ROTH IRA ROLLOVERS AND THE 5-

YEAR RULE: TODAY'S SLOTT

REPORT MAILBAG
Thursday, February 11, 2021
By Sarah Brenner, JD
Director of Retirement Educations
Follow Us on Twitter: @theslottreport

Question:

Hi!

I am over 60 and have had a self-directed Roth IRA for the past 15 years. I would like to
roll some of it over to another self-directed Roth where I could invest in crypto-currency.
Is this possible? If so, how does the 5-year rule apply for the new Roth? Thank you!

Steve

Answer:

Hi Steve,

It is possible to roll over or transfer Roth IRA funds to another Roth IRA. It is best to do
a transfer to avoid problems with the 60-day and once-per-year rollover rules. There is
nothing in the rules that prohibits a Roth IRA from being invested in cryptocurrency,
although an account holder would need to decide if that is a wise investment choice in
their situation.

The 5-year rule for qualified distributions of earnings from a Roth starts with your first
Roth IRA contribution or conversion. It does not restart when funds are moved to
another Roth IRA.

Question:

My question is as follows: I converted (no contributions were made) funds from my self-
directed IRA to my Roth IRA, my age is over 59 ½, but my Roth IRA is only one year
old. May I withdraw the conversion amount without the 10% penalty under the age
exception to the five year rule? So far I have received opinions from two CPAs which
totally contradict each other. Thanks for your help.

Answer:

This is a tricky area. There are two different 5-year rules for Roth IRAs. The first 5-year
rule is for qualified distributions of earnings and it will apply regardless of your age. You
will have to wait the full 5 years for those earnings to be tax free.

The second 5-year rule is for penalty-free distributions of converted dollars. This rule
only applies when you are under age 59 ½. Because you are age 60, you do not need
to worry about this rule. Even though you have only had the Roth IRA for a year, any
distribution of converted funds would be penalty-free.