From 24/7 Wall St. · David Beren · · 1m 20s
Roth Conversion Rule Confusion
Retirees over 66 can access Roth conversions without penalty after five years.
In brief
Retirees over 66 can access Roth conversions without penalty after five years. Retirees over 59½ who converted $100,000 at age 66 spent it the next spring without tax penalty due to the five-year rule expiring at 59½. Originally reported by 24/7 Wall St..
Roth Conversion Rule Confusion
Most retirees over 59½ skip Roth conversions due to a five-year rule that no longer applies.
The Backstop Rule Ends at 59½
The 10% early distribution tax under §72(t) ends at 59½, so converted principal is reachable without additional tax.
The Five-Year Clock Runs Once
Roth earnings tax-free only if past 59½ and five tax years have passed since first contribution or conversion.
The $100,000 Case Study
A 66-year-old converted $100,000, paid tax, and spent the entire balance the next spring without penalty.
Distribution Order Matters
Distributions come out in order: regular contributions first, then converted amounts, then earnings last.
The Conversion Clock Starts January 1
The five-year conversion clock starts on January 1 of the tax year of conversion, not the conversion date.
Why This Matters for Retirees
For most retirees, the earnings question is theoretical, not imminent, after five years.
The Real Five-Year Rule
The five-year rule that actually threatens money is the one that requires five tax years since first contribution or conversion.
The one thing
Retirees over 59½ who converted $100,000 at age 66 spent it the next spring without tax penalty due to the five-year rule expiring at 59½.
