I commend you for this video. Everything you said in this was 100% accurate. I have seen other people’s videos that were woefully wrong about the rules for Roth IRAs. This one video is ALL that anyone needs to know about Roth’s. Again, very well done!!
It was an excellent video but didn't cover a few key issues - (1) the Roth IRA isn't classified as "open" until $1 is either contributed or converted to it - just opening a Roth IRA with zero balance doesn't count (2) backdating of contributions/conversions - if you contribute or convert up to April 15 and designate it as being for the previous year, the clock starts on Jan 1 of the previous year (so the 5 year rule can be shortened to as little as 3 years and 8 1/2 months) (3) the pro-rata rule and how after-tax contributions are handled for conversions.
@@lindsaynewell6319I have never heard of any financial institution that will open a Roth IRA without some kind of deposit so that point is moot. On point 2 you are blending conversions with contributions and they are different and handle differently. On point 3 , if you are so deep into it that you are dealing with pro-rata amounts you should get a professional to handle it for you. For just about anyone else , his explanations are quite sufficient.
FINALLY. Have been trying to find an easy to follow on 5-Year rules related to IRA to Roth conversions. Nothing has tied it all together. as succinctly .as Bob Berger's video. Thanks.
Also worth noting, the 5-year clock for Roth conversions starts on Jan 1st of the year you do the conversion. So if you do a conversion in December, you really only have to wait about 4 years to be able to access the money from that conversion.
Same for the Rule for earnings. If you make your first Roth contribution on April 10 for the previous year, it counts as if it were contributed on January 1 of the previous year.
You are definitely the BEST! Though you prepared this years ago, I am just now needing it. You would not believe how many TH-cam videos I have watched on this subject where the "expert" got it all wrong! Even some that pulled up and displayed the actual IRS documents like you do. They still read and interpreted the guidance incorrectly! Wow! So happy I found your channel!
I knew about the 5 year rule but I didn’t know once 1 account is satisfied any additional Roth account is satisfied going for. Super useful information.
Thank you Rob for the detailed explanation of the five year rules. Good news for me is that I have contributed to my Roth IRA fro. 2016 till now with out missing to contribute to max per year. I hope most of the people contribute to ROTH IRA and save for retirement. Regards, Sunil
Thanks for explaining this! I am 67 and made a conversion from my Reg IRA to a Roth IRA. I also have a small old Roth at my CU that is more than 10 years old that I am rolling over to the new Roth IRA. I asked them if I would have to wait another 5 years before I could withdraw from the new Roth. At first they told no then they called me back and told me I would have to wait 5 years for each conversion. I also asked CPA and was given an unclear answer. Your explanation makes sense, so thanks for the info! I don't plan to withdraw from it in that time frame anyway but like to know my options. I tried reading the rules from the IRS just to be sure and found those as clear as mud.
Thank you for this! I was just thinking this morning that I will need to do a Roth conversion this year, and this video answered all the questions I had.
Wow. Let me put it 2 ways. 1. This guy knows his stuff. 2. Mr. Berger should be called the regulation whisperer. He has a gift for this material in fields with which I am more than causally familiar. Big national financial and news networks should be hiring this guy.
@Rob Berger There's another 5 year rule when it comes to roth accounts, it has to do with inheritance issues, specifically when the roth is inherited by a trust or is simply left to an estate there is a 5 year time line to remove the funds, rather than the 10 years afforded to a spouse or other family member. I think this came into effect with the SECURES act in 2019.
Thank you. I had taken out money for my home when I refinanced and now I am sorry I did as the rules really had me confused. Also, I should have waited another year as I would have been 59-1/2.
i understand the 10% penalty doesn't apply after 59 1/2, but wasn't sure if that included the 5 year holding period, and this is regarding a roth conversion from an ira rollover.
Thank you. This was an excellent explanation. It has always confused me. And I could see your screens today too. I did a Roth conversion in March 2020 when the market dropped. I wanted to do again this year but the market kept growing. Being single and my tax bracket, it’s only tax advantaged when the market takes a dip.
No, that's not an exception. If you qualify for first-time homebuyer, you won't pay the 10% penalty. But, if you take out earnings and haven't satisfied the 5-year rule, you will pay income tax on the earnings.
Just to make sure I understand ... I'm over 59 1/2, and I've had a Roth IRA account for 10 years ... I also have an regular IRA which I would like to reduce. If I convert a chunk of money from my IRA to my Roth, I should NOT be affected by any of the 5 year rules ... Is that correct? Of course I understand that I'd have a tax liability for the converted amount ...
Hi Rob - I really enjoyed the video. There is one thing I wanted to clarify: Does your statement in the video that the 5-year rule does not apply to individuals over age 59-1/2 mean that in no way, shape or form does it apply? Not for the 10% early withdrawal penalty and nor for any taxation of the withdrawn amount, even if earnings? I haven't been able to find any citation that actually says this. Can you give me some guidance? Many thanks.
Great info but I'm still confused....lol! I'm 68, have an IRA account and a ROTH Account I set-up both up 10 years ago. Good to go on that. What I was planning on doing is grabbing $20K/year out of my IRA account and transfering the STOCK to the new ROTH IRA Account I just set-up. This stock I'm transferring over will generate a 9% annual dividend yield. So...if I grab the dividend income out of this new ROTH Account I've just set-up, do I have to pay penalties or taxes? Do I have to wait 5 years to pull anything out of this account in order to avoid any penalties or taxes? Thanks again for the video. I like your style presentation.
I have a Roth IRA for the last 15 years. If I want to transfer this Roth IRA to another brokerage (example transfer from Fidelity to Vanguard), would I be subject to the 5-year rule?
In a rollover of roth 401k to roth IRA, will the money be considered a contribution, which will allow me to withdrawtax free and penalty free? Or will they be managed the same way as "earnings" where they are subject to penalty fees for early withdrawals?
