The Two 5-Year Roth IRA Rules Explained | Here's How They Work
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2 жыл бұрынThere are two different 5-year rules for Roth IRA accounts. One applies to Roth IRA accounts and determines, in part, whether the withdrawal of earnings is subject to income tax. The second applies to Roth IRA conversions and determines whether a withdrawal will trigger the 10% penalty tax.
In this video we walk through both 5-year rules. We'll cover what they are, how they work, and what it means for retirement savings.
These are complicated rules, so be sure to check out the resources below. And as always, consult a tax professional before making any decisions.
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ABOUT ME
While still working as a trial attorney in the securities field, I started writing about personal finance and investing In 2007. In 2013 I started the Doughroller Money Podcast, which has been downloaded millions of times. Today I'm the Deputy Editor of Forbes Advisor, managing a growing team of editors and writers that produce content to help readers make the most of their money.
I'm also the author of Retire Before Mom and Dad--The Simple Numbers Behind a Lifetime of Financial Freedom (amzn.to/3by10EE)
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DISCLAIMER: I am not a financial adviser. These videos are for educational purposes only. Investing of any kind involves risk. Your investment and other financial decisions are solely your responsibility. It is imperative that you conduct your own research and seek professional advice as necessary. I am merely sharing my opinions.
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@johnscott2746 2 жыл бұрын
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!!
@gieb6428 9 ай бұрын
Very true
@jgleigh Жыл бұрын
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.
@JasonBuckman 2 ай бұрын
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.
@Geor9e 2 жыл бұрын
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.
@tvstation8102 2 жыл бұрын
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.
@mikewasserburger9662 2 жыл бұрын
Rob: you do such a great job of making the complex seem simple. That is no easy task and I really appreciate your efforts!
@Harry_16710 2 жыл бұрын
Great presentation, Rob - my mind didn't even begin to numb. ☺️ Very pleased to hear the IRS actually does something that benefits us!
@ramrod2298 2 жыл бұрын
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.
@janethunt4037 10 ай бұрын
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.
@betsymoore234 2 жыл бұрын
Nicely done! I just shared with several friends who routinely ask about this.
@bharatborse9265 2 жыл бұрын
Very well described. Thanks Rob for helping people like me who try to do as much DIY as possible.
@Middle-Of-The-Road54 3 ай бұрын
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.
@ncshaw21 Жыл бұрын
This is so well done. Thank you for the detailed -- and accurate -- explanation on this topic.
@mitranoarthur 2 жыл бұрын
The content on this channel is top notch with full of information.
@taciturnip 2 жыл бұрын
Great work. Very clear explanation. Thanks!
@bradleylanning9701 Ай бұрын
You are definitely the BEST! Though you prepared this years ago, I am just now needing it. You would not believe how many KZfaq 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!
@seriousfaith 2 жыл бұрын
Outstanding content! Thank you!
@chiparooo Жыл бұрын
Thanks for explaining this Rob. I think I got it all now. Thanks for sharing!
@fmlister 5 ай бұрын
Thank you so much! This is the best explanation I have run across. I finally understand. 😀
@commonpersonopinion3807 2 жыл бұрын
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
@DavidVarisco 2 жыл бұрын
Thank you for some enlightening information!
@dakotaiv 2 жыл бұрын
Very, very helpful explanation. I had no idea about the 5-year rule application to all future contributions. Great info!
@bato-wm5gl 3 ай бұрын
I think you meant conversions. Contributions don't have a 5 year rule
@Zues64 Жыл бұрын
Excellent explaination Rob...thank you
@salahglobal3026 Жыл бұрын
Great explanation! Thank you.
@janzelm505 2 жыл бұрын
Outstanding! You just save me some tax money! Happy New Year to you and thanks for your great videos!
@joeburns3302 2 жыл бұрын
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
@johngutierrez6584 2 жыл бұрын
Thank you, very informative
@timflatt8879 2 жыл бұрын
Thank Bob for the info. I have been looking into doing a Roth Conversion.
@craigchapman9977 2 жыл бұрын
Great info!
@dafinamosley912 2 жыл бұрын
Thank you for the information
@stevenobrien595 2 жыл бұрын
A quick vid explanation on form 8606 part 2 and part 3 would go nicely with this!
@legiontheatregroup 2 жыл бұрын
That was fantastic.
@donh8223 2 жыл бұрын
@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.
