Although retired, I worked (as a college adjunct professor of Chemistry) in 2009 and 2010. I opened a Roth IRA for DH and contributed $6,000 each of those two years = $12,000. (I also contributed to my own Roth IRA but that’s not part of this question.)
DH has just rolled over a corporate 401(k). The manager of the 401(k) told him that 99% of it would be rolled over into his Traditional IRA and 1% would be rolled over into his Roth IRA.
DH sent me this message: “Note: This 401(k) conversion resets the “5 year” aging requirement for tax-free withdrawals from my Roth IRA to 1/1/2027.”
Is that true?
My understanding is that withdrawals from a Roth must be 5 years after the Roth was initially opened (2009) regardless of subsequent deposits.
DH has just rolled over a corporate 401(k). The manager of the 401(k) told him that 99% of it would be rolled over into his Traditional IRA and 1% would be rolled over into his Roth IRA.
Why is the 1% rolling into a Roth IRA, rather than the traditional? Is it because the money was originally a Roth 401(k) contribution, because it was originally a non-Roth after-tax contribution, or because DH asked the 401(k) administrator to do a conversion of 1% of the account? Since the first one would have no impact on any 5 year rule, I’m guessing it’s one of the latter 2. Those are both considered conversions, and would be subject to a 5 year rule before that money would no longer be subject to taxes or penalties, IF DH weren’t at least 59 1/2 and the Roth IRA hadn’t been open and funded for at least 5 years. However, since you’ve mentioned before that DH is subject to RMDs, thus, he’s older than 59 1/2, and since the Roth was opened for the 2009 tax year (which is more than 5 years ago), all withdrawals are considered to be qualified withdrawals, so the 5 year rule on conversions is moot.
DH sent me this message: “Note: This 401(k) conversion resets the “5 year” aging requirement for tax-free withdrawals from my Roth IRA to 1/1/2027.”
Is that true?
Well, you’d need to see where DH is getting that idea, but I suspect that DH confusing something that the administrator told him about the 5 year conversion rule with the 5 year rule on the age of the account. They are two separate rules, and as stated above, once the 5 year account age requirement AND attaining 59 1/2 are both met, the conversion rule becomes moot because all withdrawals are qualified. The account age does not get re-aged just because a conversion is done. So the answer in this case is no, it’s not true.
My understanding is that withdrawals from a Roth must be 5 years after the Roth was initially opened (2009) regardless of subsequent deposits.
Well, that’s not the only condition. In addition, the owner of the account must also have reached at least 59 1/2 (which DH had done) be disabled or be dead. But since DH is older than 59 1/2 and the account is more than 5 years old, then the rule on the age of conversions is moot.