Ask Terry Questions roth conversion from an IRA

roth conversion from an IRA

By Terry Savage on May 22, 2019 | Financial Planning / Retirement

I’m over 70 yrs old, if I roll an IRA to a Roth, I understand the 5 year rule, and the taxes due, but the question I have is ” can I withdraw the initial monies(lets say I rolled over $5,000) and not be penalized ” but leave any gains I made still in the Roth?

Terry Says

You don’t want to do this!  When you convert to a Roth, you pay taxes on ALL the money you convert. And you should have money outside your IRA to pay the taxes. Now, I can understand that you might not want to be required to make withdrawals, so a Roth would be attractive.  But if you are going to need the money in retirement, you might as well  spread out the withdrawals over your retirement years.  Moreover, if you do convert to a Roth, after age 70-1/2, you must first take that year’s mandatory taxable distribution.

Specifically to your question — – Yes, you could convert and pay the taxes — assuming you believe that the year you do the conversion will be a very low tax rate.  And then you could withdraw the initial contributions — but not the earnings for 5 years.  Here are the specifics of the 5-year rule:

For this rule, the five-year period begins the first day of the tax year in which you converted money from a traditional IRA (or did a rollover from a qualified retirement plan) to your Roth IRA. For example, if you do a conversion in the month of May, the rule for that conversion begins on the prior Jan. 1. Each conversion or rollover you make is subject to a separate five-year waiting period.

But again, the real point of a Roth conversion at your age is to keep the money growing tax deferred to pass on to your heirs, without RMDs.

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