Roth conversions…
How does the “5 year rule” work for investors over the age of 59 1/2 when they do a Roth IRA conversion? For earnings on the conversion to come out tax and penalty free, does each conversion have to stay in the Roth IRA for 5 years? If the Roth IRA has existied for 5 years, then does all conversions and earnings come out tax and penalty free?
Permalink Submitted by Edward Czapor on Sun, 2009-12-13 18:17
The 5 yr. rule for penalty on each converted amount no longer applies after reaching age 591/2. If a Roth has been established either through contribution or conversion for at least 5 years, AND at least age 591/2, then all distributions are qualified and tax and penalty free. There is no separate 5 yr. holding period on conversions for earnings to be tax free as long as a Roth has been established for at least 5 years. This 5 yr. period starts on Jan. 1 of the year of the first contribution or conversion.