TRADITIONAL IRA TO A ROTH CONVERSION
On a conversion from a Traditional IRA to a Roth the Rule states:”Specifically, you have to hold a Roth IRA for five years and be at least 59 1/2 for withdrawls to be free, early withdrawls are subject to penalties.
Question:Can early withdrawls from the principal be made before five years with no penalty or are any withdrawls made before five years penalized?
Permalink Submitted by Alan Spross on Thu, 2009-07-02 01:45
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Each conversion has a 5 year holding period to avoid the early withdrawal penalty. Upon reaching 59.5, all these holding periods end. If someone also has regular Roth contributions, any distributions are first considered to come from these contributions and they are tax and penalty free. After regular contributions are distributed, the conversions come out in order of the oldest first. These are tax free but subject to the early withdrawal penalty for 5 years. The 5 year period begins on January 1st of the year of conversion contribution.
It is also possible for other penalty exceptions to waive the early withdrawal penalty. Some of these are for higher education, first home purchase or certain medical costs.