@chipsndiptrio 2 жыл бұрын
Hey Rob . . . any chance you can post a link to your PowerPoint presentation? Thanks much and Happy New Year!!! Thanks for all you do!!!
@janetclaxton217 2 жыл бұрын
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.
@pletts2685 Жыл бұрын
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.
@hanscastorp7870 Жыл бұрын
Regarding the first five-year rule: Excellent presentation! One question: Say you open a Roth IRA, and three years later you transfer it to a different institution. After the Roth IRA at the second institution has been in effect for two years, have you met the five-year rule requirement? Thanks.
@stevenobrien595 2 жыл бұрын
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!
@nickv4073 2 жыл бұрын
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.
@davidroush1224 2 жыл бұрын
@@nickv4073 - And I'd gladly take it for tax free compounding over decades. My ROTH will eventually make more in dividends annually than all of the taxes I paid. And likely double or more that in the 10 years after the last one of us passes and our kids get to reap the last of the tax free dividends without being pushed up another tax bracket or two.
@alrocky 2 жыл бұрын
@@davidroush1224 Roth IRAs are not a free lunch as paying the tax now is not always better than paying the tax later even if you actually paid less in tax dollars now. As *Nick* says it allows Fed to receive tax revenue now instead of later and Roth IRA is more or less revenue neutral.
@gieb6428 9 ай бұрын
Too many hoops
@longgone9738 4 ай бұрын
@@alrockyIn my lifetime, my taxes go up. Period. Interest on the US national debt is over $1,000,000,000,000 each year in 2024. Hmm. I wonder if tax rates will decrease in the future…
@wilma6235 2 жыл бұрын
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.
@rob_berger 2 жыл бұрын
A market drop is the best time to convert. If only I knew when that was going to happen!
@wilma6235 2 жыл бұрын
@@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.
@jasonh2002 2 жыл бұрын
Excellent video! Helpful to know about the 5-year rule for just conversions. Wish I had done more in conversions earlier.
@bingoknows 2 жыл бұрын
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
@rob_berger 2 жыл бұрын
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.
@bingoknows 2 жыл бұрын
@@rob_berger Got it!
@lisapippinbt738 Жыл бұрын
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.
@rondematteo369 Жыл бұрын
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.
@lynninfinite 2 жыл бұрын
Ugh, I should have opened up my ROTH IRA when I was 21 in college.
@johnsdsl Жыл бұрын
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.
@butopiatoo 2 жыл бұрын
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.
@michelfortier9563 2 жыл бұрын
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.
@slimdawgwoof 2 жыл бұрын
Any idea how I figure out the contribution amount (basis) for a ROTH IRA? When I was younger I made contributions but didn't realize I should have kept track. I also believe I did a IRA conversion into it as well many years back. Worst of all I moved the ROTH IRA two times. 😨 Do I need to start going through 24 years of tax returns?
@Geor9e 2 жыл бұрын
I didn’t know that principle into Roth can be withdrawn even before the 5 year rule.
@TES-bt8sv 2 жыл бұрын
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?
@Micahpickles 2 жыл бұрын
Is VTSAX a good fund to get your Roth IRA fat as a tick?
@Krystaldoll282 2 жыл бұрын
I got lost on the second one 😳 How much to open one and how can go into one?
@ThomasWood-pr2bq 7 ай бұрын
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.
@MarkABasile 9 ай бұрын
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.
@bertde3092 Жыл бұрын
Rob, it is my understanding, if one opens a ROTH IRA after the age of 59.5, the contributions are also governed by the 5 year rule and therefore the contributions as well as the gains are to be held for 5 years. If one is to take their contribution before the 5 year mark, they are subject to penalty. Can you confirm?
@dunnbrandon 8 ай бұрын
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?
@sbkpilot1 Жыл бұрын
this is confusing, is a "conversion" also contributing to the "first contribution" test? I have never directly contributed to a Roth IRA, only done a backdoor. I did my first backdoor conversion in Jan 2019 so I am assuming I clear the 5 year period in Jan 2024, am I right?
@Stephen-Harding 2 жыл бұрын
Thanks! Excellent Video. Perhaps though this subject should be dealt with in two separate videos: 1) the definitive Roth IRA rules for anyone UNDER 59 1/2 .... and 2) the definitive Roth IRA rules for anyone OVER 59 1/2. Most of the potential confusions, complications, nuances, etc. apply to the under 59 1/2 crowd. For the over 59 1/2 group, the rules are, thankfully, pretty concrete and straightforward.
