Roth conversion 5 year rule clarification
I have 2 clients, one 56 years old and the other 60 years old. Both want to convert their respective traditional IRA into a ROTH. As I understand the 5 years rule, it only applies to the earnings and nor principle. So each can access their principle prior to the end of the 5 year waiting period but must wait until after that period to access earnings. Am I correct in my understanding of th5 year rule. Thanks
Permalink Submitted by Alan - IRA critic on Thu, 2013-10-31 21:52
Partially correct. There are two 5 year holding periods, one for the earnings to be tax free and the other for the pre tax portion of a conversion to avoid the 10% penalty. This conversion holding period ends at 59.5, so it will not apply to the 60 year old, but the 56 year old must wait 3.5 years to 59.5 to avoid the 10% penalty if the conversion amount is distributed. Note that if this person has any regular Roth contribution balance, that comes out first and is both tax and penalty free.
Permalink Submitted by Thomas Space on Fri, 2013-11-01 14:01
Greatly appreciated for the clarification. Thanks