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Happy TMF ballo0on day, Peter!

Nice bundle of colors you're floating there.
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From this site:

https://www.investopedia.com/roth-ira-conversion-rules-47704...

Converting all or part of a traditional IRA to a Roth IRA is a fairly straightforward process. The IRS describes three ways to go about it:


A rollover, in which you take a distribution from your traditional IRA in the form of a check and deposit that money in a Roth account within 60 days.
A trustee-to-trustee transfer, in which you direct the financial institution that holds your traditional IRA to transfer the money to your Roth account at another financial institution.
A same-trustee transfer, in which you tell the financial institution that holds your traditional IRA to transfer the money into a Roth account at that same institution.
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Thanks, mschmidt. that does seem very simple, I just need Fido to do a trustee to trustee transfer,good to know exactly how to phrase it when I call Fidelity back. thanks again !
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What maybe the problem is that you are attempting a trustee-to-trustee conversion and rollover from a TIRA to a ROTH. The two step process eliminates the conversion and rollover in the same step.
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Each conversion has its own 5 year waiting period before withdrawals are qualified.

The order of distributions: contributions (not conversions); Contributions are always first; conversions (if any) are second in order by year of contribution with converted pre-tax assets taken first and converted after-tax assets taken second; earnings are distributed last.
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The distributions are considered across all ROTH IRAs and not a specific ROTH IRA.
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Joe,
Others have given you good advice on this. Just wanted to touch on the 5 year rule.
The 5 years for tax free withdrawls from you Ameritrade Roth started on Jan 1 of the year that you first contributed to the Roth. If you just opened it this year then the clock starts Jan 1 2019.
Also Conversions have there own 5 year clock. So if you have 50K in the Roth . That 50K has the original clock for withdrawals. If you convert another 25K now then 2019 starts the clock for the 25K.

Fidelity just wants you too keep the money with them. If you go their route and open a Roth at Fid, and then move the funds to TD Ameritrade they will probably charge a transfer or closing fee to move the money.

Lastly is taxes. Going from an IRA to a Roth. Taking the money from the IRA is a taxable event. You can have taxes withheld or transfer the money and make estimated tax payments to IRS with outside funds to keep the Roth Balance higher. Something to think about.

Mike
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"What maybe the problem is that you are attempting a trustee-to-trustee conversion and rollover from a TIRA to a ROTH. The two step process eliminates the conversion and rollover in the same step. "

Hi VKG, originally I had my work 401k with Fidelity. About 9 months after I retired, I opened up an IRA with Fidelity, and rolled over my 401k to this IRA. I know TIRA is an acronym for Traditional IRA, but I don't know if that is what I have, since it is a rolled over 401k.
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Mike2020R, and vkg, thanks for pointing out that there is a 5 year delay from when funds are deposited into the Roth before they are qualified as tax deferred. I thought that might be an issue with a newly opened Roth, but not with a transfer into an existing Roth ( which was opened in 2007 ).
Thanks for clearing that up.

I was aware that any conversion will require that I pay taxes on that amount.
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Hi VKG, originally I had my work 401k with Fidelity. About 9 months after I retired, I opened up an IRA with Fidelity, and rolled over my 401k to this IRA. I know TIRA is an acronym for Traditional IRA, but I don't know if that is what I have, since it is a rolled over 401k.

The 401K was rolled over to a Traditional IRA.

If you had after-tax contributions to your 401K, at the time of the rollover you would have needed to report that on an 8606 IRS form.

Fidelity just announced $0 fee stock and ETF transaction fees. Is there an advantage to moving assets to TD Ameritrade? You can have more than one ROTH account. (TD Waterhouse did irritate me.)
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Joe, Welcome and no problem.

I am doing the same thing with some conversions each year.
My idea was to move some each year while tax rates are lower. Before I get to the RMD's at 70.
Watch the tax tables each year. With Pension and Social Security, I then convert whatever brings me to near the top of bracket. Just pay your estimated taxes so there are no penalties later.

Good Luck.
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Before I get to the RMD's at 70.

RMDs start the year you turn 70 1/2.

The 1/2 matters for those who are born in July or later in the year.
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VKG Thanks, I am January so never think about that but did know. Thanks for the catch.
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I have an existing IRA with Fidelity, and a Roth with TD-Ameritrade, and I am retired,with no W2 income. I'd like to transfer money from IRA to the Roth, up to the tax bracket limit that I want to stay in for this year. I called Fidelity, the rep told me that I would need to open a Roth at Fidelity, and then I could transfer out of that Roth into the TD-Ameritrade Roth. This doesn't really make sense to me. I asked if there would be a 5 year waiting period before distribution from this new Roth would be tax free ( see link ), and he had no idea.

