roth converrsion
this is in addition to a previous post…my wife has had her roth since 2001..she is now 57 years old and will turn 59 1/2 in may of2012….if she converts some of her roth this year…then some in 2010 and some in 2011….then when she turns 59 1/2 in may of 2012 can she take the converted part out any time she wishes…i v been told that when she converted like this she has to leave the converted part in there for a 5 yr period..[assume she has now turned 59 1/2]…also does any earnings on a conversion like this have a waiting period to avert any penalties or can she take them out also when she turns 59 1/2?
Permalink Submitted by Alan Spross on Sun, 2009-12-13 18:13
Once she hits 59.5 her entire Roth is qualified. That means she can distribute any part or all of the entire account including the earnings tax and penalty free.
That 5 year conversion holding period ends at the EARLIEST of turning 59.5 or completing the 5 years.
Obviously, the main benefit of a conversion is realized when the Roth is given several years to generate tax free earnings. So I assume your question relates simply to what would happen in the event of an unanticipated crisis and she had no choice but to take a distribution.
Permalink Submitted by [email protected] on Fri, 2009-12-18 13:58
I thought that the earnings part of a Roth conversion had to wait 5 years AND 59.5 years before the earnings on the converted portion were accessible without penalty?
Permalink Submitted by Alan Spross on Fri, 2009-12-18 18:49
No, that’s not the case. The conversion 5 year holding period only applies to the converted amount. The “other” 5 year holding period for earnings to become qualified applies to all earnings regardless of the source of the contribution. In the example, the first Roth was in 2001 and therefore the 5 year period is long since satisfied and at age 59.5 the Roth account becomes totally qualified.
In addition, all early withdrawal penalties cease at 59.5, even if the distribution is otherwise taxable.