Ernie Klein <ecklein[at]pacbell.net> writes:

- quote -

There are two five-year clocks.

The first is a one-time five-year clock and that starts
Jan 1 of the year you first open a Roth IRA account.
Once the clock runs out, it remains satisfied forever.

The other clock is on conversions from a trad IRA to
a Roth IRA. This clock only matters if you're not
over 59.5 when you do the conversion. Every single
conversion carries its own, separate 5-year clock.
When you do a conversion, you pay a 10% penalty if
you withdraw that conversion before five years have
gone by (unless you're over 59.5).

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

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ybotkaSPM[at]cinci.rr.com (tobe) posted:
- quote -

Your entire quote was from a section of Pub 590, under the
heading, "Additional Tax on Early Distributions." My
comments were directed to your situation, which you
summarized later, as:

- quote -

And the answer is: Yes. Here's a link to the exact on-line
clarification of my response, in the form of a handy chart
(from page 61 of the 2005 edition of Pub 590):

http://www.irs.gov/publications/p590/15160x04.html

This graphic depiction clearly illustrates my explanation
that, being age 60+, you do not have to worry about taxable
distributions of funds which have been properly contributed
(or "rolled over") into your Roth IRA. As I stated, you
will have alread paid tax on those funds -- except for gains
-- when you made the conversion (or at least, the funds will
have been "exposed" to taxation).

I hope this clears up my response for you, and others.

Bill

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Ernie Klein wrote:
- quote -

Like traditional IRAs, the IRS considers them as a total, no
matter how many sub-accounts you might have. The qualifying
5-year holding period begins with the FIRST Roth IRA you
contribute to, regardless of later contributions.

- quote -

Conversion of a traditional IRA to a Roth IRA starts a
different 5-year holding period, one that is specific to
EACH Roth conversion you make. Once you turn 59-1/2, these
holding periods become moot (i.e. do not apply), although
the original "qualifying" holding period applies at any age.

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"John H. Fisher" <TaxService[at]aol.com> wrote:
- quote -

Could you clarify that a bit? You said to "a Roth", does
that mean to any Roth?

I am in much the same position as tobe. I have had a Roth
for many years in a Credit union. I would like to open a
separate Roth in a brokerage account where I have a
traditional IRA which I would like to start converting and
the investment choices are much better with the brokerage
account.

Does the 5 year wait start over for each new account or have
I already met that requirement with my existing Roth?

--
-Ernie-

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Bill wrote:

[...]
- quote -

The taxpayer is talking about a conversion -- the five year
clock starts separately for each conversion, regardless of
when the Roth was originally funded. I alluded to this in
my first response which somehow didn't make it in with the
rest of the first-responder batch.

So to summarize: over 59.5, you're home free. Otherwise,
you can take out your contributions, but not earnings,
penalty-free if they've been in there for at least five
years, with conversions having their own five year clock
separate from regular contributions.

-Mark Bole

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Bill wrote:
- quote -

I guess I am confused by the following from IRS Publication
590:

"Distributions of conversion contributions within 5-year
period. If, within the 5-year period starting with the
first day of your tax year in which you convert an amount
from a traditional IRA to a Roth IRA, you take a
distribution from a Roth IRA, you may have to pay the 10%
additional tax on early distributions. You generally must
pay the 10% additional tax on any amount attributable to the
part of the amount converted (the conversion contribution)
that you had to include in income. **A separate 5-year
period applies to each conversion.** See Ordering Rules for
Distributions, later, to determine the amount, if any, of
the distribution that is attributable to the part of the
conversion contribution that you had to include in income.

"The 5-year period used for determining whether the 10%
early distribution tax applies to a distribution from a
conversion contribution **is separately determined for each
conversion**, and is not necessarily the same as the 5-year
period used for determining whether a distribution is a
qualified distribution. See What Are Qualified
Distributions, earlier.

"For example, if a calendar-year taxpayer makes a conversion
contribution on February 25, 2000, and makes a regular
contribution for 1999 on the same date, the 5-year period
for the conversion begins January 1, 2000, while the 5-year
period for the regular contribution begins on January 1,
1999." [asterisks added for emphasis].

Is this 'rule' overridden because I an over 59 1/2, and have
an existing Roth IRA that is > 5 years old??

Thanks in advance.

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tobe wrote:

- quote -

No, that is not the case. You are still taxed on the
conversion, you simply happen to have a credit which you
estimate will be approximately the same as the tax you owe.
What's more relevant is the tax bracket that your converted
money will be taxed at. Generally, you don't want to
convert so much that it pushes you into a higher tax
bracket.

- quote -

No, you meet the over-59.5 exception. Otherwise the answer
would be yes.

-Mark Bole

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tobe wrote:

- quote -

No, that is NOT true. Since you are already over 59-1/2,
there is no longer an early withdrawal penalty. All your
future withdrawals (including earnings) are now tax and
penalty free for the rest of your life.

- quote -

Not necessary. All future withdrawals are tax-free,
regardless of which account they come from. By turning
59-1/2 you have already eliminated most future paperwork.

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ybotkaSPM[at]cinci.rr.com (tobe) posted:

- quote -

No. That only applies to the _initial establishment_ of a
Roth IRA. Once established for 5 years, you are free to
withdraw funds as you wish -- _assuming_ you are over age 59
1/2.

Remember: You will have paid taxes on any funds you have
deposited in a Roth (theoretically -- at least upon
distribution, they were "exposed" to taxation). Therefore,
you completely _avoid_ taxation on only the gains, or
earnings, from those funds. That's a desirable benefit, but
it was wisely determined that once the Roth was established
for 5 years, the record-keeping would become burdensome if
individuals had to segregate future contributions.

- quote -

No need, as noted above. You should only have one Roth IRA
account.

Bill

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tobe wrote:

- quote -

You would pay income tax, and a penalty tax, on other than a
qualified distribution, for only that which exceeded your
basis in the Roth (accumulations in your account). Your
withdrawn contributions, under current law, are not subject
to either income or penalty tax EVER.

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

The payment or distribution is:

Made on or after the date you reach age 59=BD,

Made because you are disabled,

Made to a beneficiary or to your estate after your death, or

One that meets the requirements listed under First home
under Exceptions in chapter 1 (up to a $10,000 lifetime
limit).

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I am considering converting some rollover IRA funds to Roth
IRA this year (because of some education tax credits, which
would make the tax on the conversion essentially zero).
I am 60 years old.
I have other Roth IRA funds from regular contributions,
beginning more than 5 years ago.

Is it true that, if I convert the Rollover IRA to a Roth
IRA, I cannot withdraw any of that converted money for 5
subsequent years without a 10% penalty?

If so, should I open a separate Roth IRA for the conversion
to simplify paperwork in the future?

Thanks in advance.

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