Roth conversion 5-year rule?

[Al18]

Check the Fidelity link in post #5. There is a separate 5 year holding period for each 5 year Roth IRA conversion.

 

[Out-to-Lunch]

Check the Fidelity link in post #5. There is a separate 5 year holding period for each 5 year Roth IRA conversion.

If, and only if, you are less than 59.5, or if your oldest Roth is <5 years.

 

[Al18]

Not true - reread the Fidelity link

 

[Pointby2]

And yet, no one here has chimed in about having to actually pay taxes or the 10% penalty on a Roth distribution.

Anyone? Bueller?

 

[Al18]

More info from Fidelity on Roth IRA withdrawals Roth IRA withdrawal rules: When can you withdraw from a Roth IRA? | Fidelity

 

[COcheesehead]

If, and only if, you are less than 59.5, or if your oldest Roth is <5 years.

If you read the Fidelity link, if over 59.5, the penalty is waived, but the earnings are taxed if you don’t meet the five year rule. It’s also states each conversion is independent of each other.
From the article
“Keep in mind that if you have done more than one Roth conversion, each conversion has to satisfy its own 5-year aging period.”

 

[SevenUp]

Fidelity has specialized FA who specialize in RothIRA conversions.

If they say anything other than,"All Roth IRA distributions are tax- and penalty-free after age 59.5 when money went into a Roth IRA at least five tax years ago" (or words to that effect), I'll think poorly of the Fidelity reps.

 

[engineernerd]

What convinced me that the 5-year rule specific to Roth conversions only affects the younger set were posts #12 and #17, both of which referenced an IRS publication (590-B). IOW, the horse's mouth.

I think the section (under Roths) titled "What Are Qualified Distributions?" makes it clear that it's irrelevant whether the money came from a Roth conversion or a regular contribution, if the distribution meets the definition of a "qualified distribution" it is not taxable. Then the first sentence in the next section, which is titled "Additional Tax on Early Distributions," makes it clear the 10% penalty does not apply to qualified distributions.

 

[Out-to-Lunch]

More info from Fidelity on Roth IRA withdrawals Roth IRA withdrawal rules: When can you withdraw from a Roth IRA? | Fidelity

Yes, more info from Fidelity. Have you read it? It says:


If you are age 59½ or older
Roth IRA distributions are less complex if you’re age 59½ or older, especially if your account meets the criteria for the IRS’ 5-year rule. In this case, you can withdraw contributions and gains tax- and penalty-free. If you have not had the account open for at least 5 years, gains are taxable but not subject to the 10% penalty.

 

[COcheesehead]

Yes, more info from Fidelity. Have you read it? It says:


If you are age 59½ or older
Roth IRA distributions are less complex if you’re age 59½ or older, especially if your account meets the criteria for the IRS’ 5-year rule. In this case, you can withdraw contributions and gains tax- and penalty-free. If you have not had the account open for at least 5 years, gains are taxable but not subject to the 10% penalty.

What’s interesting is the chart states “independent 5-year rule not met” and the article states “Keep in mind that if you have done more than one Roth conversion, each conversion has to satisfy its own 5-year aging period.”

 

[zinger1457]

IRS Form 8606 is used to determine if your Roth distribution is taxable. The instructions (#4 below) for Form 8606 clearly state that you don't include distributions taken after 59.5 if you made a contribution (including conversion or rollover) for any year 5 years or more before the current tax year.

Complete Part III to figure the taxable part, if any, of your 2025 Roth IRA distributions.

Line 19​

Don’t include on line 19 any of the following.