@gieb6428 9 ай бұрын
Yes, perfect. Most try to include too much information in Roth IRA rules videos.
@thomasreedy4751 3 ай бұрын
Didn’t he say After 59.5: No penalties at all. Five year rule to withdraw earnings tax free. Roth 401k roll over uses aging of Roth IRA. Everything else he said applies to before 59.5. No penalties or extra taxes for contributions. Five year rule to access distributions of conversions penalty free - already taxed at time of conversion. Penalty and tax for earnings.
@jjyemg2397 2 жыл бұрын
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?
@ynsam 2 жыл бұрын
This may be a very basic question. How do you determine if you are taking out the contributions and not the earnings? While withdrawing do I need to keep a track whether the money removed is from either or? Will brokerage account custodian take care of that? Also, how can I track if I satisfy 5 year rule. Is it just when my first ROTH IRA opened?
@alrocky 2 жыл бұрын
Have you keep Form 5498 that your IRA custodian sends you every January?
@jerryvelders4457 2 жыл бұрын
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 ...
@tsizzle 2 жыл бұрын
Hi Rob, what if you have a Roth IRA account that’s more than 5 years old with say Vanguard and you want to open another Roth IRA with Fidelity and move all of the funds from Vanguard over to Fidelity. Does the new Fidelity Roth IRA have to start the over with respect to the 5 year rule?
@ericschubert9948 2 жыл бұрын
T Sizzle. Your question is answered at 2 minutes and fifty five seconds into the video.
@financialownership 2 жыл бұрын
Are these rules the same with roth 401k? Nvm I see you talk later about it
@fabiGBOtown 2 жыл бұрын
Can you use the funds in the roth ira to invest in a vanguard index fund?
@longgone9738 4 ай бұрын
Yes.
@timdog1863 2 жыл бұрын
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?
@daveschmarder-1950 2 жыл бұрын
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.
@connersyhouse6480 9 ай бұрын
You probably addressed this but I'm a little slow on the uptake. So, I apologize if you have to repeat something. If I am older then 59 & 1/2 and I am rolling over a 403b to a Roth IRA over a number of years, is there only one 5-year rule (i.e. I have to wait 5 yrs from the initial deposit before withdrawing $) or a separate 5 yr waiting period for each rollover? So, if the initial rollover is in 2023 and then more is rolled over in 2024, 2025, etc.(for tax purposes), could I withdraw all the money in 2028? Thanks so much!
@dorisng4551 2 жыл бұрын
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 ?
@Dclagg1 2 жыл бұрын
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?
@alrocky 2 жыл бұрын
Q1 Yes, it's considered income. It may or may not place you in a higher tax bracket.
@rob_berger 2 жыл бұрын
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
@hornbaker 9 ай бұрын
Thanks for adding this detail, as it’s a little-known gotcha and workaround.
@auricgoldfinger8478 2 жыл бұрын
Great video dissecting the 5 year rule. Now help me get my IRA into a Roth. 5 million,age 66, retired
@rob_berger 2 жыл бұрын
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.
@charlielipthratt7291 2 жыл бұрын
@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!
@arthurchin1606 2 жыл бұрын
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?
@rob_berger 2 жыл бұрын
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.
@johnscott2746 2 жыл бұрын
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.
@tvstation8102 2 жыл бұрын
@@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!
@Zues64 Жыл бұрын
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.
@jerrylabat550 11 ай бұрын
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.
@bato-wm5gl 3 ай бұрын
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?
@fhantom784 2 жыл бұрын
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?
@jgleigh Жыл бұрын
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.
@johnsdsl Жыл бұрын
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.
@longgone9738 4 ай бұрын
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.
@pauljohnson1885 2 жыл бұрын
I'm 63, I opened a Roth with a bank several years ago. I then moved it to Fidelity. Which opening date satisfies the 5 year rule?
@alrocky 2 жыл бұрын
several years ago
@iamjudgedredge 2 жыл бұрын
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.
@suepfister4593 2 жыл бұрын
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?
@johnscott2746 2 жыл бұрын
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.
@user-qk5dw2wr4m 6 ай бұрын
On the Roth when I pass on my kids get the $$ lump sum with no taxes correct?
