ROTH IRA ROLLOVERS AND THE 5-YEAR RULE: TODAY’S SLOTT REPORT MAILBAG

By Sarah Brenner, JD
Director of Retirement Educations

Question:

Hi!

I am over 60 and have had a self-directed Roth IRA for the past 15 years. I would like to roll some of it over to another self-directed Roth where I could invest in crypto-currency. Is this possible? If so, how does the 5-year rule apply for the new Roth? Thank you!

Steve

Answer:

Hi Steve,

It is possible to roll over or transfer Roth IRA funds to another Roth IRA. It is best to do a transfer to avoid problems with the 60-day and once-per-year rollover rules. There is nothing in the rules that prohibits a Roth IRA from being invested in cryptocurrency, although an account holder would need to decide if that is a wise investment choice in their situation.

The 5-year rule for qualified distributions of earnings from a Roth starts with your first Roth IRA contribution or conversion. It does not restart when funds are moved to another Roth IRA.

Question:

My question is as follows: I converted (no contributions were made) funds from my self-directed IRA to my Roth IRA, my age is over 59 ½, but my Roth IRA is only one year old. May I withdraw the conversion amount without the 10% penalty under the age exception to the five year rule?  So far I have received opinions from two CPAs which totally contradict each other. Thanks for your help.

Answer:

This is a tricky area. There are two different 5-year rules for Roth IRAs. The first 5-year rule is for qualified distributions of earnings and it will apply regardless of your age. You will have to wait the full 5 years for those earnings to be tax free.

The second 5-year rule is for penalty-free distributions of converted dollars. This rule only applies when you are under age 59 ½. Because you are age 60, you do not need to worry about this rule. Even though you have only had the Roth IRA for a year, any distribution of converted funds would be penalty-free.

https://www.irahelp.com/slottreport/roth-ira-rollovers-and-5-year-rule-todays-slott-report-mailbag

Ready To Take

THE NEXT STEP?

 

For more information about any of our products and services, schedule a meeting today.

Or give us a call at (803) 242-1050

Investment advisory services offered through Foundations Investment Advisors, LLC (“Foundations”), an SEC registered investment adviser. Nothing on this website constitutes investment, legal or tax advice, nor that any performance data or any recommendation that any particular security, portfolio of securities, transaction, investment or planning strategy is suitable for any specific person. Personal investment advice can only be rendered after the engagement of Foundations, execution of required documentation, and receipt of required disclosures. Investments in securities involve the risk of loss. Any past performance is no guarantee of future results. Advisory services are only offered to clients or prospective clients where Foundations and its advisors are properly licensed or exempted. For more information, please go to https://adviserinfo.sec.gov and search by our firm name or by our CRD #175083.

 ADV Part 2A & Form CRS              Privacy Policy             Form CRS