Thank you so much!! You answered so many questions I had in my mind!! The contributions portion has been very confusing to me, but your direct clarification approach was amazing Rob.
Here's a fun fact. While you only have to satisfy the 5-year rule on one Roth IRA account, not so with a Roth 401(k) account. You have to meet the 5-year rule for each Roth 401(k). The good news is that you can rollover an old Roth 401(k) to a new Roth 401(k) account, and the new account benefits from the years you had the old one. www.irs.gov/retirement-plans/retirement-plans-faqs-on-designated-roth-accounts#2distributions
Great stuff. So, if you are 60 years old and converted 20k into a ROTH thus establishing it 1/1/2023 and it grows to 25k in 3 years, then you do another conversion of 20k into same Roth in the 4th year and that total grows to 55k by year 6 and you cash in/distribute the entire amount of 55k, that amount of 55k is completely tax free? Meaning, the additional conversion amount of 20k in year 4 (which has not been in there for 5 years) is eligible to be distributed tax free.
What about subsequent earnings? Let say opens and maxed Roth contributions 2023 $6500, grew to $7000 so $500 earnings subject to 5yr rule, but 2024, another $6500, and 2025 another $6500 and they each grew $500 in earnings, they aren’t subject to separate 5yrs rule?
Great video - My wife has a Roth 401k. I have a Roth 457b. Both of these are well over 5 years old. I have no Roth IRAs outside of these "qualified plans". If I were to create a new Roth IRA outside of my retirement plan, and contribute non-deductible funds to it, would that Roth IRA be subject to the 5 year rule? In other words, is it exempt because we have two Roth's in our qualified retirement plans. I assumed it would be exempt but learning that a rollover from a Roth 401K to a regular Roth has its own 5 year clock makes me second guess myself. Thanks for any help
I opened a Fidelity Roth IRA by performing a Roth conversion of a small amount of money that I had in a traditional 457. I also have a Roth TSP that I have had for well over 5 years. I will be rolling it over into the same Fidelity Roth IRA upon retirement. If I understand correctly, the 5 year clock will start ticking for the initial 457 conversion funds when the funds were converted to a Roth IRA. The 5 year clock will start ticking for the Roth TSP funds upon the rollover into the initial Fidelity Roth IRA. Am I correct?
The original meaning of IRA was “Individual Retirement Arrangement”. With that definition, it makes sense that various IRA accounts will be lumped together in IRS rules.
I'm 62 and have had a Roth for well over 5 years. Now, I want to convert a Traditional IRA to Roth. I'm semi- retired, but not drawing SSI yet. Most of my income is from short-term capital gains, not very much from my business as a remodeler this year. Does my EARNED income need to match or exceed my conversion amount?
No. You can pay the tax due from a Roth CONVERSION from any source of income, or savings, or inheritance, for example. It is only Roth Ira CONTRIBUTIONS that must be funded with “earned” income.
When I inherited a Roth IRA I had to transfer the funds into a custodian beneficiary Roth IRA account, but its not clear if the beneficiary's account or the original owner's account needs to have existed for 5 years for earnings to be tax free. Since the original Roth was only with the current brokerage for 3 years before my mother passed they issued a T code, but I know for certain the original Roth was over 5 years old with other brokerages included. Does the original owner or the beneficiary need to have held ownership of the Roth IRA funds for over 5 years for the earnings to be tax free? If the brokerage used a 1099R T code instead of Q are the earnings still tax free?
So, I can still withdrawal monies at 59 1/2 yet I will be taxed in this scenario: I had 401k through work for 32 years, transferred to a personal Roth IRA this year after business closed. I have to wait five years to withdrawal funds tax free, however I can still withdraw funds without needing to meet a reason why, yet I will be taxed?
Interesting. I just closed a 10 year old self directed ROTH and distributed the asset, a piece of land, to myself. The Roth was a conversion from a regular IRA 10 years ago. I paid taxes on the conversion at that time. I’m over 60. So I meet the 5 yr rule but I also have another Roth with say 30k in it. The value of the land is say 30k 20 the original conversion amount and 10k earnings. But based on your explanation that additional 10k is treated as contributions not earnings. Not sure it matters since it’s clearly a qualified distribution. But in either case there should be no tax due.
@Auric Goldfinger - are the primary reasons to reduce RMDs and set up a tax free inheritance for a lucky group of people? I guess the main question is how much tax do you want to pay a year? If you think you'll live to 86, 5 mill/ 20 years gives you a $250k withdrawal not including any growth during that timeframe. If you're married, filing jointly in 2022, you can convert up to $329,850k and stay in the 24% tax bracket. Any other earnings you have that year would fall into 32% bracket. It's better to withdraw more now before the 2026 income tax increases arrive. Congratulations!! That's a nice problem to have!
If I do a rollover of a Roth 401k to a Roth IRA, does that count as a "conversion" subject to the 5 year rule? Or does it "remember" what the contributions and earnings in the Roth 401k were and keep those amounts? And what if there are conversions within the Roth 401k due to using the "mega backdoor Roth" - do their 5 year timers carry over to the Roth IRA?
Roth 401k to Roth IRA is a rollover, not a conversion. No 5-year rule (unless the Roth IRA hasn't been open for 5 years). The 401k custodian should be keeping track of contributions and reporting that on your 401k statements. I don't know if they communicate that when you do a rollover. I've never seen a clear answer on in-plan Roth 401k conversions. They're not nearly as common. I would expect they follow the same 5-year rule since they create a taxable event that the IRS can track.
Could any or all of the wealth planners clearly state that interest earned on a roth ira is NOT taxed after you satisfy both the 5-year and the 59-1/2 year rule. PLEASE?