@longgone9738 4 ай бұрын
Inheritances are tax free as long as the total estate falls below the trigger point of death taxes - which the government uses to gouge very wealthy people after they are dead.
@earl81ful 2 жыл бұрын
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!
@bigtoeknee11 2 жыл бұрын
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.
@billmoffitt7411 2 жыл бұрын
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".
@alrocky 2 жыл бұрын
Did you contribute over $6,000 to your employer plan in 2021?
@danhayes4941 2 жыл бұрын
I didn't tell the IRS about my Roth Contributions in the early years (around 2008) I contributed. I didn't think IRS needed to know and I don't think the person who did my taxes asked either. Since I started using H&R Block software I tell the IRS. Anyway, I hope I can take out my contributions and eventually earnings without penalty.....BUT I want to continue contributing up until 59, so that might be a bit of a hassle with the 5 year rule.
@alrocky 2 жыл бұрын
You don't need to tell IRS about your Roth IRA contributions since they already know about it. Carefully read the form your IRA custodian annual sends to you.
@e-spy 2 жыл бұрын
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?
@ratdoggwilliams1501 2 жыл бұрын
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!
@rob_berger 2 жыл бұрын
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.
@johnscott2746 2 жыл бұрын
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.
@dougm1985 2 жыл бұрын
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.
@tcwaterdrill 2 жыл бұрын
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.
@jerrylabat550 11 ай бұрын
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.
@kirkkohnen5050 2 жыл бұрын
So, let me know if I'm correct or not. 1) I am over 60. 2) I have had a Roth IRA for 20 years. 3) I converted an IRA into a Roth IRA last year and I was over 60 all last year. If I understand the rules correctly, I can completely ignore them because: 1) Old Roth ==> No worries about the first 5 year rule because I have an old Roth IRA. 2) Old Me (over 60) ==> I can withdraw both principle and earnings on my converted Roth IRA even though I converted it 1 year ago because I'm old. Is this a correct assessment?
@mikeh7203 11 ай бұрын
So of I opened a Roth IRA 10 years ago at one investment company and open a NEW one at a different company today it does not matter because of the 1st one I opened 10 years ago? Does this apply to say a 401k Roth I rollover tomorrow to a NEW Roth account I open with a third company? If I hear you right they all default to the one I opened 10 years ago so all are ok no 5 year rule? That is counter to everything I hear that everyone is saying regarding the 5 year rule they all say the clock restarts with any NEW account regardless if you already have a Roth IRA established in this case 10 years ago.
@bmp713 2 ай бұрын
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?
@philly1776 9 ай бұрын
How would the IRS determine whether you took out contributions or earnings? They all come out of the same pot of money, correct?
@philly1776 9 ай бұрын
Oooops sorry. I just watched until the end and there was my answer:):)
@turtlesonmars 2 жыл бұрын
Thank you!! If I only fund my first and only Roth account via conversions from an IRA and never directly contribute to the Roth from a bank account or brokerage account, does the Roth Account clock ever start ticking? If so, does it start ticking the year of the first conversion or 5 years after that when the converted assets have completed their own clock? The screenshot of the IRS document you showed does not specify what kind of contributions they mean. In the same IRS document, they sometimes mention "rollover contributions" and "regular contributions," and often they just say "contributions" when they seem to mean "regular contributions," hence my uncertainty.
@ginocoronel8940 2 жыл бұрын
Excellent video. I need some clarification. I opened a Roth IRA last 2019 and have been contributing to it. I also have a 401K and a Roth 401K with my employer. I've been transferring (or converting) my Roth 401K (only my Roth 401K and NOT my regular 401K) to my Roth IRA every year since 2019. My question - does each transfer (conversion) of my Roth 401K to my Roth IRA start a new 5 year clock for that particular conversion? I'm already 64 years old.
@alrocky 2 жыл бұрын
What stops you from transferring -converting- your entire Roth 401(k) to Roth IRA?
@ginocoronel8940 2 жыл бұрын
@@alrocky Nothing! I convert/transfer ALL of them at the end of the year. The following year, I start contributing again to my Roth 401K and then convert it again at the end of the year.
@bigtoeknee11 2 жыл бұрын
As long as the Roth IRA has been opened and funded for 5+ years any 401k Roth to Roth IRA transfers are penalty and tax free once you are over age 59.5.
