Roth Conversion Taxes Question - 5 Year Rule - Over 59.5

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billy269
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Joined: Mon Nov 18, 2013 2:50 pm

Roth Conversion Taxes Question - 5 Year Rule - Over 59.5

Post by billy269 » Thu Mar 22, 2018 5:17 pm

My uncle is in the following situation:

He has had a Roth IRA open for 15 years and is over 59.5, so he should be exempt from any penalties/fees.

However, he made a conversion of traditional IRA funds (all funds in tIRA were deductible contributions) 2 years ago when he was 58.

Before the conversion, he had $300,000 in his Roth (about $100,000 were contributions, $200,000 was from earnings). He then converted his tIRA (value of around $50,000) to his Roth. Again, this was 2 years ago when he was 58.

He is currently thinking about buying a house and liquidating his IRAs (he has a substantial pension and does not need his IRA money), if he were to do this, how much in taxes would he owe? I know the order of withdrawal for tax purposes goes: contributions, conversions, and then earnings. My main question is would all of his earnings be taxable (even the amount that was in his Roth before the conversion), or would just the earnings on the amount converted be taxable (since these earnings have not met the 5-year rule)?

retiredjg
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Re: Roth Conversion Taxes Question - 5 Year Rule - Over 59.5

Post by retiredjg » Thu Mar 22, 2018 5:25 pm

None of the late conversions matter. If he is over 50.5 and if his Roth IRA itself is over 5 years old, any withdrawal is "qualified". Qualified withdrawals have no tax and no penalty.

ryman554
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Re: Roth Conversion Taxes Question - 5 Year Rule - Over 59.5

Post by ryman554 » Thu Mar 22, 2018 5:27 pm

None of the withdrawals are taxed or penalized.

Your uncle has passed the 59.5 year and the roth has been opened for 5 years.

Because your uncle has paid the tax on tIRA conversions, there is no tax due on conversion basis. There is no penalty due because, while it is under the 5 year from conversion, he is over 59.5. Basically, since he could have withdrawn from tIRA with no penalty, he can withdraw converted funds without penalty.

Because the ROTH account is over 5 years old, all earning are withdrawn penalty (and tax) free.

Enjoy!

billy269
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Re: Roth Conversion Taxes Question - 5 Year Rule - Over 59.5

Post by billy269 » Thu Mar 22, 2018 6:08 pm

Thank you! So in no situation after the age of 59.5 would anything in a Roth IRA be taxable?

Silk McCue
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Re: Roth Conversion Taxes Question - 5 Year Rule - Over 59.5

Post by Silk McCue » Thu Mar 22, 2018 6:32 pm

billy269 wrote:
Thu Mar 22, 2018 6:08 pm
Thank you! So in no situation after the age of 59.5 would anything in a Roth IRA be taxable?
No, that is not correct. The answer given was detailed and specific as to why your Uncle is in the clear. I just found the following thread from 3 weeks ago that provides a very readable breakdown of what and when tax and penalties do and do not come into play. Please review it as it holds a very clear description for you.

viewtopic.php?t=243142

Cheers

retiredjg
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Re: Roth Conversion Taxes Question - 5 Year Rule - Over 59.5

Post by retiredjg » Thu Mar 22, 2018 6:52 pm

billy269 wrote:
Thu Mar 22, 2018 6:08 pm
Thank you! So in no situation after the age of 59.5 would anything in a Roth IRA be taxable?
This is correct since his first Roth IRA contribution was 15 years ago. It would not be correct if his first Roth IRA contribution had been 3 years ago.

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Electron
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Re: Roth Conversion Taxes Question - 5 Year Rule - Over 59.5

Post by Electron » Thu Mar 22, 2018 10:14 pm

Refer to the link below for the latest revision of the Roth IRA Distribution Table.

http://fairmark.com/forum/read.php?2,54 ... #msg-85510
Electron

billy269
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Re: Roth Conversion Taxes Question - 5 Year Rule - Over 59.5

Post by billy269 » Thu Mar 22, 2018 11:00 pm

Thanks again for the help and links, I get it now. This quote from Epsilon Delta is what I was looking for. Why all the articles I looked at didn't just point out that if you are over 59.5 and your Roth has been open for over five years you're in the clear...

" Thu Mar 01, 2018 6:16 pm
Kites, KAWill et. al. bury the lede.

Once you are over 59.5 (or disabled, or dead) and the first Roth you opened is more than 5 years old (From Jan 1st of the year it was established) the Roth is qualified, all withdrawals are tax and penalty free and you don't need to worry about anything else."

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