Ask the Expert: Rules for Roth IRAs if you're over 59½

My wife and I are in our 60s. We both have traditional IRAs, but no Roth IRAs. We’re considering doing annual Roth IRA conversions so that our beneficiaries can inherit tax-free accounts. Can we withdraw the converted amounts from our Roth IRAs at any time after the conversion, with only the earnings needing to remain in the Roth IRA for five years? Does the five-year clock restart for each Roth conversion? Must we open a new Roth account each year to know how much is eligible for withdrawal?

You won’t need a new account for each Roth conversion. The IRS sees all your Roth IRAs as a single pool of money, and all distributions are deemed to come first from principal — all the money you’ve put into the account — and second from earnings.

Since you’re over the age of 59½, you can withdraw converted amounts at any time without penalty; they’re also tax-free because you paid the tax on the conversion. You will owe taxes on distributions of the earnings, however, until you’ve owned the account for five years. The five-year clock starts on Jan. 1 of the year in which you did your first conversion, and — because you’re over 59½ — it won’t restart.

Younger people who do Roth conversions must wait at least five years, or until they turn 59½, to avoid a 10% early-withdrawal penalty on all Roth distributions. That five-year clock restarts for each Roth conversion until they turn 59½ . This early-withdrawal penalty and resetting clock rule is intended to stop young IRA owners from using Roth conversions as a way to tap their traditional IRAs without triggering early-withdrawal penalties.

The bottom line:

Anyone over 59½ can withdraw Roth IRA conversion amounts (or contributions) at any time tax-free, but younger people may owe a penalty on withdrawals.

More information:

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