Rob, I have some money in an old 403b from a previous job. I want to roll it over to a Roth. The amount in the 403b would be considered income, correct? If so, that amount added to our combined income would not put us in a different tax bracket. Is that how the taxing works for that sort of conversion?
Great video explaining the 5 year rules. I have a question about rolling over the Roth 401k to Roth IRA. Your video says the money will follow the Roth IRA account rules. The question I have is, is the entire rollover balance considered a contribution even if part of the balance was gains from the Roth 401k?
Great question, and one I tried to find an answer for myself. I suspect it's still a combination of contributions and earnings, but I can't confirm that with a reliable source.
I think that most people would avoid this issue entirely. If they retired after age 59 and 1/2, then they could roll entire balance over with no tax consequences. I guess if you retired earlier say at 55, you might want to play it safe and wait to do the rollover until you reach 59 and 1/2. I have read a lot of the IRS rules and never ran across the rule for this.
@@johnscott2746 I have left the Roth 401k portion in my 401k, and just rolled over the Trad 401k to Trad IRA (with goal of converting to Roth IRA) for a similar reason...not sure how to handle the Roth 401k if I move it!
I would ask: Is a rollover deemed a contribution? I don't think it is. When I rolled over my TSP to my IRA i did not retain contribution or gain status of my TSP. My IRA began with a new lump sum of cash with only subsequent contributions counted as such.
This exactly why you open a Roth at least 5 years before you retire, want to take distributions, or start doing conversions. If you opened a Roth more than 5 years before you roll over that 401k Roth, and you are 59.5 when you want to start taking money out, you won't have any penalties/taxes.
You might give an example of how it's really a four-year rule. I believe if you opened a Roth IRA at the end of 2020, then you can take out the money without paying taxes at the beginning of 2025. That's four years, and a day.
I start my Roth conversion in 2021 and I am 60 years old and planning to convert each year with $10K in next 4 years. So, in 2026, can I start withdrawing all $50K tax free? Or is it only $10K + interest available in 2026 ?
This may be a very stupid question but why would you have multiple Roth IRA accounts if you can’t contribute more than 6000 per year in a Roth IRA (whether you have multiple or not, same cap amongst all of them right?)? So no more to contribute whether you’re doing 6k in one or 3k in 2?
I opened a Roth IRA at a bank many years ago just to start the clock. Now I have a Roth IRA with a brokerage and I am doing Roth conversions each year.
Dumb question….I have a Roth 457 (government version of 401k I guess) through my employer as I also contribute to my pension that thankfully will be pretty generous……what would be the benefit of converting the Roth 457 to a Roth IRA as I get closer to retirement? Is there a benefit besides being able to still contribute to the Roth IRA in my retirement years since I will no longer be able to contribute to the Roth 457 upon my retirement which should be around 57/58? My plan will be to work somewhere else whether part time or fill time until I’m 65 or so and am eligible for Medicare and also start drawing Social Security.
457 plans have an advantage of being available as soon as you separate from your employer (ie before 59 1/2). My guess is unless you have another way to fund the first few years of retirement, you would want to keep the 457 plan until you are 59 1/2. Then converting might make more sense.
So if you did an initial Roth conversion in 2020 and you wer3 60, and you continue doing them each year, the 5 year rule for tax calculations (not the penalty) for all the converted money is satisfied 5 years after the first conversion (2025), is that right?
Each conversion has its own five year clock. But since you are 60, it doesn’t apply to you. As long as you have had any Roth IRA open for at least five years and you are over 59 and 1/2, then all distributions are qualified and tax free.
Rob, I'm 59. I started ROTH conversions when I was 55, so I'll meet the 5-year account rule when I turn 60. My question is this: If I make a distribution after the 5-year account rule is satisfied (at age 60), are any of my conversions (earnings) from years 55 and onwards subject to taxation after age 60 or would all of my distributions be deemed "qualified" distributions? Hope that makes sense. As i understand, the second 5-year conversion rule would not apply to me because I will be older than 59-1/2 at that point.
There is no limit as to the number of Roth accounts you can have. Perhaps consider isolating the one started at 55 vs the Roth account you will be doing conversions for. It might make sense from an investment standpoint too. And I think you may need to double check the rules. The 5 year rule always applies to the “earnings/growth” even at 59.5 and older.
Great video, but I'm confused as to how one determines they have a "ROTH IRA" or a "ROTH 401L IRA". Asked Fidelity about my "ROTH IRA" that is under my employers retirement account and they say it is a "ROTH IRA".
I liked your video a lots, been trying to get this strait in my head about converting a IRA to a Roth IRA and converting a 401k to a Roth IRA after 59 1/2.I would really like to find a flow chart made up by someone showing this after 59 1/2 and already having a Roth IRA for over 5 years. the flow chart would go something like this, - are you over 59 1/2 years old (yes or no) if (yes) have you had a Roth IRA for 5 years (yes or no) if (yes) and you want to direct transfer a 401K into a Roth IRA do you have to wait 5 years before you can take out any earnings without a penalty (yes or no). Does anyone have a flow chart made up like this or has anyone seen such a flow chart? IF SO, PLEASE LEAVE A LINK TO IT FOR THOSE THAT ARE STILL CONFUSED ABOUT IT. Thanks TC - Flow charts make thing simple for us simple minded people.
The exact flow chart you looking for is in IRS publication 590-B, I believe it is figure 2-1 in that document. I would link the document, but youtube deletes comments with links.
so I turn 59 next month. I have also been told by my doctor to retire or else make funeral plans. I have at least a year of expense savings. I thought I would rollover any amount that is less than the 12% tax bracket into a roth IRA. So in my case, once I hit that 5 years, earnings will be non taxable? I am planning on drawing from my 401k in the meantime. Is this the correct thinking, or just don't do it?
