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Author: vision1220 Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75669  
Subject: Roth question Date: 1/7/2014 10:24 AM
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I opened a Roth IRA about 4 years ago and am thinking of rolling over a few of my traditional IRA's into it but have a question regarding when I can withdraw some of those funds. I understand the 5 year waiting period but is that from the time of inception or when it was rolled into the account? Simply put if I roll over an account today can I withdraw next year or do I have to wait 5 years?
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Author: Raladic Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74066 of 75669
Subject: Re: Roth question Date: 1/7/2014 1:44 PM
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It's from the time of rollover for the funds that you rolled over.

If you had funds in the accounts previously, you could withdraw them without regards to the newly rolled over funds (again, if they themselves were rollover funds, then with respect to their own 5 year period, if they were straight contributions, you can always take the contributions out).

Be aware of potential 10% penalties if you're under 59 1/2 depending on what funds you withdraw (you can take out contributions penalty free, but not gains).

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Author: BruceCM Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74067 of 75669
Subject: Re: Roth question Date: 1/9/2014 12:36 AM
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Each Roth conversion has its own 5 year period until the conversion amount becomes part of the existing Roth's basis....or....your attaining age 59.5, which ever comes first.

However, a qualified Roth withdrawal (no tax on withdrawals) requires that you've held any Roth at least 5 years AND you've attained age 59.5 (or you die or become disabled or use the withdrawal as part of the down payment on a principal residence when you haven't owned a home in the past two years).

BruceM

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Author: vision1220 Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74070 of 75669
Subject: Re: Roth question Date: 1/9/2014 4:39 PM
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Thanks Bruce...I am over 59 1/2 and have another question
as I mentioned I opened up my Roth over 4 years ago in a Wells Fargo account but moved it to an Etrade account about 2 years ago. Does that change anything?

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Author: BruceCM Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74073 of 75669
Subject: Re: Roth question Date: 1/11/2014 2:14 AM
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No, it doesn't matter where your Roth IRAs are...only that you open and funded a Roth to begin the 'clock'. In your case' if you opened and funded your first Roth IRA sometime during 2010 (over 4 years ago), and you are over 59.5, your first qualified (tax free) withdrawal will be january 1, 2015.

BruceM

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Author: FoolishGardner Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74243 of 75669
Subject: Re: Roth question Date: 2/12/2014 1:42 PM
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So if a person that has had a Roth IRA for 10 years turns 59.5, then converts part of a traditional IRA to add to the existing Roth, there is no longer the five year waiting period?

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74244 of 75669
Subject: Re: Roth question Date: 2/12/2014 2:19 PM
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So if a person that has had a Roth IRA for 10 years turns 59.5, then converts part of a traditional IRA to add to the existing Roth, there is no longer the five year waiting period?

There are 2 five year waiting periods related to Roth IRA.

To have tax-free withdrawals of earnings, the Roth IRA itself needs to have been open for 5 years. (AND the owner has to be at least 59.5 years of age.)

To have penalty-free withdrawals of conversions from a traditional IRA, there is a 5 year waiting period after the conversion. An alternative to this 5 year wait is reaching 59.5 years of age.

So in your situation, the account owner can have tax free withdrawals of earnings because they have reached 59.5 AND the account has been open for at least 5 years. The conversion can be withdrawn penalty-free because they are over 59.5.

--Peter

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Author: BruceCM Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74245 of 75669
Subject: Re: Roth question Date: 2/12/2014 3:52 PM
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FoolishGardner
Yes, that's right.
The reason for the 5 year wait on a Roth conversion before the conversion amount can be mixed in with the basis of the Roth and withdrawn at any time without tax or penalty...for those not yet 59.5, is because were this not so, one could do a Roth conversion and then immediately withdraw the conversion as Roth basis, as a work-around to the 10% early withdrawal penalty on the TIRA. But after he IRA owner attains age 59.5, there is no longer a 10% penalty on TIRA withdrawal anyway, so the 5 year holding period for the conversion would no longer matter.

