Roth IRA 5 year rule
If you convert to a Roth and you are over 59 1/2, the five year rule only applies to earnings doesn’t it? Principal can be withdrawn at any time tax free? Thanks.
If you convert to a Roth and you are over 59 1/2, the five year rule only applies to earnings doesn’t it? Principal can be withdrawn at any time tax free? Thanks.
Permalink Submitted by mk foss on Mon, 2011-08-01 16:50
As you suspect, there are 2 five-year rules for Roth IRAs. One applies only to those under 59.5 and is used to determine if a Roth withdrawal is subject to the 10% penalty for early distributions.
The other five-year rules determines whether earnings are tax free or not. The “earnings” are actually the growth in the account and if any of it is withdrawn within the first five years those earnings are subject to ordinary income tax.
There is no prohibition on withdrawing money from the Roth IRA – a withdrawal comes first from contributions, then conversions, then earnings. The only issue is whether any of the earnings are taxable when withdrawn.