Roth Conversion 5 - Year Rule

[ProGolferWannabe]

My wife got a notice from her employer today regarding her retirement and options for her t401K. One option they mentioned was converting the proceeds into a Roth IRA. She has a substantial sum of money in her t401K account so that wouldn’t make sense tax wise to do it all of it. But the information from her employer indicated that if she did do it, that her withdrawals would be subject to a 5 year rule which I should probably have been aware of, but embarrassingly, I was not.

I’m a bit confused by what I read. If she converts any of those funds she would need to pay taxes on the amount converted (I get that). Would she also have to wait until she is 59 1/2 and 5 years from the tax year of the conversion to withdrawal any funds without paying an additional tax and/or penalty? (That would make her about 63 to e elligible.). Or would she be able to take out her converted contributions once she hits 59 1/2 and not pay any taxes and/or penalties? (In other words only the earnings are off limits for 5 years.) Or is it something else?

I’ve googled this and found a number of references but once I read one website and think I understand, I look at another and get what appears to be a different understanding.

Thanks in advance for helping to clarify.

 

[2017ish]

Here is what I found to be the most useful analysis when I was beginning to set our Roths up: https://www.kitces.com/blog/underst...s-for-roth-ira-contributions-and-conversions/

Bottom line, once she hits 59.5, she can withdraw the converted principal without penalty. But, takes 5 "tax years" before earnings can be withdrawn without penalty. (I am unaware of any changes in relevant law since that post was published.)

 

[SevenUp]

The Kitces article 2017ish linked is good. See also a Treatment of distributions summarised in table form in the Bogleheads wiki.

 

[ProGolferWannabe]

The Kitces article 2017ish linked is good. See also a Treatment of distributions summarised in table form in the Bogleheads wiki.

This was great..thank you.