Example question. I contribute to an employer Roth IRA 401K with $1000.00. I also contribute to my employer a 401K IRA which has $10,000.00. I meet the 5 years rule and I am 60 years old. Can I convert (transfer) the 401k IRA ($10,000.00) over to Roth 401k IRA ($1000.00)?
Your description of employer Roth IRA 401(k) and employer 401(k) IRA contains IRA which is erroneous. Assuming you're asking if you may convert your $10k traditional 401(k) into your existing $1k Roth 401(k), answer is you may if your workplace 401(k) allows such conversions. 5 year rule here is not relevant.
Great reason why every parent or grandparent should open a Roth IRA and fund it the first year the child has income...even babysitting or chores or shoveling snow.
this is why everyone needs to open a roth ira. just put some money there and forget it. i put just 1k in last year. started my 5 yr. count down. wish i knew this sooner. my two sons open roth ira's. they are 16.
Hi Rob, great video, but from what i’m understanding from many other places if you are under age 59.5 earnings in a ROTH will still be subject to income tax even if the account is open over 5 years. I definitely understand the 10% penalty would apply, but wouldn’t the income tax also apply (unless you also meet one of the exceptions such as first time homebuyer) butThis seems different than you are saying? This would have massive implications for my situation so just trying to get it clarified thanks!
Correct. Satisfying the 5-year rule is just one of the requirements for Qualified Distributions. You also have to be 59.5 or have one of the other exceptions apply to avoid taxes.
The IRS has an order of distribution that they go by. They consider that you first take out your contributions then any conversions and finally any earnings. So, if you have been contributing to your Roth for a number of years you could be able to take out quite a bit without any problems.
Rob, this was a great video, answered a few question I have with regards to my retirement planning. One question I have, my wife and I have reached that magic income level that we can no longer contribute to our Roth IRA (bad problem to have I know...). We still contribute to our Roth 401K though. My plan was to contribute to my traditional IRA and roll it over each year to my Roth IRA. What happens to the 5 year rule on conversions when I get close to 59 1/2, for conversions made less than 5 years but I turn 59 1/2 within that time. Does the 5 year rule not apply to conversions I've made while 55 years old on, if that makes any sense... Thanks again, great explanation here!
From this video and what I've read as long as the Roth (or any roth ira) has been open for 5+ years once you turn 59.5 there is no 10% penalty or Income taxes due.
I have a Roth older then 5 years, and I am 60. For last year and this year, I put in $14500 In Tesla stock. I am aiming it grow to $45k so I can buy the least expensive Tesla. If it reaches my goal with 4 years, could I take it out without any penalty? Thank you.
Thank you for this video! If you have a Roth IRA via conversion, once the 5 year rule is satisfied for that converted account, can you roll a 401k Roth into it without restarting the 5 year time rule, or does the 5 year period restart? Also, can you do a Roth IRA conversion any time during the year (i.e., can I create a traditional IRA beginning of January 2022 and then convert it to Roth IRA end of January 2022)?
Keep in mind there are two 5-year rules, one for conversions and one for accounts. But of course, if you've satisfied the 5-year requirement after an IRA conversion, than you've had the Roth IRA for at least 5 years. In any event, rolling over a Roth 401k to a Roth IRA does not restart the clock. It's still how long you've had a Roth IRA that matters. As for timing, I know of no restrictions regarding what part of the year your do a conversion.
Keep in mind that each conversion has its 5 year rule to it. So if you do a conversion one year and wait the five years and then do another conversion that will have a new 5 year waiting period.
@@johnscott2746 Am I correct in saying that if your over 59-1/2 then conversion 5 year rule doesn't apply? (I believe the "contribution" 5 year rule still applies even if over 59-1/2.)
@@cottagemail4066yes, according to the IRS website it says if you have had a Roth IRA open for at least five years and you are over 59 and 1/2 then all distributions are qualified and tax free. So the five year rule on conversions would no longer apply.
I commend you for this video. Everything you said in this was 100% accurate. I have seen other people’s videos that were woefully wrong about the rules for Roth IRAs. This one video is ALL that anyone needs to know about Roth’s. Again, very well done!!
Very true
It was an excellent video but didn't cover a few key issues - (1) the Roth IRA isn't classified as "open" until $1 is either contributed or converted to it - just opening a Roth IRA with zero balance doesn't count (2) backdating of contributions/conversions - if you contribute or convert up to April 15 and designate it as being for the previous year, the clock starts on Jan 1 of the previous year (so the 5 year rule can be shortened to as little as 3 years and 8 1/2 months) (3) the pro-rata rule and how after-tax contributions are handled for conversions.
@@lindsaynewell6319I have never heard of any financial institution that will open a Roth IRA without some kind of deposit so that point is moot. On point 2 you are blending conversions with contributions and they are different and handle differently. On point 3 , if you are so deep into it that you are dealing with pro-rata amounts you should get a professional to handle it for you. For just about anyone else , his explanations are quite sufficient.
FINALLY. Have been trying to find an easy to follow on 5-Year rules related to IRA to Roth conversions. Nothing has tied it all together. as succinctly .as Bob Berger's video. Thanks.
Also worth noting, the 5-year clock for Roth conversions starts on Jan 1st of the year you do the conversion. So if you do a conversion in December, you really only have to wait about 4 years to be able to access the money from that conversion.
Same for the Rule for earnings. If you make your first Roth contribution on April 10 for the previous year, it counts as if it were contributed on January 1 of the previous year.
You are definitely the BEST! Though you prepared this years ago, I am just now needing it. You would not believe how many TH-cam videos I have watched on this subject where the "expert" got it all wrong! Even some that pulled up and displayed the actual IRS documents like you do. They still read and interpreted the guidance incorrectly! Wow! So happy I found your channel!
I knew about the 5 year rule but I didn’t know once 1 account is satisfied any additional Roth account is satisfied going for. Super useful information.
Rob: you do such a great job of making the complex seem simple. That is no easy task and I really appreciate your efforts!