Here is the easy way to keep from getting these two 5 year rules confused:

For a withdrawal of a Roth conversion to be penalty free, one must have held the conversion amount in their Roth for 5 years OR reached age 59.5, whichever comes SOONER.

For earnings inside of a Roth to be withdrawn tax & penalty free (i.e. be a 'qualified withdrawal'), one must have held any Roth for at least 5 Years AND have attained age 59.5, whichever comes LATER.

And keep in mind that as I'd mentioned earlier, there are reasons other than reaching age 59.5 for exemption from the 10% early withdrawal penalty, such as death/disability, a first time home buy, qualifying educational expenses, etc.

Did someone say Roth IRA's are easy?

BruceM
Author: "IRA: A Quick Reference Guide"

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Author: FoolishGardner Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74246 of 75669
Subject: Re: Roth question Date: 2/12/2014 5:23 PM
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Thank you Peter and Bruce for your responses. I am still a few years away from retirement, but I am trying to do some advance planning. My thought was that once in retirement, I would convert $20 - $30,000 at the beginning of each calendar year, with the idea that I may need some but not all of it for that yeasr's living expenses. Whatever wasn't used would build up a reserve for a future need for a substantial cash outflow. I expect that I will be at least 59.5 years when I retire, so it's helpful to know that I would be able to access the full amount right away if the need were there.

As I type this response, I am beginning to think that I have already addressed this in the past, but I couldn't find my old posts. I am grateful that I can ask a second time.

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Author: rsta1 Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74252 of 75669
Subject: Re: Roth question Date: 2/13/2014 8:57 AM
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I do a back door Roth conversion every year. If I were to withdraw before 5 years form the last back door conversion, do I need to somehow designate I am withdrawing from funds that have met the 5 year requirement? Is it just computed FIFO? This seems like a traceability nightmare principal vs gains by year.

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Author: BruceCM Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74284 of 75669
Subject: Re: Roth question Date: 2/17/2014 3:35 PM
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rsta1
Assuming this is not a qualified withdrawal and you are not yet 59.5 or have met one of the other exceptions to the 10% early withdrawal penalty, then the withdrawals are ordered and really not that difficult, and there isn't any dollar tracing...only totals.

Roth IRAs do not draw down like a TIRA or retirement plan with basis, from which withdrawals must be prorated for the basis. With a Roth, its basis out first. So if you (or your IRA custodian if you've had your Roth IRA at only one custodian) have kept good records, you'll know how much you've contributed to your Roth over the years (the basis) and also how much you've withdrawn (from past forms 1099R and filed forms 8606). This net contribution basis remains unchanged until you make another direct contribution.

The subsequent Roth conversions you do will stack the conversion amount on top of this net basis....where it will sit until you either reach 59.5 at which time in then mixes in with the existing contribution basis or you withdraw it (after having withdrawn all contribution basis its sitting on). Each Roth conversion you do will stack on top of the previous conversion. If you do back-doors every year, you'll have conversions stacked 5 high at any given time!

If you make withdrawals before age 59.5, you withdraw the contribution basis first (bottom of the stack), then you'll withdraw the oldest conversion next and so on. The withdrawal of the conversion basis will generate a 10% early withdrawal penalty until you reach 59.5 or have another exception. Once all the 'bases' have been withdrawn, then your into earnings, and that will come out with the 10% penalty AND be includable as income.

The takeaway on this, is to keep good records on....
1. Past direct contributions: Forms 5498
2. Past non-qualified withdrawals: Forms 1099R and 8606
3. The amount and year of each conversion contribution: Form 5498

The light at the end of the tunnel? When you've reached age 59.5 and have held any Roth at least 5 years, then all withdrawals are qualified, all conversions become part of your qualified Roth and all the above becomes moot.

BruceM

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