So should we open a small ROTH (conversion) now so we can start the 5 year rule? Not sure I fully understand the 5 year rule I know it is about withdrawals and no taxes, but does that also apply to our kids after we pass, sounds like we may need to start one. But is it for the money put in (conversion) for the year it was put in that the 5 year rule starts for that money? lol I am confusing myself.
In other words, $1000 2026, 5 years would be 2031, then we put in another $1000 in 2027 so 5 year rule on that money would be 2032.
This is not a big deal to us, we won't be withdrawing from it, we have enough liquid cash available if we need it, one thing about Brokerage CDs, they can be sold, Bonds also plus we have a surplus in the Money Market, which is down to 3.4% but it is better than nothing, which was the case a few years back in savings. We just want to make it easy for our kids to get to while we are in Heaven where there are No ROTH IRAs
From Fidelity (But still abit confusing to me):
View attachment 243282
I do see above where Death can be an exemption so hopefully that means the 5-year rule would not apply to our kids...plus supposedly 5-year rule does not apply to the amount originally converted and only the gains but for us we will be converting a little each year until we deplete the wife's Traditional IRA, like @bigredfish is doing...but the last sentence kinda answers that question in that it looks like the 5-year rule starts with each transfer/conversion.
But as said before, none of this matters to us as long as we don't try to withdraw and hopefully it does not apply to our kids upon our death.
We need to gather our questions and make an appointment with our Broker...
Good luck, let me know what you find out. I talked to my broker at JPM Wealth Mgnt and our CPA (40 yrs in business) and got different answers
