Attn. eczaporea; Re reply to reply to 5yr wait
As I feared, posting this as a reply on the same page as your reply simply tacked it on as a second reply to my question, where you might not have seen it. So, I post it here too.
Are you suggesting that the 10% rule only applies if the owner is under 59.5yr?
Or, that withdrawals from an account, opened with a conversion, may may be made, 10% penalty free, in under 5 yrs, if the owner is (then) over 59.5?
Your “Jan 1” observation was interesting.
DBRJ
Permalink Submitted by Edward Czapor on Fri, 2010-02-05 20:11
That is correct, there is no 10% early withdrawal penalty on amounts converted or on any type of withdrawal after age 591/2. So if you convert after age 591/2 there is no 5 yr. holding for penalty purposes, and any holding on a conversion that is less than 5 yrs. no longer applies once that age is reached. This rule is in place to prevent someone from getting around the penalty by first converting to a Roth and then withdrawing from the Roth. This is why you have to wait 5 years, which the IRS has determined is sufficient to say your intent was to convert and not just make a penalty free withdrawal.
The other 5 yr. holding rule pertaining to taxation starts on Jam. 1 of the year of your first contribution or conversion. For earnings to be tax free, you must satisfy this 5 yr. holding without exception even if 591/2 or older.