Roth conversion 5 year rule.
I’ve received conflicting information regarding the 5 year conversion rule for someone who is over 59 1/2.
One source claims each conversion needs to age 5 years to avoid paying income tax on earnings.
The other source claims as long as the Roth has been open for 5 years the conversions don’t need to age 5 years to avoid paying income tax on the earnings.
Any idea which is correct?
Why they make such byzantine rules is insane.
Permalink Submitted by Alan - IRA critic on Thu, 2024-06-27 00:51
There are two separate 5 year holding requirements. The one for conversions only relates to the 10% penalty, not to ordinary taxes. All such holding requirements for conversions end at 59.5 and none start after 59.5.
The other 5 year holding period is a requirement for the Roth IRA to be qualified and for gains to be tax free, but the IRA owner must also be 59.5 or disabled. This holding period starts with the first legal Roth contribution of any kind (regular or conversion). Note that if these conditions are met, the conversion holding period has also been met and the Roth will be fully qualified.
Neither of the two statements make sense based on the above requirements.