Any thoughts on this ?


Yes: brokers hate for you to take assets out, and love to get them.
In your case, call Ameritrade and authorize them to grab your Fidelity assets into your Ameritrade account. Be sure to do a trustee-to-trustee transfer. You do not want to have access to the money.
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"Fidelity just announced $0 fee stock and ETF transaction fees. Is there an advantage to moving assets to TD Ameritrade? You can have more than one ROTH account. (TD Waterhouse did irritate me.) "

------------------------------------

I didn't know Fidelity went to $0/trade, thanks for the info. My main reason for putting it in my TD-Ameritrade Roth was because it is existing. I also have a taxable account with them, and they have a physical location in my smaller town, Fidelity does not. But that is not a big deal, I've only been there a couple of times, no real advantage.
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The 1/2 matters for those who are born in July or later in the year.


That's me. July 7
So if I am 69 in 3019,
and 70 in 2020,
I will be 70.5 in January 2021.
correct?
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TD Ameritrade has also announced $0 commissions on trades. I believe most all of them have gone that way at this point.

JimA
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I have an existing IRA with Fidelity, and a Roth with TD-Ameritrade, and I am retired,with no W2 income. I'd like to transfer money from IRA to the Roth, up to the tax bracket limit that I want to stay in for this year. I called Fidelity, the rep told me that I would need to open a Roth at Fidelity, and then I could transfer out of that Roth into the TD-Ameritrade Roth. This doesn't really make sense to me.

That's because you're asking the wrong broker. Call TDA and start the transaction there. You will need to be very specific with them about what assets to move. The easiest thing would be to sell things in the Fido account, wait a few days for everything to settle, then have TDA transfer cash rather than any specific securities. Because they are receiving the assets, they will be more than happy to facilitate the transfer.

Fidelity's solution will work, but as has been pointed out, you might incur fees. If you are going to do this on an annual basis, it might make sense to set up the Roth at Fidelity, make the transfer internally with Fido, then have TDA initiate the transfer from the Fido Roth. But leave a bit in the Fido Roth so the account will remain open. Make sure you find out if Fido will charge any small balance fees. Hopefully they won't because of your larger IRA account.

I asked if there would be a 5 year waiting period before distribution from this new Roth would be tax free ( see link ), and he had no idea.

As far as the IRS is concerned, you only have one Roth. That Roth can be broken up across multiple custodians. If your Roth at TDA has been open for 5 years, you have met that 5 year test for all of your Roth accounts.

However, there still might be a separate 5 year holding period for this conversion to a Roth. That wouldn't be for tax free distributions, but for penalty free distributions. If you are over 59.5 years of age, you don't need to worry about this 5 year period.

--Peter
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originally I had my work 401k with Fidelity. About 9 months after I retired, I opened up an IRA with Fidelity, and rolled over my 401k to this IRA. I know TIRA is an acronym for Traditional IRA, but I don't know if that is what I have, since it is a rolled over 401k.

You now have an IRA, not a 401k. You simply funded that IRA with a rollover from a 401k plan. The term "traditional" is used to differentiate it from a Roth IRA.

--Peter
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Mike2020R, and vkg, thanks for pointing out that there is a 5 year delay from when funds are deposited into the Roth before they are qualified as tax deferred.

You (or they) have misunderstood something along the way. I was trying to avoid it, but here are the ordering rules for Roth withdrawals.

The first money out of a Roth is any contributions. These are always tax and penalty free.

When all of your contributions have been withdrawn, the next money out is conversions. Withdrawal of conversions is always tax free (you paid taxes on the money at the time of conversion). The withdrawal is penalty free if it has been in the Roth for 5 years OR you are over 59.5 (or dead or disabled) at the time of the withdrawal. Each conversion has it's own 5 year wait.

The last money out is earnings. The withdrawal of earnings is taxable and subject to a penalty unless you have had a Roth account for 5 tax years AND you are over 59.5 (or dead or disabled).

As you can see, there are two different 5 year periods to consider. And since you are contemplating a conversion from traditional to Roth, you will need to be concerned about both 5 year holding periods.

