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

By Andy Ives, CFP®, AIF®
IRA Analyst
Follow Us on Twitter: @theslottreport

QUESTION:

Iturn 72 next month.  Can I take part of my RMD this year and the balance before April of next year?

Howard

ANSWER:

Howard,

Happy early birthday! Since you turn 72 this year, 2022 is your first year for taking a required minimum distribution (RMD). With the first RMD, you have until April 1 of the year after the year you turn 72 to take all or part of the first RMD. So, if you want to take part of your 2022 RMD this year and the balance by April 1, 2023, you are welcome to do so. (Just remember that you will have to take your 2023 RMD and all future RMDs by December 31.)

QUESTION:

Dear Roth IRA experts,

I have a Roth IRA question and seeking your expertise! My question has to do with the Roth IRA 5-year rule. I am over age 59 1/2. I have a Roth IRA, created with Roth contributions started in 2015. This Roth IRA meets the 5-year rule. I have a Roth 401(k), created by converting pre-tax funds to a Roth IRA annually, which was started in 2018. I want to rollover my Roth 401(k) into a second Roth IRA (custodian different than custodian for first Roth IRA). Will the withdrawals from a newly established, second Roth IRA – principal and earnings – be tax and penalty free?

Thank you so much!

Roger

ANSWER:

Roger,

Even though you are just a couple of months short of meeting the 5-year clock on your Roth 401(k), you will have full access to all Roth IRA dollars after the rollover. If you roll the Roth 401(k) to a brand-new Roth IRA before the end of 2022, those former plan dollars will maintain the same character as they were in the plan (conversions and earnings) when they go into the Roth IRA. However, they will adopt the clock of your existing Roth IRA. (Since you started your first Roth IRA in 2015, that start date will apply to all your Roth IRAs, regardless of how many you have.) Since you already met the 5-year clock on your first Roth IRA and are 59 ½ or older, you have immediate access to all Roth IRA contributions, conversions and earnings tax-free. (It might behoove you to wait until January before doing the rollover. This way it will be a “qualified distribution” from the plan, and you can avoid any possible confusion of sorting out what was plan conversion dollars and what was earnings.)

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

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