457(b) plan into after tax acct of some type

[SHA]

Someone age 65 retired from two local governments and has two 457(b) plans and is desirous of converting the two plans to after-tax.

The individual initially funded unrelated Roth IRA's way back in 2008 when Roths first came into existence.   Despite the huge tax hit to convert/rollover the accounts to after tax-If the distributions could be taken within five years with no 10% penalty.   O is there in fact a five hear holding period to eliminate any money being subject to the 10% tax?

[rocknrolls2]

SHA, under your facts, since the individual is already age 65, the 10% tax penalty does not apply -- it only applies to distributions prior to the individual's attainment of age 59 1/2. If the individual is roling the amount over to a Roth IRA that has already met the 5-year initial holding requirement, there should be no need for the rolled over amount to be held an additional 5 years post-rollover.

[SHA]

I Really want to believe you but so much general literature says there is a five year "waiting" period to avoid the 10%.

Can you possible provide authority for this matter?

 

[Belgarath]

I agree with Rocknrolls2. I find this whole matter extremely complex, but my understanding of IRC 408A(d)(3)(F) is that it is meant to prevent someone from making an External Roth rollover to a Roth IRA (as in your situation) and then attempting to withdraw this amount under the "normal" Roth IRA first-in-first-out" rules without having to pay the premature distribution penalty if it would otherwise apply. As Rock explains, since this person is not otherwise subject to the premature distribution penalty, being over 59-1/2, it wouldn't apply in this situation.

Personally, I'd advise the client to confirm with tax counsel. And I offer no opinion whatsoever as to whether converting to Roth IRA is wise or unwise - that's a very individualized decision.

[SHA]

Im still so scared and worried about the 10% if I take a distribution...

[C. B. Zeller]

On 2/10/2023 at 2:32 PM, SHA said:

I Really want to believe you but so much general literature says there is a five year "waiting" period to avoid the 10%.

Can you share some of this literature? The 5-year period is to receive "qualified Roth" treatment on the distribution, i.e. earnings are not taxable. The 10% penalty is a separate issue.

On 2/10/2023 at 2:32 PM, SHA said:

Can you possible provide authority for this matter?

IRC § 72(t)(2)(A)(i), which says that the 10% additional tax "shall not apply to...distributions which are made on or after the date on which the employee attains age 59½"

Also see IRS pub 590-B, Roth IRAs/Additional Tax on Early Distributions/Exceptions.

[Belgarath]

SHA - what is your role in this? TPA, investment advisor, friend, whatever? If you are skeptical about the advice being given here (which is reasonable - as CB Zeller says, free advice is worth what you pay for it) then just give this client your thoughts (perhaps the advice you are being given here, or not, as you choose)  TO BE DISCUSSED WITH THEIR OWN TAX/LEGAL COUNSEL. That way you are being "helpful" without being responsible, assuming you use appropriate caveats.

[SHA]

Im the investor......retired attorney(thus the skepticism)