5 Year rule
If I have a roth that is 5 years old and I transfer funds from a 401K or a TIRA, do I have to wait 5 years to withdraw those funds. Can I do a rollover or conversion one day and take it out the next?
as opposed to conversions, that would be presumed to come out first, so those can be distributed tax-free anytime
Yes, the ordering rules for Roth IRA distributions must be understood in order to know the tax and penalty implications for any distribution.
So if you are over 59.5 (Iam 70) there is no holding period for each conversion? Once I meet the holding period from the start date of the IRA, I can withdraw money tax free regardless of when the conversion took place. Is that correct?
At your age, once 5 years has passed from your first Roth contribution, the entire Roth is tax and penalty free.If you have not met the 5 year holding period, you can still withdraw all your Regular Roth contributions and all your conversions tax and penalty free. The only part you cannot withdraw without tax is your gains, which are likely to be only a small part of your balance, and the earnings come out last. Therefore, even before 5 years you can withdraw most of your Roth tax and penalty free.
Permalink Submitted by Alan - IRA critic on Wed, 2021-05-19 17:37
Unless you are over 59.5, there is a 5 year holding period for the taxable portion of each conversion to avoid the 10% penalty. This is to prevent taxpayers from converting when they need a distribution, just to avoid the penalty.