roth withdrawals (from one or more institutions) met the five-year, post 595, holding period rule?

They don't unless they audit you. Up to you to follow the law.

 

[Al18]

There is a form the financial institution sends every year you make a Roth IRA contribution or conversion listing the amount contributed or conversion and the account balance end of year

 

[SecondCor521]

Perhaps it's just semantics, but because there is no "sliding scale" (e.g., there is no difference between a 2-year old conversion and a 3-year old conversion, etc.) the only date that matters is the 2023 opening.

Before 1/1/2028, all conversions will be <5 years old. After that, all distributions will be qualified regardless of when a conversions was done.

Good point, and I agree with you.

 

[orbops]

There is a form the financial institution sends every year you make a Roth IRA contribution or conversion listing the amount contributed or conversion and the account balance end of year

form 5498

 

[Acollector]

Understood there are no RMDs on a Roth, however isn't there a five-year retention rule to enjoy that status?

For interest earned only. You principal should be free to take out/back anytime….