Excellent explanation Rob about the amazing Roth IRA. Truly one of the great retirement plans for us to utilize. Senator William Roth was a genius!
He was not a genius. The purpose of the Roth was for the Fed Gov't to get more tax revenue now instead of waiting decades to get their hands on it.
Thank you Rob for the detailed explanation of the five year rules. Good news for me is that I have contributed to my Roth IRA fro. 2016 till now with out missing to contribute to max per year.
I hope most of the people contribute to ROTH IRA and save for retirement.
Regards, Sunil
Great presentation, Rob - my mind didn't even begin to numb. ☺️ Very pleased to hear the IRS actually does something that benefits us!
finally some who can communicate effectively. thanks.
Great video.I've read lot on this subject over time and was still unsure on exactly how the rules applied . You have clarified things in my mind.
Thanks for explaining this! I am 67 and made a conversion from my Reg IRA to a Roth IRA. I also have a small old Roth at my CU that is more than 10 years old that I am rolling over to the new Roth IRA. I asked them if I would have to wait another 5 years before I could withdraw from the new Roth. At first they told no then they called me back and told me I would have to wait 5 years for each conversion. I also asked CPA and was given an unclear answer. Your explanation makes sense, so thanks for the info! I don't plan to withdraw from it in that time frame anyway but like to know my options. I tried reading the rules from the IRS just to be sure and found those as clear as mud.
Thank you!!!! I have the IRS publication you are explaining, and I glazed over while reading it. You were very clear in explaining this complex topic.
This is so well done. Thank you for the detailed -- and accurate -- explanation on this topic.
Thanks Rob great video. Could you please do a video on draw down strategies for people who only have traditional 401k accounts and pensions. Thanks
Your video is clear and the slides helps a ton. Really appreciate and subbed.
The content on this channel is top notch with full of information.
Thank you for this! I was just thinking this morning that I will need to do a Roth conversion this year, and this video answered all the questions I had.
Nicely done! I just shared with several friends who routinely ask about this.
The best explanation. Thank you!
A quick vid explanation on form 8606 part 2 and part 3 would go nicely with this!
Does it matter if you move brokerages? Or does that mean you have to start the five years again?
Very, very helpful explanation. I had no idea about the 5-year rule application to all future contributions. Great info!
I think you meant conversions. Contributions don't have a 5 year rule
Very well described. Thanks Rob for helping people like me who try to do as much DIY as possible.
Great work. Very clear explanation. Thanks!
Thank you so much! This is the best explanation I have run across. I finally understand. 😀
Hey Rob . . . any chance you can post a link to your PowerPoint presentation? Thanks much and Happy New Year!!! Thanks for all you do!!!
Wow. Let me put it 2 ways. 1. This guy knows his stuff. 2. Mr. Berger should be called the regulation whisperer. He has a gift for this material in fields with which I am more than causally familiar. Big national financial and news networks should be hiring this guy.
Good explanations, thanks! The IRS site is a maze unfortunately, but that's not very surprising.
@Rob Berger There's another 5 year rule when it comes to roth accounts, it has to do with inheritance issues, specifically when the roth is inherited by a trust or is simply left to an estate there is a 5 year time line to remove the funds, rather than the 10 years afforded to a spouse or other family member. I think this came into effect with the SECURES act in 2019.
Thanks for explaining this Rob. I think I got it all now. Thanks for sharing!
Thank you. I had taken out money for my home when I refinanced and now I am sorry I did as the rules really had me confused. Also, I should have waited another year as I would have been 59-1/2.
Thank Bob for the info. I have been looking into doing a Roth Conversion.
Outstanding content! Thank you!
Outstanding! You just save me some tax money! Happy New Year to you and thanks for your great videos!
Thank you for some enlightening information!
i understand the 10% penalty doesn't apply after 59 1/2, but wasn't sure if that included the 5 year holding period, and this is regarding a roth conversion from an ira rollover.
my 401k has both traditional and Roth, this year I converted the traditional side to Roth, does the 5-year rule apply same to 401k as it does to IRA?
Thank you. This was an excellent explanation. It has always confused me. And I could see your screens today too. I did a Roth conversion in March 2020 when the market dropped. I wanted to do again this year but the market kept growing. Being single and my tax bracket, it’s only tax advantaged when the market takes a dip.
A market drop is the best time to convert. If only I knew when that was going to happen!
@@rob_berger I have alerts set when the price gets to 80% of the 52week high. If it doesn’t get there, like this year I don’t do a Roth conversion.
Thank you for making this clear!
The IRS does have exemptions to the 5 year rule
and that is if you're using the money to buy a house
No, that's not an exception. If you qualify for first-time homebuyer, you won't pay the 10% penalty. But, if you take out earnings and haven't satisfied the 5-year rule, you will pay income tax on the earnings.
@@rob_berger Got it!
Just to make sure I understand ... I'm over 59 1/2, and I've had a Roth IRA account for 10 years ... I also have an regular IRA which I would like to reduce. If I convert a chunk of money from my IRA to my Roth, I should NOT be affected by any of the 5 year rules ... Is that correct? Of course I understand that I'd have a tax liability for the converted amount ...
Excellent explaination Rob...thank you
Hi Rob - I really enjoyed the video. There is one thing I wanted to clarify: Does your statement in the video that the 5-year rule does not apply to individuals over age 59-1/2 mean that in no way, shape or form does it apply? Not for the 10% early withdrawal penalty and nor for any taxation of the withdrawn amount, even if earnings? I haven't been able to find any citation that actually says this. Can you give me some guidance? Many thanks.
