Roth IRA and 5 Year Rule
Earnings from a Roth IRA cannot be distributed penalty and tax-free unless the owner is 59 1/2 AND the 5 year rule has been met. If an individual opened a Roth IRA in 2012, but has since rolled over the entire balance of that Roth IRA into a separate Roth IRA that has only been open since 2019, do they still get to use 2012 as the first year of contribution even though the account is closed? If so, what proof should they keep to ensure the IRS doesn’t argue otherwise?
Permalink Submitted by Alan - IRA critic on Wed, 2022-06-15 20:50
The 5 year holding period starts with the first Roth contribution or conversion that is not an excess contribution. After that it does not matter whether the account is transferred or even if it is closed. Therefore, 2012 is treated as the first year for a Roth IRA even if the Roth owner withdrew all the money a couple years later and did not even maintain a Roth IRA for some years. Normal documentation to retain would be Form 5498 for any year that is at least 5 years prior to the present, or if the 5498 has been lost, a copy of a statement from the Roth custodian showing a balance at least 5 years old. Note that the IRS almost never asks for documentation. They also received the 5498.