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Posted by Harlan Lunsford on November 12, 2007, 12:11 am
Please log in for more thread options Vic Dura wrote:
>> I have been told that the income and gains from the assets
>> within a Roth-IRA are, like the assets themselves, not taxed
>> upon withdrawal after "5-year aging". Is this correct?
>>
>> I've also been told that the "5-year aging" of income/gains
>> only applies to the initial assets contributed to the Roth
>> when it is established, and not to subsequent assets added
>> to the Roth at a later date. Is this also correct?
>>
>> Thanks for any comments. I really need a reality check on
>> this.
> Excuse me for replying to my own post, but I don't think I
> did a good job of presenting my question.
>
> What I am considering is converting an existing Traditional
> IRA to a Roth by transferring 15% or 20% per year of the
> Traditional to the Roth.
>
> What I want to know is are the earnings from ALL
> conversions from the Traditional to the Roth subject to
> the 5-year aging rule, or does the rule just apply to the
> FIRST conversion?
>
> Item-4 below is what's confusing me (quoted from
> http://invest-faq.com/cbc/ret-plan-roth-ira.html )
>
> ===================
>
> 1. Contributions can be withdrawn tax-free and
> penalty-free at any time.
>
> 2. There is 5-year clock 'A'. Clock 'A' starts on the
> first day of the first tax year in which any Roth IRA is
> opened and funded.
>
> 3. Earnings can be withdrawn tax-free and penalty-free after
> Clock 'A' hits 5 years and a qualifying event (such as
> turning 59.5, disability, etc.) occurs.
>
> 4 Additional 5-year clocks 'B', 'C', etc. start running for
> each traditional IRA that is converted to a Roth IRA.
> Each clock applies just to that conversion.
>
> ===================
>
> Item-4 seems to be referring to multiple Traditionals
> converted to multiple Roths, but I'm not sure.
Maybe this will lessen your confusion. When you convert,
you pay the tax. Now that the money is in a new and ROTH
account, the clock starts ticking. Don't confuse what your
IRA earns before the conversion and think it mixes with what
the ROTH will earn after conversion.
ChEAr$,
Harlan
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