Great info but I'm still confused....lol! I'm 68, have an IRA account and a ROTH Account I set-up both up 10 years ago. Good to go on that. What I was planning on doing is grabbing $20K/year out of my IRA account and transfering the STOCK to the new ROTH IRA Account I just set-up. This stock I'm transferring over will generate a 9% annual dividend yield. So...if I grab the dividend income out of this new ROTH Account I've just set-up, do I have to pay penalties or taxes? Do I have to wait 5 years to pull anything out of this account in order to avoid any penalties or taxes? Thanks again for the video. I like your style presentation.
I have a Roth IRA for the last 15 years. If I want to transfer this Roth IRA to another brokerage (example transfer from Fidelity to Vanguard), would I be subject to the 5-year rule?
Nope. You can move the Roth to different custodians as often as you want and you won't have to start the 5 year clock again.
In a rollover of roth 401k to roth IRA, will the money be considered a contribution, which will allow me to withdrawtax free and penalty free? Or will they be managed the same way as "earnings" where they are subject to penalty fees for early withdrawals?
Thank you so much!! You answered so many questions I had in my mind!! The contributions portion has been very confusing to me, but your direct clarification approach was amazing Rob.
Here's a fun fact. While you only have to satisfy the 5-year rule on one Roth IRA account, not so with a Roth 401(k) account. You have to meet the 5-year rule for each Roth 401(k). The good news is that you can rollover an old Roth 401(k) to a new Roth 401(k) account, and the new account benefits from the years you had the old one. www.irs.gov/retirement-plans/retirement-plans-faqs-on-designated-roth-accounts#2distributions
Thanks for adding this detail, as it’s a little-known gotcha and workaround.
Great stuff. So, if you are 60 years old and converted 20k into a ROTH thus establishing it 1/1/2023 and it grows to 25k in 3 years, then you do another conversion of 20k into same Roth in the 4th year and that total grows to 55k by year 6 and you cash in/distribute the entire amount of 55k, that amount of 55k is completely tax free? Meaning, the additional conversion amount of 20k in year 4 (which has not been in there for 5 years) is eligible to be distributed tax free.
Great explanation! Thank you.
What about subsequent earnings? Let say opens and maxed Roth contributions 2023 $6500, grew to $7000 so $500 earnings subject to 5yr rule, but 2024, another $6500, and 2025 another $6500 and they each grew $500 in earnings, they aren’t subject to separate 5yrs rule?
Great video - My wife has a Roth 401k. I have a Roth 457b. Both of these are well over 5 years old. I have no Roth IRAs outside of these "qualified plans". If I were to create a new Roth IRA outside of my retirement plan, and contribute non-deductible funds to it, would that Roth IRA be subject to the 5 year rule? In other words, is it exempt because we have two Roth's in our qualified retirement plans. I assumed it would be exempt but learning that a rollover from a Roth 401K to a regular Roth has its own 5 year clock makes me second guess myself. Thanks for any help
Is VTSAX a good fund to get your Roth IRA fat as a tick?
Thank you, very informative
I opened a Fidelity Roth IRA by performing a Roth conversion of a small amount of money that I had in a traditional 457. I also have a Roth TSP that I have had for well over 5 years. I will be rolling it over into the same Fidelity Roth IRA upon retirement. If I understand correctly, the 5 year clock will start ticking for the initial 457 conversion funds when the funds were converted to a Roth IRA. The 5 year clock will start ticking for the Roth TSP funds upon the rollover into the initial Fidelity Roth IRA. Am I correct?
The original meaning of IRA was “Individual Retirement Arrangement”. With that definition, it makes sense that various IRA accounts will be lumped together in IRS rules.
I'm 62 and have had a Roth for well over 5 years. Now, I want to convert a Traditional IRA to Roth. I'm semi- retired, but not drawing SSI yet. Most of my income is from short-term capital gains, not very much from my business as a remodeler this year. Does my EARNED income need to match or exceed my conversion amount?
No. You can pay the tax due from a Roth CONVERSION from any source of income, or savings, or inheritance, for example. It is only Roth Ira CONTRIBUTIONS that must be funded with “earned” income.
When I inherited a Roth IRA I had to transfer the funds into a custodian beneficiary Roth IRA account, but its not clear if the beneficiary's account or the original owner's account needs to have existed for 5 years for earnings to be tax free. Since the original Roth was only with the current brokerage for 3 years before my mother passed they issued a T code, but I know for certain the original Roth was over 5 years old with other brokerages included.
Does the original owner or the beneficiary need to have held ownership of the Roth IRA funds for over 5 years for the earnings to be tax free?
If the brokerage used a 1099R T code instead of Q are the earnings still tax free?
Excellent video! Helpful to know about the 5-year rule for just conversions. Wish I had done more in conversions earlier.
So, I can still withdrawal monies at 59 1/2 yet I will be taxed in this scenario: I had 401k through work for 32 years, transferred to a personal Roth IRA this year after business closed. I have to wait five years to withdrawal funds tax free, however I can still withdraw funds without needing to meet a reason why, yet I will be taxed?
Interesting. I just closed a 10 year old self directed ROTH and distributed the asset, a piece of land, to myself. The Roth was a conversion from a regular IRA 10 years ago. I paid taxes on the conversion at that time. I’m over 60. So I meet the 5 yr rule but I also have another Roth with say 30k in it. The value of the land is say 30k 20 the original conversion amount and 10k earnings. But based on your explanation that additional 10k is treated as contributions not earnings. Not sure it matters since it’s clearly a qualified distribution. But in either case there should be no tax due.
Great video dissecting the 5 year rule. Now help me get my IRA into a Roth. 5 million,age 66, retired
I saw your email and am working on a video. One thing I can say is that there is no age limit on contributing or converting to a Roth IRA.
@Auric Goldfinger - are the primary reasons to reduce RMDs and set up a tax free inheritance for a lucky group of people?
I guess the main question is how much tax do you want to pay a year?
If you think you'll live to 86, 5 mill/ 20 years gives you a $250k withdrawal not including any growth during that timeframe.
