By Andy Ives, CFP®, AIF®
An initial ROTH conversion was completed in 2018 for tax year 2018. A second conversion was completed in 2019 for tax year 2019. There was no ROTH IRA account prior to 2018 and the account owner is over 59 ½. The 5-year holding period will be satisfied on 1/1/2023. Does each ROTH conversion transaction have a separate 5-year clock to determine whether earnings are tax free or is it just the initial transaction? Thank you in advance for your assistance.
For those under the age of 59 ½, yes, each Roth conversion has its own 5-year clock. However, the account holder you are inquiring about is already over 59 ½. As such (and since this is his very first Roth IRA account), he only has to concern himself with the 5-year clock on the 2018 conversion. Since a person who is over 59 ½ already has full access to his traditional IRA before a conversion, he will still have full access to the account immediately after the conversion. It is the tax on the earnings that we are concerned about. On 1/1/2023, he will have satisfied the 5-year clock for tax-free earnings on the 2018 conversion. Also on 1/1/2023, he will have satisfied a second requirement – what I call the “5-year forever” Roth clock – which means the 2019 conversion clock becomes irrelevant. Going forward, his Roth IRA will provide immediate tax- and penalty-free earnings for the rest of his life, regardless of how or when new Roth money is added to it. There will be no more clocks to worry about.
I understand that you can make up to a $100,000 withdrawal from my IRA for a qualified charity. Does the withdrawal for the charity have to be a once-per-year event, or can it be monthly, quarterly, etc., so long as the total does not exceed $100,000?
Yes, qualified charitable distributions (QCDs) are capped at $100,000 annually, per person. You must be at least age 70 ½ to do a QCD, and the payment must be directly transferred to the eligible charity. (Don’t make the mistake of withdrawing the money yourself.) QCDs can be done as often as you wish – there is no limit on the number of QCDs, only on the total amount. If you do go over the $100,000 limit, the overage will not be excluded from income and cannot be carried forward to the next year.
An initial ROTH conversion was completed in 2018 for tax year 2018. A second conversion was completed in 2019 for tax year 2019. There was no ROTH IRA account prior to 2018 and the account owner is over 59 ½. The 5-year holding period will be satisfied on 1/1/2023.