Ask the Expert: Explaining the 5-year rule for Roth IRAs

I'm 76 years old. I've had traditional and Roth IRAs for more than five years, but haven’t done any Roth conversions yet. Am I right that the five-year clock that starts with the first conversion doesn't apply to me? Does it make sense for everyone to do a small Roth conversion, regardless of their age, just to start that clock?

There are two five-year rules for Roth IRAs, and you don't need to worry about either one.

The main rule applies to everybody who has a Roth account, regardless of whether it was funded with contributions or conversions — the IRS doesn’t differentiate between them. That rule says you can't withdraw a Roth account's earnings tax-free until you've owned the account for five years and you’re older than 59½. (You can always withdraw contributions or conversion amounts tax-free because they’ve already been taxed.) The five years begin on January 1 of the year of your first Roth contribution or conversion.

You've already satisfied that rule.

The second five-year rule has to do with early withdrawal penalties, and only applies to people who do Roth conversions when they're younger than 59½. Clearly, that rule doesn’t affect you.

In an answer to your second question: Regardless of their age, when people create a Roth IRA — whether by contribution or conversion — they’re starting that five-year clock, said Ed Slott, a Rockville Centre tax accountant. After they turn 59 ½ and have owned the account for five years, all their withdrawals are tax-free.

The bottom line:

There's no five-year clock for you to worry about once you're over 59½ and have owned a Roth IRA for more than five years.

More information:

bit.ly/IRSrothIRAs

bit.ly/3Y4RgeA