--Peter
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Mike2020R, and vkg, thanks for pointing out that there is a 5 year delay from when funds are deposited into the Roth before they are qualified as tax deferred. I thought that might be an issue with a newly opened Roth, but not with a transfer into an existing Roth ( which was opened in 2007 ).
Thanks for clearing that up.


Actually, I'm not sure that they cleared it up. If you have had a Roth IRA open since 2007, you have had a Roth IRA open for more than 5 years. If that's the case, and you are over 59 1/2, you meet the requirements for qualified withdrawals. When your withdrawals are qualified, there is no '5 year clock' for conversions - all of your withdrawals are tax-free.

AJ
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Actually, I'm not sure that they cleared it up. If you have had a Roth IRA open since 2007, you have had a Roth IRA open for more than 5 years. If that's the case, and you are over 59 1/2, you meet the requirements for qualified withdrawals. When your withdrawals are qualified, there is no '5 year clock' for conversions - all of your withdrawals are tax-free.

AJ


No, there is a separate 5 year rule for each conversion. There are multiple 5 year rules. Having a ROTH open for 5 years only meets the 5 year rule for contributions.

Being over 59 1/2 means that distributions would not be subject to penalty. For earnings on a conversion to be qualified and tax free, the 5 year clock for the conversions must have expired.
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I will be 70.5 in January 2021.
correct?


Yes
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For earnings on a conversion to be qualified and tax free, the 5 year clock for the conversions must have expired.

No. The 5 year clock on conversions has nothing to do with earnings. Earnings has it's own 5 year clock that starts when the Roth is first opened. Plus, earnings are not tied to any specific contribution or conversion. They are simply earnings.

I posted the full Roth withdrawal rules about a half dozen posts back.

--Peter
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vkg,

You wrote, No, there is a separate 5 year rule for each conversion. There are multiple 5 year rules. Having a ROTH open for 5 years only meets the 5 year rule for contributions.

Being over 59 1/2 means that distributions would not be subject to penalty. For earnings on a conversion to be qualified and tax free, the 5 year clock for the conversions must have expired.


The "multiple 5 year rules" is a reference to the ordering rules. Those only apply to non-qualifying distributions. If you have had a Roth IRA open and funded for at least 5 tax years and are at least 59 1/2 when you take a distribution the distribution is Qualified. You simply don't apply the ordering rules to Qualified distributions.

Finally even if this were a disqualifying distribution, the referenced 5 year rule only applies to conversions and only to conversions made in the 5 preceding tax years.

- Joel
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No, there is a separate 5 year rule for each conversion. There are multiple 5 year rules. Having a ROTH open for 5 years only meets the 5 year rule for contributions.

Sorry, you need to re-read Pub 590-B https://www.irs.gov/pub/irs-pdf/p590b.pdf See the chart in Figure 2-1. If we assume the owner is over 59 1/2 and opened their first Roth IRA in 2007, and did conversions in 2015, 2016, 2017 and 2018 - all within the last 5 years, and took a distribution in 2019:

First question Has it been at least 5 years from the beginning of the year for which you first set up and contributed to a Roth IRA?

Answer: yes, takes you to the second question: Were you at least 59 1/2 years old at the time of the distribution?

Answer: yes, takes you to the answer: The distribution from the Roth IRA is a qualified distribution. It isn’t subject to tax or penalty.

So the 'conversion 5 year clock' does not come into play at all. That's because the 'conversion 5 year clock' is part of the ordering rules, and the ordering rules aren't used unless the distribution is not qualified. Taking a qualified distribution means you don't have to use the ordering rules.

AJ
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I was trying to avoid it, but here are the ordering rules for Roth withdrawals.

Thanks Peter.

If you use the same tax software when you make the IRA-to-Roth conversions and the withdrawals, does the software keep track of this for you? Or do you have to keep track of it manually and answer a series of questions to get it to do the right thing each years?

Thanks

Mike
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If you use the same tax software when you make the IRA-to-Roth conversions and the withdrawals, does the software keep track of this for you?

That depends on the software. But probably not. My professional level software only does a mediocre job of it.

Or do you have to keep track of it manually and answer a series of questions to get it to do the right thing each years?

That's the more reliable approach.

And keep in mind that once you hit 59.5 AND you have had a Roth account open for 5 years, the ordering rules don't matter. It's all tax and penalty free at that point.

--Peter
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Happy TMF ballo0on day, Peter!

Nice bundle of colors you're floating there.
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