Roth withdrawal penalty
There is a comment in today’s Wall Street Journal attributed to Ed Slott about a five year penalty period for assests converted to a Roth IRA which says “You have to hold those specific assets in a Roth for five years or until you turn 59 1/2, whichever comes first, to make penalty-free withdrawals.”
If a conversion were made after age 59 1/2, age 59 1/2 would have come before a point in time five years after the conversion.
Does this mean there is no five year penalty period for conversions made after age 59 1/2?
Permalink Submitted by Alan Spross on Fri, 2008-06-06 19:37
That’s right. After 59.5 a taxpayer can convert and distributions coming from the conversion are tax and penalty free immediately.
If you convert at 58, then the conversion must be held for 18 months and is then penalty free. In other words, if the 5 year clock is running on a conversion, once age 59.5 is attained, that period no longer applies.
The whole idea of the 5 year rule is to prevent someone from doing a Roth conversion in order to tap a TIRA penalty free prior to 59.5. Since there is no longer a penalty on a TIRA distribution after 59.5, the need for a Roth holding period also stops at that same age.
Note that this 5 year holding period is totally different than the other 5 year holding period required for distributions to be “qualified”. A qualified distribution is one in which any EARNINGS become tax free.