1. Distributions that you rolled over, including distributions made in 2025 and rolled over after December 31, 2025 (outstanding rollovers).
2. Recharacterizations.
3. Distributions that are a return of contributions under Return of IRA Contributions, earlier.
4. Distributions made on or after age 59½ if you made a contribution (including a conversion or a rollover from a qualified retirement plan) for any year from 1998 through 2020.
5. A one-time distribution to fund an HSA. For details, see Pub. 969.
6. Qualified charitable distributions (QCDs). For details, see Are Distributions Taxable? in chapter 1 of Pub. 590-B.
7. Distributions made upon death or due to disability if a contribution was made (including a conversion or a rollover from a qualified retirement plan) for any year from 1998 through 2020.
8. Qualified distributions from Part IV of your 2025 Form(s) 8915-F, if any, you repaid in 2025 no later than the deadline for repayment.
9. Distributions that are incident to divorce. The transfer of part or all of your Roth IRA to your spouse under a divorce or separation agreement isn’t taxable to you or your spouse.

If, after considering the items above, you don’t have an amount to enter on line 19, don’t complete Part III; your Roth IRA distribution(s) isn’t taxable. Instead, include your total Roth IRA distribution(s) on 2025 Form 1040, 1040-SR, or 1040-NR, line 4a.

​

 

[bada bing]

I think of Kitces as the definitive authority on topics like this, outside of the IRS itself. He has a plainly worded explanation in an article that has stood for 12 years now.

Two 5-Year Rules For Roth IRA Contributions & Conversions

Accordingly, it's also worth noting that because the 5-year rule for Roth conversions merely leaves the withdrawal of conversion principal potentially subject to the early withdrawal penalty, any other exceptions to the early withdrawal penalty can still shelter the Roth conversion amount from the penalty. Thus, withdrawals within 5 years of conversion by someone who is already over age 59 1/2 are not subject to the early withdrawal penalty, regardless of the 5-year conversion rule, simply because being over age 59 1/2 itself is an exception to the penalty!

So by that, I take it that both sides are technically correct. There is a penalty for withdrawing within 5 years of a conversion, but if you're over 59.5 and have a Roth seasoned for at least 5 years, you have an exception to the penalty. Pull the money out, incur a penalty and then have an exception to paying it.

A more gobeldegoop wordind from the IRS:
Definition: qualified distribution from 26 USC § 408A(d)(2) | LII / Legal Information Institute

(2) Qualified distribution For purposes of this subsection— (A) In general The term “qualified distribution” means any payment or distribution— (i) made on or after the date on which the individual attains age 59½, (ii) made to a beneficiary (or to the estate of the individual) on or after the death of the individual, (iii) attributable to the individual’s being disabled (within the meaning of section 72(m)(7) ), or (iv) which is a qualified special purpose distribution. (B) Distributions within nonexclusion period A payment or distribution from a Roth IRA shall not be treated as a qualified distribution under subparagraph (A) if such payment or distribution is made within the 5-taxable year period beginning with the first taxable year for which the individual made a contribution to a Roth IRA (or such individual’s spouse, or employer in the case of a simple retirement account (as defined in section 408(p) ) or simplified employee pension (as defined in section 408(k)), made a contribution to a Roth IRA) established for such individual. (C) Distributions of excess contributions and earnings The term “qualified distribution” shall not include any distribution of any contribution described in section 408(d)(4) and any net income allocable to the contribution.

 

[COcheesehead]

I think of Kitces as the definitive authority on topics like this, outside of the IRS itself. He has a plainly worded explanation in an article that has stood for 12 years now.

Two 5-Year Rules For Roth IRA Contributions & Conversions

Accordingly, it's also worth noting that because the 5-year rule for Roth conversions merely leaves the withdrawal of conversion principal potentially subject to the early withdrawal penalty, any other exceptions to the early withdrawal penalty can still shelter the Roth conversion amount from the penalty. Thus, withdrawals within 5 years of conversion by someone who is already over age 59 1/2 are not subject to the early withdrawal penalty, regardless of the 5-year conversion rule, simply because being over age 59 1/2 itself is an exception to the penalty!

So by that, I take it that both sides are technically correct. There is a penalty for withdrawing within 5 years of a conversion, but if you're over 59.5 and have a Roth seasoned for at least 5 years, you have an exception to the penalty. Pull the money out, incur a penalty and then have an exception to paying it.

