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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

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