Roth IRA 5yr rules?

True, for your Roth IRA accounts for moneys contributed, including earnings on those contributions.

The five year clock for the first Roth contribution starts Jan 1 of the tax year for the first contribution.

So if your very first IRA contribution ever was April 15, 1999 for tax year 1998, the clock begins January 1, 1998 for that contribution and all later contributions.

You could also have converted traditional IRA amounts to Roth IRA accounts and, if under age 59 1/2, there is a separate five-year clock for all of those conversions and their earnings.

Your Roth IRA is an Individual Retirement Arrangement, which may have any number of individual accounts. Your job is to keep track of the Roth

• Contributions, and their earnings, and also + Conversions, and their earnings.

For income tax purposes, it is irrelevant whether you have one or many Roth IRA accounts, or even if you have accounts containing both contributions and conversions.

You really have only 1 Roth IRA (or Traditional IRA for that matter). You can have that IRA spread over as many different accounts, brokers, and custodians as you want, but your IRA consists of the total of all the accounts.

Exactly, and to add a thought here, it's pointless to create a new (traditional) account for post-tax IRA money as this is tracked by the

8606. Many do this, but once earnings accrue, it's still the forms you need to refer to for money that shouldn't be taxed at withdrawal.

Joe

Thanks for the confirmation.

Just to clarify, there is a separate 5-yr clock for *each* tax year in which there was a conversion. If there weren't, everyone would make one tiny little Roth conversion as early in life as possible, and then at any time after the first 5 years, they could drain all their pre-tax accounts without penalty by simply converting the balance and paying tax only, and then immediately withdrawing without penalty. As it is, the five-year clock for conversions *does* give you a way to withdraw unlimited amounts of Trad. IRA money penalty-free before age 59.5, as a long as you pay the ordinary tax and then wait five years. (And, of course, follow the ordering rules for Roth IRA distributions).

It can be relevant if you think you might recharacterize a Roth conversion (which can normally be done up to six months after the unextended filing deadline). This is not common, but it pays to allow for the possibility.

Unless you kept your conversion investments segregated from one another, when you recharacterize you must average the earnings (gain or loss) to be withdrawn over all investments converted. (See Notice 2000-39 and TD

9056 for more technical information and examples).

This is somewhat analogous to what happens on Form 8606 when you distribute Traditional IRA money -- tax effect is pro-rated.

-Mark Bole

Good point. Thanks.