By Ian Berger, JD
IRA Analyst
QUESTION:
Does each conversion from a traditional IRA to a Roth IRA require a five-year holding period? I have made several conversions and know that taxes are due when conversions are done. But how long must each conversion remain in the Roth IRA? Thanks!
ANSWER:
The five-year holding period for Roth conversions determines whether distributions of converted amounts are subject to the 10% early distribution penalty. If you receive converted amounts on or after age 59½, you don’t have to worry about this holding period since the 10% penalty will not apply to you. However, if you receive converted amounts before age 59½, you must pay the penalty – unless the five-year holding period has been satisfied. There is a separate five-year period for each conversion. The five-year period starts on January 1 of the year of that conversion.
There is a second five-year holding period which helps determine whether the earnings portion of any Roth IRA distribution is taxable. (You can always withdraw Roth conversions themselves – and Roth IRA contributions – tax-free at any time.) This second holding period does not require separate five-year periods for each year you do conversions. Instead, the five-year period is measured from January 1 of the year of your first Roth IRA conversion or contribution, and it does not restart with subsequent conversions or contributions.
QUESTION
I have been a fan and a subscriber to your newsletters for years.
I would like to know if a Trump account can be opened for any child under age 18, even if born before 2025? And once that child reaches age 18, can the balance be converted to a Roth IRA? Finally, is the maximum contribution each year $5,000?
Thanks for all your wonderful advice!
Janice
ANSWER:
Hi Janice,
Thank you for the kind words!
Trump accounts can be opened for any child through December 31 of the year the child turns age 17. That period is known as the “growth period.” Parents, grandparents and other individuals can make contributions to the Trump account of any child during the growth period. Children born before 2025 (and after 2028) are not eligible for the $1,000 one-time federal government contribution, but are eligible for individual contributions during the growth period. Employers and tax-exempt organizations can also contribute during a child’s growth period.
As of January 1 of the year the child turns age 18, a Trump account can be converted to a Roth IRA. In addition, the account can be rolled over or transferred to another traditional IRA or company plan, withdrawn or maintained as a traditional IRA.
During the growth period, there is a $5,000 annual limit on all contributions made by individuals to a Trump account. This $5,000 limit will be indexed beginning in 2028. Any employer contributions made on behalf of the child during the same year count towards the $5,000 limit.
If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.
https://irahelp.com/the-five-year-holding-period-for-roth-ira-conversions-todays-slott-report-mailbag/