Roth Conversions and the 5 Year Holding Rule
I am 66 now and have $500,000.00 in a IRA. I have been converting $50,000.00 each year to a Roth IRA to limit my Tax Liabilities. My Account is with Vanguard and they advised they do not track which earnings meet the Five Year IRS Holding rule for Roth Conversions. Vanguard stated it is up to me to track which funds earnings have met the Five Year IRS Holding rule and which ones have not. My question is if I were to be audited by the IRS. How can I verify to the IRS that my Roth earnings have met the Five Year IRS Holding rule? What proof would the IRS require?
Terry Says
You’re making way too big a deal out of this. Read the article below — and scroll down to get the complete explanation of the 5-year rule. You must not withdraw ANY earnings until 5 years from when you contributed to the first Roth IRA. Then all other Roth accounts are “grandfathered” and you can stop keeping track!
And I’m assuming that you have considered everything when you decided to do these conversions. You know the additional income from the conversion will impact your Medicare Part B premiums?
And you’re using money OUTSIDE the IRA to pay the taxes each year??