If you're married, filing jointly in 2022, you can convert up to $329,850k and stay in the 24% tax bracket. Any other earnings you have that year would fall into 32% bracket.
It's better to withdraw more now before the 2026 income tax increases arrive.
Congratulations!! That's a nice problem to have!
If I do a rollover of a Roth 401k to a Roth IRA, does that count as a "conversion" subject to the 5 year rule? Or does it "remember" what the contributions and earnings in the Roth 401k were and keep those amounts? And what if there are conversions within the Roth 401k due to using the "mega backdoor Roth" - do their 5 year timers carry over to the Roth IRA?
Roth 401k to Roth IRA is a rollover, not a conversion. No 5-year rule (unless the Roth IRA hasn't been open for 5 years). The 401k custodian should be keeping track of contributions and reporting that on your 401k statements. I don't know if they communicate that when you do a rollover. I've never seen a clear answer on in-plan Roth 401k conversions. They're not nearly as common. I would expect they follow the same 5-year rule since they create a taxable event that the IRS can track.
That was fantastic.
Could any or all of the wealth planners clearly state that interest earned on a roth ira is NOT taxed after you satisfy both the 5-year and the 59-1/2 year rule. PLEASE?
Can you use the funds in the roth ira to invest in a vanguard index fund?
Yes.
Great info!
Rob, I have some money in an old 403b from a previous job. I want to roll it over to a Roth. The amount in the 403b would be considered income, correct? If so, that amount added to our combined income would not put us in a different tax bracket. Is that how the taxing works for that sort of conversion?
Q1 Yes, it's considered income. It may or may not place you in a higher tax bracket.
Thank you for the information
Great video explaining the 5 year rules. I have a question about rolling over the Roth 401k to Roth IRA. Your video says the money will follow the Roth IRA account rules. The question I have is, is the entire rollover balance considered a contribution even if part of the balance was gains from the Roth 401k?
Great question, and one I tried to find an answer for myself. I suspect it's still a combination of contributions and earnings, but I can't confirm that with a reliable source.
I think that most people would avoid this issue entirely. If they retired after age 59 and 1/2, then they could roll entire balance over with no tax consequences. I guess if you retired earlier say at 55, you might want to play it safe and wait to do the rollover until you reach 59 and 1/2. I have read a lot of the IRS rules and never ran across the rule for this.
@@johnscott2746 I have left the Roth 401k portion in my 401k, and just rolled over the Trad 401k to Trad IRA (with goal of converting to Roth IRA) for a similar reason...not sure how to handle the Roth 401k if I move it!
I would ask: Is a rollover deemed a contribution? I don't think it is. When I rolled over my TSP to my IRA i did not retain contribution or gain status of my TSP. My IRA began with a new lump sum of cash with only subsequent contributions counted as such.
This exactly why you open a Roth at least 5 years before you retire, want to take distributions, or start doing conversions. If you opened a Roth more than 5 years before you roll over that 401k Roth, and you are 59.5 when you want to start taking money out, you won't have any penalties/taxes.
You might give an example of how it's really a four-year rule. I believe if you opened a Roth IRA at the end of 2020, then you can take out the money without paying taxes at the beginning of 2025. That's four years, and a day.
The IRS publication explaining rules treats any INITIAL IRA contribution to have been opened on January 1, even if you opened it on December 31.
I start my Roth conversion in 2021 and I am 60 years old and planning to convert each year with $10K in next 4 years. So, in 2026, can I start withdrawing all $50K tax free? Or is it only $10K + interest available in 2026 ?
This may be a very stupid question but why would you have multiple Roth IRA accounts if you can’t contribute more than 6000 per year in a Roth IRA (whether you have multiple or not, same cap amongst all of them right?)? So no more to contribute whether you’re doing 6k in one or 3k in 2?
Some folks don't want to keep all their money at the same broker.
I opened a Roth IRA at a bank many years ago just to start the clock. Now I have a Roth IRA with a brokerage and I am doing Roth conversions each year.
Dumb question….I have a Roth 457 (government version of 401k I guess) through my employer as I also contribute to my pension that thankfully will be pretty generous……what would be the benefit of converting the Roth 457 to a Roth IRA as I get closer to retirement? Is there a benefit besides being able to still contribute to the Roth IRA in my retirement years since I will no longer be able to contribute to the Roth 457 upon my retirement which should be around 57/58? My plan will be to work somewhere else whether part time or fill time until I’m 65 or so and am eligible for Medicare and also start drawing Social Security.
457 plans have an advantage of being available as soon as you separate from your employer (ie before 59 1/2). My guess is unless you have another way to fund the first few years of retirement, you would want to keep the 457 plan until you are 59 1/2. Then converting might make more sense.
So if you did an initial Roth conversion in 2020 and you wer3 60, and you continue doing them each year, the 5 year rule for tax calculations (not the penalty) for all the converted money is satisfied 5 years after the first conversion (2025), is that right?
Each conversion has its own five year clock. But since you are 60, it doesn’t apply to you. As long as you have had any Roth IRA open for at least five years and you are over 59 and 1/2, then all distributions are qualified and tax free.
I didn’t know that principle into Roth can be withdrawn even before the 5 year rule.
Rob, I'm 59. I started ROTH conversions when I was 55, so I'll meet the 5-year account rule when I turn 60. My question is this: If I make a distribution after the 5-year account rule is satisfied (at age 60), are any of my conversions (earnings) from years 55 and onwards subject to taxation after age 60 or would all of my distributions be deemed "qualified" distributions? Hope that makes sense. As i understand, the second 5-year conversion rule would not apply to me because I will be older than 59-1/2 at that point.
There is no limit as to the number of Roth accounts you can have.
Perhaps consider isolating the one started at 55 vs the Roth account you will be doing conversions for. It might make sense from an investment standpoint too.