A more gobeldegoop wordind from the IRS:
Definition: qualified distribution from 26 USC § 408A(d)(2) | LII / Legal Information Institute

(2) Qualified distribution For purposes of this subsection— (A) In general The term “qualified distribution” means any payment or distribution— (i) made on or after the date on which the individual attains age 59½, (ii) made to a beneficiary (or to the estate of the individual) on or after the death of the individual, (iii) attributable to the individual’s being disabled (within the meaning of section 72(m)(7) ), or (iv) which is a qualified special purpose distribution. (B) Distributions within nonexclusion period A payment or distribution from a Roth IRA shall not be treated as a qualified distribution under subparagraph (A) if such payment or distribution is made within the 5-taxable year period beginning with the first taxable year for which the individual made a contribution to a Roth IRA (or such individual’s spouse, or employer in the case of a simple retirement account (as defined in section 408(p) ) or simplified employee pension (as defined in section 408(k)), made a contribution to a Roth IRA) established for such individual. (C) Distributions of excess contributions and earnings The term “qualified distribution” shall not include any distribution of any contribution described in section 408(d)(4) and any net income allocable to the contribution.

The penalty is clear, but what about the tax on earnings after 59.5, but outside the 5 year rule? That seems ambiguous.

 

[cathy63]

The penalty is clear, but what about the tax on earnings after 59.5, but outside the 5 year rule? That seems ambiguous.

It's really not ambiguous. If you think it is, you can just fill out IRS Form 8606 as if you were in that situation and see what happens. The instructions are not nearly as difficult to follow as the various written descriptions people have quoted here.

On Form 8606, Line 19 is where you enter nonqualified distributions. The instructions for that line say:

Line 19​

Don’t include on line 19 any of the following.

1. Distributions that you rolled over, including distributions made in 2025 and rolled over after December 31, 2025 (outstanding rollovers).
2. Recharacterizations.
3. Distributions that are a return of contributions under Return of IRA Contributions, earlier.
4. Distributions made on or after age 59½ if you made a contribution (including a conversion or a rollover from a qualified retirement plan) for any year from 1998 through 2020.
5. A one-time distribution to fund an HSA. For details, see Pub. 969.
6. Qualified charitable distributions (QCDs). For details, see Are Distributions Taxable? in chapter 1 of Pub. 590-B.
7. Distributions made upon death or due to disability if a contribution was made (including a conversion or a rollover from a qualified retirement plan) for any year from 1998 through 2020.
8. Qualified distributions from Part IV of your 2025 Form(s) 8915-F, if any, you repaid in 2025 no later than the deadline for repayment.
9. Distributions that are incident to divorce. The transfer of part or all of your Roth IRA to your spouse under a divorce or separation agreement isn’t taxable to you or your spouse.

... If, after considering the items above, you don’t have an amount to enter on line 19, don’t complete Part III; your Roth IRA distribution(s) isn’t taxable.

Assuming you do not meet qualification #4 because your first Roth IRA is less than 5 yrs old, then you have to proceed with the rest of the form. On Line 22 you will subtract your basis in contributions and on line 24 you will subtract your basis in conversions and rollovers. If you still have a positive number after that, then you owe tax on the remainder. That would be the tax on earnings. But again, if you're over 59.5, it only applies if you opened your first Roth less than 5 yrs ago.

There are a couple of other subtractions related to first-time homebuyer expenses, disaster distributions, and retirement plan repayments, but if you're just asking the general question about tax on earnings you can skip those.

 

[Digger1000]

ok I am confused. I came to this site today specifically to find out roth ira withdrawal rules.

I turned 60 last month. In 2018 I established my roth ira with a 1 time transfer or conversion from a roth 403b. Since then I've done yearly traditional ira to roth ira conversions.

