From 24/7 Wall St. · David Beren · · 1m 30s
Roth Conversion Clock Starts Late
A 64-year-old's Roth conversion at $100,000 triggers a five-year tax clock that makes growth taxable until age 67
In brief
A 64-year-old's Roth conversion at $100,000 triggers a five-year tax clock that makes growth taxable until age 67 Roth conversions start a five-year clock from the tax year of the first conversion, so growth remains taxable until the clock completes Originally reported by 24/7 Wall St..
Roth Conversion Timing
A 64-year-old converts $100,000 from a traditional IRA to a Roth, paying the tax bill. The account appears tax-free but growth becomes taxable later.
“Everyone should convert at least a minimum amount of money from an IRA to a Roth. $1 is fine with Fidelity.”
The Five-Year Clock
The qualification clock starts on January 1 of the tax year of the first conversion and runs for five years before growth becomes tax-free.
Why Age Isn't Enough
Reaching 59 and a half satisfies the age requirement but not the five-year clock, so growth remains taxable until the clock completes.
Withdrawal Order Rules
Contributions and converted principal are tax-free at any age, but earnings become taxable once the five-year clock completes.
The $1 Trick
Converting a small amount early starts the five-year clock for all future Roth dollars, avoiding taxable growth later.
Inherited Roths
Beneficiaries inherit the original owner's five-year holding period for tax-free distributions if the decedent held the Roth for more than five years.
Roth 401k Clocks
Roth 401(k) accounts have separate clocks from Roth IRAs, so rolling them into a Roth IRA does not transfer the holding period.
Opening a Roth Now
Opening a Roth account at 45 avoids the taxable growth problem entirely, while waiting until 60 shortens the clock window.
What it means
Roth conversions start a five-year clock from the tax year of the first conversion, so growth remains taxable until the clock completes
