Roth IRA Five Year Rules: What You Should Know
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- Опубликовано: 10 сен 2024
- Did you know that Roth IRAs have rules that, if broken, could result in taxes and penalties? Let’s review three Roth IRA five-year rules.
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Patrick King is a fee-only financial advisor in Atlanta and the Founder of Prana Wealth. Over his career, Patrick has helped CEOs, all-star athletes, Grammy-winning artists, and many others build their wealth, retire sooner, and create a legacy. Patrick enjoys yoga, mountain biking, golf, travel photography, and Clemson football.
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Prama Wealth
scenario
First Roth IRA opened and funded June 2010
Converted $5k of traditional IRA money to Roth IRA June 2023 (paid taxes)
Currently age is greater than 59 1/2 (in year 2024)
question
Will there be any taxes or penalties if I take money out of the Roth IRA
that is principal and growth?
How does it work on withdrawing gains after 59 1/2 if say you put in 7K a year for five years and then in year six you’re trying to withdraw gains? How much of the overall gains can you withdraw without any kind of penalty or tax? Do they literally slice and dice the first contribution gains versus the second versus the third etc.?
Ipso if I started my first Roth IRA in 2015 I can withdraw all my Roth at 59-1/2 without penalty. Even if I’m still making contribution every year until 70 yrs old
62 year old does a Roth Conversion in an account that was started 10 years ago they take out the principal And growth a year later. No 10% penalty but the growth portion would be taxed correct?
Great question! Here's how I think this one works: since the account is 10 years old, the 5-year rule penalty doesn't apply. I think the first Roth contribution starts the clock on those 5 years, no matter what the amount is. Now that the account owner is 62, there shouldn't be any taxes at all on the withdrawals. I'll caveat this and say to please confirm everything with your CPA before making any withdrawals! 😉
@@PranaWealth I thought that each conversion starts a new 5-yr clock.
@Chris -- that's correct! It's Rule #2 in the video! (Sorry for the late reply -- I've been sick this week.)
If you are over 59 and 1/2 and you have had ANY Roth IRA open for at least 5 years, then all distributions are qualified and tax free. The five year rule on conversions only applies if you are not of age yet.
@@johnscott2746 So, if I'm 60, and I recently rolled over Roth funds from my work account to my non-work account (after I retire), then I can withdraw, because I'm over 59 1/2? I don't have to wait 5 years?
Thank you! I have three questions. First, do I have to wait 5 years to withdraw Roth rollover funds? I'll be rolling over from my work's Roth 457b (Deferred Comp) plan when I retire over to my TDAmeritrade (Soon to be Charles Schwab) Self-Directed Roth IRA account. Second, is that only on the "gains", not the initial rollover amount? Example: I roll over $12,415. I earn $3,000. I have to wait 5 years to withdraw the $3,000, but I can still withdraw the $12,415? Third, I made contributions older than 5 years. Does that mean any gains I realize are tax free for withdrawal after 59 1/2? I'm think the answer is yes. It's too bad the Broker can't keep track of this for their customers. They (TD Ameritrade) do tell me how much I can contribute for the year, so that's nice...
You are correct. All the above posts are wrong.
I’m thinking that you are assuming everyone knows the 5 year rule doesn’t apply after you’ve reached the age of 59 1/2.
I inherited a Roth IRA that was held longer than 5 years by the original owner. Some articles say only the original Roth IRA account has to have been 5 years or older for withdrawals by a beneficiary to be tax free. But some seem to indicate the Inherited Roth IRA account the beneficiary opens to hold the money has to be 5 years old.
Do I have to pay any taxes on distributions from the Inherited Roth IRA account holding the money or do I have to wait 5 years myself also?
Why do you think my brokerage used a "T" on box 7 for the 1099-R in spite of the original account being older than 5 years?