I have had a Roth IRA and a traditional IRA for over five years and want to start converting my traditional IRA to a Roth IRA. My belief is that I can start withdrawing the converted funds without any penalty, since the Roth has been open for over five years and I am over 59 1/2 years old. Do I have to wait five years before I can start withdrawing profits from the transferred funds?
– John
I’m not surprised to get Another question about the five-year rules for Roth IRAs Given how confusing they are. The good news is that you understand immediately. Because you are over age 59 and have had a Roth IRA for more than five years, the five-year rules no longer apply to you. Whether you withdraw contributions, earnings, or funds from the transfer (including its earnings), you can do so without worrying about taxes or penalties.
A Financial advisor They can help you plan and implement Roth conversions strategically. Get in touch with your Financial Advisor Matches today.
However, let’s quickly review the two five-year rules that apply to your situation and explain their purpose. This will probably help you, as well as other readers, understand the above answer more.
The first five-year rule applies to determining whether Roth IRA contributions and earnings qualify as tax-free, penalty-free distributions. To be withdrawneligible“, you must meet two conditions (described in IRS Publication 590-B).
First, the Roth IRA must be open for at least five years. Second: One of the following criteria must be met:
-
The account holder’s age is over 59 ½
-
The account holder has been permanently disabled
-
Account holder uses funds to purchase a home for the first time (up to $10,000)
-
The account holder is deceased (with the account transferred to the beneficiaries).
If these requirements are not met, the earnings portion of the withdrawal is taxable and an additional 10% penalty may apply if the account holder is under 59 ½ without a qualifying exception.
In your case, you meet this five-year rule because your Roth IRA has been open for more than five years (satisfying Condition 1) and you are over age 59 ½ (satisfying Condition 2). Most importantly, once the five-year rule for a Roth IRA is met, it applies to all future qualified distributions from that account or any other Roth IRA you own.
(And if you need extra help navigating this rule, consider working with a file Financial advisor.)
SmartAsset and Yahoo Finance LLC may earn commission or revenue through links in the content below.
Comments are closed, but trackbacks and pingbacks are open.