So from reading part of this thread, can both sides of the fence answer me this? Is the conversion amount itself tax free anytime after 59 1/2? Do both sides of you agree on that? I know some of you say the gains are taxable but the conversion amount itself would not be right?

I might be buying my 1st house and am trying to find out how much is available to withdraw tax free from my roth ira.

 

[FREE866]

ok I am confused. I came to this site today specifically to find out roth ira withdrawal rules.

I turned 60 last month. In 2018 I established my roth ira with a 1 time transfer or conversion from a roth 403b. Since then I've done yearly traditional ira to roth ira conversions.

So from reading part of this thread, can both sides of the fence answer me this? Is the conversion amount itself tax free anytime after 59 1/2? Do both sides of you agree on that? I know some of you say the gains are taxable but the conversion amount itself would not be right?

I might be buying my 1st house and am trying to find out how much is available to withdraw tax free from my roth ira.

You're over 59.5 and the Roth was opened over 5 years ago. Everything you withdraw is tax and penalty free.

 

[COcheesehead]

ok I am confused. I came to this site today specifically to find out roth ira withdrawal rules.

I turned 60 last month. In 2018 I established my roth ira with a 1 time transfer or conversion from a roth 403b. Since then I've done yearly traditional ira to roth ira conversions.

So from reading part of this thread, can both sides of the fence answer me this? Is the conversion amount tax free anytime after 59 1/2? Do both sides of you agree on that? I know some of you say the gains are taxable but the conversion amount itself would not be right?

I might be buying my 1st house and am trying to find out how much is available to withdraw tax free from my roth iora.

You can always take out the conversion amount.

 

[cathy63]

All funds that you withdraw from your Roth IRA are tax free. If you look at the IRS instructions I posted just above your post, you can see that non-qualified distributions (the ones that might be taxed) do not include "Distributions made on or after age 59½ if you made a contribution (including a conversion or a rollover from a qualified retirement plan) for any year from 1998 through 2020." You say you made a conversion in 2018 and that you are currently 60 so you meet both of the requirements to be able to take a qualified (nontaxable) distribution.

 

[StripermanNH]

It is important to note that if your ROTH is at least 5 years old and you are 59 1/2, any earnings from subsequent contributions or conversions are considered "Qualified Distributions" and are NOT subject to taxes or early withdrawal penalties.

After reviewing the IRS website I found a very simple flow chart which helped me be more confident in what determines a qualified distribution. See Figure 2-1 under Section "ROTH IRA/What are qualifying distributions?"

www.irs.gov/publications/p590b#en_US_2021_publink100089541

 

[Out-to-Lunch]

It is important to note that if your ROTH is at least 5 years old and you are 59 1/2, any earnings from subsequent contributions or conversions are considered "Qualified Distributions" and are NOT subject to taxes or early withdrawal penalties.

After reviewing the IRS website I found a very simple flow chart which helped me be more confident in what determines a qualified distribution. See Figure 2-1 under Section "ROTH IRA/What are qualifying distributions?"

www.irs.gov/publications/p590b#en_US_2021_publink100089541

Exactly. And that is reproduced in this thread on post #17: Roth conversion 5-year rule?

 

[NomDeER]

It is important to note that if your ROTH is at least 5 years old and you are 59 1/2, any earnings from subsequent contributions or conversions are considered "Qualified Distributions" and are NOT subject to taxes or early withdrawal penalties.

After reviewing the IRS website I found a very simple flow chart which helped me be more confident in what determines a qualified distribution. See Figure 2-1 under Section "ROTH IRA/What are qualifying distributions?"

www.irs.gov/publications/p590b#en_US_2021_publink100089541

Exactly. And that is reproduced in this thread on post #17: Roth conversion 5-year rule?

And, if you look at the text just before the flowchart, this is confirmed.

