Author Topic: Roth Conversion - does appreciation roll as principal?  (Read 2047 times)

newton86

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Roth Conversion - does appreciation roll as principal?
« on: June 10, 2014, 10:04:13 AM »
I haven't seen this detail addressed. When setting up a Roth conversion ladder, what happens to the gains that were in the traditional IRA? I understand that you will owe tax the gains at time of conversion. But afterwards, are they considered principal in the Roth that you can withdrawal after 5 years? Or are they still considered earnings?

butchmonkey

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Re: Roth Conversion - does appreciation roll as principal?
« Reply #1 on: June 10, 2014, 10:57:45 AM »
I believe they're considered principal. The key here is "after-tax" contributions. Since your taxed on your appreciation to date your entire contribution is "after-tax."

But check with your accountant!


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Eric

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Re: Roth Conversion - does appreciation roll as principal?
« Reply #2 on: June 10, 2014, 11:29:15 AM »
Yes, rollover funds are considered a contribution.  Otherwise, the Roth pipeline wouldn't work!

http://jlcollinsnh.com/2013/12/05/stocks-part-xx-early-retirement-withdrawal-strategies-and-roth-conversion-ladders-from-a-mad-fientist/

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Once the money has been converted into a Roth IRA, the converted amount is then available for withdrawal, tax and penalty free, five years after the conversion date (the earnings on those investments, however, need to remain invested until standard retirement age).

seattlecyclone

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Re: Roth Conversion - does appreciation roll as principal?
« Reply #3 on: June 10, 2014, 11:30:23 AM »
Yes, the full amount rolled over is considered principal from the perspective of the Roth IRA. Be aware that any earnings accrued on that money after you roll it over to the Roth IRA cannot be withdrawn without penalty until age 59.

Gin1984

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Re: Roth Conversion - does appreciation roll as principal?
« Reply #4 on: June 10, 2014, 12:44:59 PM »
Yes, the full amount rolled over is considered principal from the perspective of the Roth IRA. Be aware that any earnings accrued on that money after you roll it over to the Roth IRA cannot be withdrawn without penalty until age 59.
Unless of course you are taking the money out for some of the allowed expenses (like college tuition).

newton86

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Re: Roth Conversion - does appreciation roll as principal?
« Reply #5 on: June 12, 2014, 09:47:09 AM »
Thank you. I figured that was the case, but I just wanted to make sure before I based my ER strategy on it!