IRA 5YearConversion Rule
I’m 68 years old and I’ve had a Roth IRA since 2012. My financial advisor tells me that any money I convert from a traditional IRA to a Roth IRA now I will have to wait for 5 years before I can receive the earnings. I don’t think this is accurate because of the first exemption mentioned in the tax code of being over 59 1/2 years of age, plus having an existing Roth IRA for over 5 years. Am I correct in my opinion?
Terry Says
You have to wait 5 years after a conversion to make withdrawals TAX-FREE. So if you do another conversion, make it easy on yourself and open a new Roth IRA for that money, so you can keep it separate from your earlier Roth, which has now passed the 5-year period.
That’s just for convenience. As a matter of rule, once you are 59-1/2 there is no penalty on a Roth withdrawal — and the first withdrawals are deemed to be from contributions, on which taxes have already been paid. So you can easily withdraw from that first Roth with no taxes and penalties.
Then the next withdrawals will be deemed to be from the conversion, on which you also already paid taxes, and can withdraw penalty and tax-free at any time.
It is only on the “earnings” from that converted account that you will pay taxes — UNTIL the account has been open 5 years!
Clear as mud?!
