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Posted by tobe on November 17, 2006, 11:30 pm
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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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Posted by John H. Fisher on November 18, 2006, 11:48 pm
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tobe wrote:
> 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?
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withdrawn contributions, under current law, are not subject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).
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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Posted by Ernie Klein on November 19, 2006, 9:55 pm
Please log in for more thread options > tobe wrote:
>> I have other Roth IRA funds from regular contributions,
>> beginning more than 5 years ago.
> 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
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-
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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Posted by Rich Carreiro on November 20, 2006, 10:48 pm
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> Does the 5 year wait start over for each new account or have
> I already met that requirement with my existing Roth?
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@animato.arlington.ma.us
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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Posted by Bill on November 18, 2006, 11:48 pm
Please log in for more thread options ybotkaSPM@cinci.rr.com (tobe) posted:
> 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?
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.
> If so, should I open a separate Roth IRA for
> the conversion to simplify paperwork in the
> future?
No need, as noted above. You should only have one Roth IRA
account.
Bill
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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