A:

First, some background information: the tax treatment of a Roth IRA distribution depends on whether or not the distribution is qualified. Qualified distributions from Roth IRAs are tax and penalty free, but non-qualified distributions may be subjected to tax and an early-distribution penalty. Generally, for a distribution to be qualified, it must occur at least five years after the Roth IRA owner established and funded his/her first Roth IRA - this is the five-year rule to which you refer.

In your case, you may withdraw any amount from the principal balance at any time, and the amount will be tax and penalty free. Only the earnings are subject to the five-year holding period because you are at least 59.5 years old.

Note: Please make sure that you distribute your required minimum distribution (RMD) for the year before you convert the amount to the Roth IRA. RMD amounts cannot be converted to a Roth IRA and must be distributed before the conversion. Otherwise, the RMD amount will be considered an ineligible conversion.

To learn more, read Avoiding RMD Pitfalls,'Tis The Season For Required Minimum Distributions, Preparing For The RMD Season - Part 1 and Preparing For The RMD Season - Part 2.

This question was answered by Denise Appleby
(Contact Denise)

Hot Definitions
  1. Treynor Ratio

    A ratio developed by Jack Treynor that measures returns earned in excess of that which could have been earned on a riskless ...
  2. Buyback

    The repurchase of outstanding shares (repurchase) by a company in order to reduce the number of shares on the market. Companies ...
  3. Tax Refund

    A tax refund is a refund on taxes paid to an individual or household when the actual tax liability is less than the amount ...
  4. Gross Domestic Product - GDP

    The monetary value of all the finished goods and services produced within a country's borders in a specific time period, ...
  5. Inflation

    The rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of ...
  6. Merchandising

    Merchandising is any act of promoting goods or services for retail sale, including marketing strategies, display design and ...
Trading Center