Permalink Submitted by Alan Spross on Thu, 2011-03-31 00:50
No. You can withdraw your funds anytime you wish. Your contributions can be withdrawn tax and penalty free. But your earnings will be taxable until the 6th calendar year.
Example: Contribute 5,000 this year and the account earns 700 by 2013. You can withdraw up to 5,000 tax and penalty free. But if you withdraw the full 5,700, then the 700 will be taxable. But if you wait until 2016 before you withdraw the 700, then the 700 will be tax free as well as any other earnings your Roth IRA contains. In 2016 your Roth account is considered to be qualified, ie fully tax and penalty free.
I am assuming that the above contribution is your first Roth contribution ever.
Permalink Submitted by gerard noronha on Sat, 2011-04-09 17:50
i am 64…just did a traditional ira conversion to roth ira 4/2011…how does the 5 year rule work…do I have to wait 5 years from the day the conversion was done or can it be accessed right away…I have already paid the tax…can somebody respond…tx…gerry
Permalink Submitted by Clyde Wolf on Sat, 2011-04-09 20:35
Moronhagerard,
Break this down:
– You can remove the conversion amount at any time for any reason free from tax and penalty.
you already paid the tax and you are over age 59.5 which eliminates the 10% penalty.
– If this is your only ROTH IRA contribution/conversion, removing any gains, the gains would
be subject to tax until your ROTH IRA becomes qualified on January 1, 2016. Then all distributions would be tax and penalty free.
If you have an older ROTH IRA, all your your ROTH IRAs would be qualified on January 1, five years after your very first ROTH contribution. A 2006 ROTH contribution made on April 15, 2007 would qualify all of your ROTH IRAs on January 1, 2011.
Permalink Submitted by Alan Spross on Thu, 2011-03-31 00:50
No. You can withdraw your funds anytime you wish. Your contributions can be withdrawn tax and penalty free. But your earnings will be taxable until the 6th calendar year.
Example: Contribute 5,000 this year and the account earns 700 by 2013. You can withdraw up to 5,000 tax and penalty free. But if you withdraw the full 5,700, then the 700 will be taxable. But if you wait until 2016 before you withdraw the 700, then the 700 will be tax free as well as any other earnings your Roth IRA contains. In 2016 your Roth account is considered to be qualified, ie fully tax and penalty free.
I am assuming that the above contribution is your first Roth contribution ever.
Permalink Submitted by gerard noronha on Sat, 2011-04-09 17:50
i am 64…just did a traditional ira conversion to roth ira 4/2011…how does the 5 year rule work…do I have to wait 5 years from the day the conversion was done or can it be accessed right away…I have already paid the tax…can somebody respond…tx…gerry
Permalink Submitted by Clyde Wolf on Sat, 2011-04-09 20:35
Moronhagerard,
Break this down:
– You can remove the conversion amount at any time for any reason free from tax and penalty.
you already paid the tax and you are over age 59.5 which eliminates the 10% penalty.
– If this is your only ROTH IRA contribution/conversion, removing any gains, the gains would
be subject to tax until your ROTH IRA becomes qualified on January 1, 2016. Then all distributions would be tax and penalty free.
If you have an older ROTH IRA, all your your ROTH IRAs would be qualified on January 1, five years after your very first ROTH contribution. A 2006 ROTH contribution made on April 15, 2007 would qualify all of your ROTH IRAs on January 1, 2011.