And I think you may need to double check the rules. The 5 year rule always applies to the “earnings/growth” even at 59.5 and older.
Great video, but I'm confused as to how one determines they have a "ROTH IRA" or a "ROTH 401L IRA". Asked Fidelity about my "ROTH IRA" that is under my employers retirement account and they say it is a "ROTH IRA".
Did you contribute over $6,000 to your employer plan in 2021?
I liked your video a lots, been trying to get this strait in my head about converting a IRA to a Roth IRA and converting a 401k to a Roth IRA after 59 1/2.I would really like to find a flow chart made up by someone showing this after 59 1/2 and already having a Roth IRA for over 5 years. the flow chart would go something like this, - are you over 59 1/2 years old (yes or no) if (yes) have you had a Roth IRA for 5 years (yes or no) if (yes) and you want to direct transfer a 401K into a Roth IRA do you have to wait 5 years before you can take out any earnings without a penalty (yes or no). Does anyone have a flow chart made up like this or has anyone seen such a flow chart? IF SO, PLEASE LEAVE A LINK TO IT FOR THOSE THAT ARE STILL CONFUSED ABOUT IT. Thanks TC - Flow charts make thing simple for us simple minded people.
The exact flow chart you looking for is in IRS publication 590-B, I believe it is figure 2-1 in that document. I would link the document, but youtube deletes comments with links.
so I turn 59 next month. I have also been told by my doctor to retire or else make funeral plans. I have at least a year of expense savings. I thought I would rollover any amount that is less than the 12% tax bracket into a roth IRA. So in my case, once I hit that 5 years, earnings will be non taxable? I am planning on drawing from my 401k in the meantime. Is this the correct thinking, or just don't do it?
Example question. I contribute to an employer Roth IRA 401K with $1000.00. I also contribute to my employer a 401K IRA which has $10,000.00. I meet the 5 years rule and I am 60 years old. Can I convert (transfer) the 401k IRA ($10,000.00) over to Roth 401k IRA ($1000.00)?
Your description of employer Roth IRA 401(k) and employer 401(k) IRA contains IRA which is erroneous. Assuming you're asking if you may convert your $10k traditional 401(k) into your existing $1k Roth 401(k), answer is you may if your workplace 401(k) allows such conversions. 5 year rule here is not relevant.
Great reason why every parent or grandparent should open a Roth IRA and fund it the first year the child has income...even babysitting or chores or shoveling snow.
this is why everyone needs to open a roth ira. just put some money there and forget it. i put just 1k in last year. started my 5 yr. count down. wish i knew this sooner. my two sons open roth ira's. they are 16.
Hi Rob, great video, but from what i’m understanding from many other places if you are under age 59.5 earnings in a ROTH will still be subject to income tax even if the account is open over 5 years. I definitely understand the 10% penalty would apply, but wouldn’t the income tax also apply (unless you also meet one of the exceptions such as first time homebuyer) butThis seems different than you are saying? This would have massive implications for my situation so just trying to get it clarified thanks!
Correct. Satisfying the 5-year rule is just one of the requirements for Qualified Distributions. You also have to be 59.5 or have one of the other exceptions apply to avoid taxes.
The IRS has an order of distribution that they go by. They consider that you first take out your contributions then any conversions and finally any earnings. So, if you have been contributing to your Roth for a number of years you could be able to take out quite a bit without any problems.
Rob, this was a great video, answered a few question I have with regards to my retirement planning. One question I have, my wife and I have reached that magic income level that we can no longer contribute to our Roth IRA (bad problem to have I know...). We still contribute to our Roth 401K though. My plan was to contribute to my traditional IRA and roll it over each year to my Roth IRA. What happens to the 5 year rule on conversions when I get close to 59 1/2, for conversions made less than 5 years but I turn 59 1/2 within that time. Does the 5 year rule not apply to conversions I've made while 55 years old on, if that makes any sense... Thanks again, great explanation here!
From this video and what I've read as long as the Roth (or any roth ira) has been open for 5+ years once you turn 59.5 there is no 10% penalty or Income taxes due.
I have a Roth older then 5 years, and I am 60. For last year and this year, I put in $14500 In Tesla stock. I am aiming it grow to $45k so I can buy the least expensive Tesla. If it reaches my goal with 4 years, could I take it out without any penalty? Thank you.
Thank you for this video! If you have a Roth IRA via conversion, once the 5 year rule is satisfied for that converted account, can you roll a 401k Roth into it without restarting the 5 year time rule, or does the 5 year period restart? Also, can you do a Roth IRA conversion any time during the year (i.e., can I create a traditional IRA beginning of January 2022 and then convert it to Roth IRA end of January 2022)?
Keep in mind there are two 5-year rules, one for conversions and one for accounts. But of course, if you've satisfied the 5-year requirement after an IRA conversion, than you've had the Roth IRA for at least 5 years. In any event, rolling over a Roth 401k to a Roth IRA does not restart the clock. It's still how long you've had a Roth IRA that matters. As for timing, I know of no restrictions regarding what part of the year your do a conversion.
Keep in mind that each conversion has its 5 year rule to it. So if you do a conversion one year and wait the five years and then do another conversion that will have a new 5 year waiting period.
@@johnscott2746 Am I correct in saying that if your over 59-1/2 then conversion 5 year rule doesn't apply? (I believe the "contribution" 5 year rule still applies even if over 59-1/2.)
@@cottagemail4066yes, according to the IRS website it says if you have had a Roth IRA open for at least five years and you are over 59 and 1/2 then all distributions are qualified and tax free. So the five year rule on conversions would no longer apply.
May the IRS bureaucrats that wrote these rules (and all the other IRA/401k rules) rot in hell. Could they make this stuff any more complicated?
Don't tempt them
So get 5 yrs under your belt and make it to 59.6, then you are home free
Absolutely!