Roth IRA Conversion after 59 1/2
Am I correct in saying an IRA to Roth IRA conversion done after 59 1/2 is no longer subject to the 5 year rule. Any funds (including gains) after conversion are completely accessible to the client tax free. So if a client over 59 1/2 wanted to use a Roth conversion to create a tax liability, they could without restriction to those funds. Granted anyone below 59 1/2 would suffer the 5 year holding rule. But what if someone does a conversion at 58? Are they subject to the 5 yr rule until they reach 59 1/2 and then no longer?
Permalink Submitted by Alan - IRA critic on Fri, 2018-04-13 20:26
There are two 5 year holding periods for a Roth IRA. Converted amounts must be held 5 years to avoid the 10% penalty, but that requirement ends at 59.5. The other 5 year holding period is for the gains in the total Roth including gains on conversions to be tax free. That period starts in the year of the first Roth contribution of any type. Therefore, a conversion done after 59.5 is exempt the penalty holding period but if that conversion is the first Roth contribution of any type, earnings on the conversion do not become tax free until 5 years is completed. Otherwise, if the first Roth contribution was made prior to 2014 and Roth owner is now over 59.5, the entire Roth is tax free and fully qualified. At 59.5 all conversions done earlier no longer have to be held for 5 years to avoid the 10% penalty.