If anyone is concerned that this does not apply to conversions, scroll down below the flowchart to the section called "Additional Tax on Early Distributions." This section discusses the rules for conversions, including the distinct five-year rule for conversions. It explains that the 10% penalty may apply if you don't meet the conversion five-year rule, but also lists exceptions to this requirement, including reaching 59 and a half.

I think of Kitces as the definitive authority on topics like this, outside of the IRS itself. He has a plainly worded explanation in an article that has stood for 12 years now.

Two 5-Year Rules For Roth IRA Contributions & Conversions

Accordingly, it's also worth noting that because the 5-year rule for Roth conversions merely leaves the withdrawal of conversion principal potentially subject to the early withdrawal penalty, any other exceptions to the early withdrawal penalty can still shelter the Roth conversion amount from the penalty. Thus, withdrawals within 5 years of conversion by someone who is already over age 59 1/2 are not subject to the early withdrawal penalty, regardless of the 5-year conversion rule, simply because being over age 59 1/2 itself is an exception to the penalty!

As mentioned, this is what the the text of the IRA document says. You don't even have to rely on Kitces.

​

 

[Fermion]

Let me run this scenario by you guys and make sure I understand things correctly.

I am currently 55 years old. Seven years ago I converted $15,000 of a IRA into a Roth (opened a new account for it at E-trade). That Roth has grown to $175,000. I have another Roth that I converted $3,000 from a different IRA 3 years ago (this Roth was opened in a new account as well). This Roth has grown to $10,400.

Next year I could take out $15,000 from the first Roth tax and penalty free, correct? I will be still 55. When I am 57, I could take out $3,000 from the other Roth.

 

[Out-to-Lunch]

Let me run this scenario by you guys and make sure I understand things correctly.

I am currently 55 years old. Seven years ago I converted $15,000 of a IRA into a Roth (opened a new account for it at E-trade). That Roth has grown to $175,000. I have another Roth that I converted $3,000 from a different IRA 3 years ago (this Roth was opened in a new account as well). This Roth has grown to $10,400.

Next year I could take out $15,000 from the first Roth tax and penalty free, correct? I will be still 55. When I am 57, I could take out $3,000 from the other Roth.

Yes, that is my understanding.

 

[SecondCor521]

Let me run this scenario by you guys and make sure I understand things correctly.

I am currently 55 years old. Seven years ago I converted $15,000 of a IRA into a Roth (opened a new account for it at E-trade). That Roth has grown to $175,000. I have another Roth that I converted $3,000 from a different IRA 3 years ago (this Roth was opened in a new account as well). This Roth has grown to $10,400.

Next year I could take out $15,000 from the first Roth tax and penalty free, correct? I will be still 55. When I am 57, I could take out $3,000 from the other Roth.

Correct, with the additional flexibility that you could make the withdrawals from either Roth account. For most purposes including your situation, the IRS considers all of your Roth IRA accounts to comprise one Roth IRA. But if you want to do it the way you describe just to keep things straight for your own purposes, that's fine too.

Also, you can take out the funds on January 1st of the year in question. The IRS considers conversions to have taken place on January 1st of the conversion year even if they were done later in the year. So the five year rule is based on tax years, not calendar years.

 

[Fermion]

Also, you can take out the funds on January 1st of the year in question. The IRS considers conversions to have taken place on January 1st of the conversion year even if they were done later in the year. So the five year rule is based on tax years, not calendar years.

Thanks. And then the last thing, is it ok to do a new conversion into the same Roth? I would think yes, but after my big misunderstanding of capital loss rules this past year I have no great confidence that tax law has to make sense.

Example. In the Roth that I started 7 years ago with a $15,000 conversion and now has a $175,000 balance, if I do a conversion this year from some IRA into that Roth to get me to 140% of FPL, does that new conversion have any negative effect on withdrawing up to $15,000 from that Roth without tax or penalty? Like some hidden rule that says conversions reset other conversions in the same Roth account.

Edit: Thinking about it a little bit, you have already answered this by saying the IRS treats all Roths as one single Roth.