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5 year clock on rollover of Designated Roth


AndyH
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Does an IRA to Roth IRA conversion start the 5 year clock?

Assume that a participant has a Roth 401(k) account and is always ineligible to contribute to a Roth IRA. As I understand it, if the participant rolled over the Roth k to a Roth IRA, the 5 year clock starts anew.

If such participant had done a conversion of a regular IRA into a Roth IRA 5 years earlier, would the 5 year rule be satisfied immediately upon the rollover from of the Roth K to the Roth IRA?

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Note that you have to be careful about which 5-year clock you're talking about as there are actually 2 separate ones.

You might read the discussion in this thread (the last time I fully wrapped my head around the topic): http://benefitslink.com/boards/index.php/topic/50668-in-plan-roth-rollovers/

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  • 2 weeks later...

As I understand it, if the participant rolled over the Roth k to a Roth IRA, the 5 year clock starts anew.

You are correct, the Roth 401(k) clock has no effect on the Roth IRA clock per Treasury Regulation 1.408A-10, Q&A 4.

My understanding is yes. A conversion is treated just like a contribution for the 5 year clock.

I agree, IRC § 408A(d)(4) talks about the ordering rules for distributions and lists "Contributions other than qualified rollover contributions to which paragraph (3) applies. " If you review (d)(3)(B) it states "This paragraph shall not apply to a distribution which is a qualified rollover contribution from a Roth IRA or a qualified rollover contribution from a designated Roth account which is a rollover contribution described in section 402A©(3)(A)." Therefore, because paragraph 3 doesn't apply to designated Roth rollovers it is treated as a contribution.

Note that you have to be careful about which 5-year clock you're talking about as there are actually 2 separate ones.

Excellent point. To determine if it is a Qualified Distribution, your five year clock starts January 1st of the first year any Roth IRA contribution or conversion is made. For example, if I had a Roth IRA contribution for the 2010 calendar year, My five year clock would be satisfied January 1, 2015. To use this clock, I must also be at least 59-1/2, disabled, deceased (in other words, a beneficiary), or a first time home purchaser.

If I do not meet both of those conditions (the qualified 5 year clock and one of the qualifying conditions) you then need to look at each individual conversion which will maintain its own 5 year clock. After all contributions and designated Roth account rollovers are depleted the conversions will be removed on a first in first out basis.

Hope this helps everyone!

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