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THE ONCE-PER-YEAR ROLLOVER RULE AND THE ROTH IRA 5-YEAR WAITING PERIOD: TODAY’S SLOTT REPORT MAILBAG

Ian Berger, JD
IRA Analyst

Question:

I rolled over an IRA in March 2021 from an TD Ameritrade institutional account to a TD Ameritrade retail account. I currently would like to do a 60-day short-term rollover. Would this not be allowed because of the one rollover per 12 month period or is a 60-day short-term rollover treated differently? Thank you for your time.

Answer:

Any traditional IRA-to-traditional IRA rollover or (Roth IRA-to-Roth-IRA rollover) is subject to the once-per-year rollover rule. That would include a “short-term” rollover. So, if you receive another IRA distribution within 12 months of your receipt of the TD Ameritrade institutional account, you can’t do a tax-free rollover – even a “short-term” rollover – of the second distribution.

Question:

Hello, I did a back door conversion of 401(k) money to a Roth IRA in 2019. I was older than 59 ½ when I did that (born 1953). I am under the belief that the account must be in existence for 5 tax years before earnings can be withdrawn without tax.

Others tell me that since I was older than 59 ½  and paid taxes on conversion, both my converted funds, subsequent contributions and earnings are okay to be withdrawn anytime. In other words, there is no 5 year waiting period. Is that correct?

Thanks,
Howard

Answer:

Hi Howard,

This is an issue that trips up lots of people. Whether earnings on your 2019 conversion (and on any subsequent contribution) are tax-free depends on when you did your first contribution or conversion to ANY Roth IRA.

If you did your first contribution or conversion before 2017, then your 5-year waiting period is over, and you can take tax-free earnings now. But, if your first contribution or conversion was after 2016, earnings won’t be tax-free until the end of the 5-year period that started on January 1 of the year for which you did that first contribution or conversion. Also keep in mind that the IRS says that earnings are considered to come out after contributions and conversions, so you can always take out the principal amount of your Roth IRA contributions or conversions tax-free.

https://www.irahelp.com/slottreport/once-year-rollover-rule-and-roth-ira-5-year-waiting-period-today%E2%80%99s-slott-report-mailbag

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