@Ken-vl4wk Жыл бұрын
@@bigtoeknee11 this is not what he asked
@tcook1967 4 ай бұрын
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
@ClearVuSystems 7 ай бұрын
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?
@longgone9738 4 ай бұрын
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.
@Zues64 Жыл бұрын
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.
@f430ferrari5 Жыл бұрын
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.
@cbhitman1174 2 жыл бұрын
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.
@wllamaful 2 жыл бұрын
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.
@5FiveGz 2 жыл бұрын
Hi Rob, I am 50 years old. I know I can contribute after tax contributions up to $7000 a year to my Roth account. But I also have a Traditional IRA acct. as well. My question is can I contribute $7K to Roth and $7K to IRA, or is the $7k limit for all accounts? Thank you, and I appreciate your videos, very informative and easy to understand…
@davidk6498 2 жыл бұрын
$7000 total all IRAs but you can do a spousal IRA in your wifes name for another $7000
@5FiveGz 2 жыл бұрын
Thank you!
@butopiatoo 2 жыл бұрын
You can also do a SIMPLE and a SEP at the same time as a ROTH but only a total of 7k of traditional and Roth per year ie $3k traditional and 4K of Roth would be ok. SIMPLE limit in 22 is 17k and SEP is 25% of your net earnings from a sole prop up to some limit. Lots of opportunities to save for retirement.
@thomasreedy4751 3 ай бұрын
Roth Contribution + traditional Contribution = 7k You may not be eligible to contribute pre-tax money to a traditional Ira if your employer offers a 401k. You may not be able to contribute to a Roth IRA if your salary is over a set amount. There are workarounds - but not cut and dry.
@wd3574 2 жыл бұрын
Rob, if I consolidate all my funds from a 20 year old Roth IRA from broker A into another Roth IRA with broker B, which I just opened up last year, am I now subject to the 5 year rule again?
@alrocky 2 жыл бұрын
You satisfied 5 year rule 15 years ago. Changing from one Roth IRA custodian to another Roth IRA custodian does not reset. Imagine instead that you moved the new Roth IRA to the 20 year old Roth IRA - you'd assume no reset right? It'd be silly that going from old to new would reset but new to old would not. IRS rule applies to *_when_* you started it not where you hold it.
@wd3574 2 жыл бұрын
@@alrocky For me when it comes to IRS rules, I don't take anything for granted, and many of the rules seem silly and confusing. I had to ask the question because, in effect, I'm "closing" the older Roth IRA account. And I don't know if that affects the 5 year rule in the eyes of the IRS. Thanks for answering my question.
@wd3574 2 жыл бұрын
@@alrocky In my case I wanted to roll over the 20 year old Roth IRA, which contains actively managed funds, to a new Roth IRA under a different custodian that has indexed funds. That was a reason for me to go from my old Roth IRA to a brand new one.
@danhayes4941 2 жыл бұрын
I withdrew some of my Roth contributions $ well before 59 1/2 but it was considered an "Unqualified" Event yet I think I was not taxed on it. Does that sound right?
@alrocky 2 жыл бұрын
Look up Form 8606 Part III. Lines 19 & 22 apply.
@bigtoeknee11 2 жыл бұрын
Does not sound right to me, I would think you would of owed taxes and a 10% penalty on the withdrawls
@alrocky 2 жыл бұрын
@@bigtoeknee11 Withdrawal of *_Contributions_* to Roth IRA are free from tax and penalty. Google is your friend.
@bigtoeknee11 2 жыл бұрын
@@alrocky yes 100% correct Roth Contributions can be withdrawn at any time tax and penalty free...
@taylormmmf 2 жыл бұрын
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?
@rob_berger 2 жыл бұрын
Some folks don't want to keep all their money at the same broker.
@johnscott2746 2 жыл бұрын
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.
@janelee6037 Жыл бұрын
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.
@danhayes4941 2 жыл бұрын
You write: "Contributions can be withdrawn penalty and tax free"???? BUT if you are under 59 1/2 and even if you meet the 5 year rule, your withdrawal of contributions (not earnings) is called "Unqualified". I did this.....I'm not sure if I was taxed 10% (or other "pro-rated" rate) or not?? I followed the IRS flow chart you posted the link for and I get "not qualified" may be subject to 10% penalty.I thought I understood but now not sure.
@alrocky 2 жыл бұрын
Did you fill out Form 8606?
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