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)

RELATED FAQS
  1. What are the tax consequences of a Roth IRA distribution if the IRA holder is younger ...

    The tax treatment of a Roth IRA distribution depends on whether the distribution is qualified. Qualified distributions from ... Read Answer >>
  2. My Traditional IRA has been converted to a Roth IRA. Can I still make a qualified ...

    If you converted the funds less than five-years ago, you will not be able to meet the qualified distribution requirements. ... Read Answer >>
  3. I am self-employed and do not need most of my IRA RMD for expenses. Can I reinvest ...

    You can use your required minimum distributions (RMDs) to fund your Roth IRA as a Roth IRA contribution. This is because ... Read Answer >>
  4. Earnings within a Roth IRA are tax free, so are these earnings included in the modified ...

    There are two possible answers to this question, depending on whether or not the distribution from the Roth IRA is qualified.Earnings ... Read Answer >>
  5. I am over 60 years old and have a Roth IRA to which I have made contributions for ...

    Because you meet the five-year requirement (i.e. it has been five years since you first established and funded a Roth IRA) ... Read Answer >>
  6. What is the five-year waiting rule for Roth IRAs?

    There are two five-year waiting periods that apply to Roth IRAs. However, in both cases, the waiting period for a Roth IRA ... Read Answer >>
Related Articles
  1. Options & Futures

    Roth IRAs: Distributions

    The tax treatment of a Roth IRA distributions depends on whether the distribution is qualified. Qualified distributions from Roth IRAs are tax and penalty free, but nonqualified distributions ...
  2. Financial Advisors

    Best Ways to Avoid RMD Tax Hits on IRAs

    If you want to avoid hefty tax penalties, read this cheat sheet on IRA required minimum distributions.
  3. Retirement

    How a Roth IRA Works After Retirement

    What retirees need to know about taxes, distributions and passing on your unspent savings to the next generation.
  4. Retirement

    SIMPLE IRAs: Distributions

    By Denise Appleby Distributions from SIMPLE IRAs must occur eventually. Until required distribution rules apply, distributions are usually elective . The tax and penalty treatment of distributions ...
  5. Retirement

    SEP IRAs: Distributions

    By Denise Appleby Because the funding vehicle for an SEP is a Traditional IRA, the distributions rules of a Traditional IRA also apply to SEP assets.Traditional IRA Distributions. Distributions ...
  6. Retirement

    Traditional IRAs: Distributions

    By Denise ApplebyDistributions from Traditional IRAs must occur eventually. Until the owner reaches the mandatory distribution age, distributions are optional. The tax and penalty applied to ...
  7. Financial Advisors

    Top Tips for Advising Clients on RMD Strategies

    Required minimum distributions are a fact of life for those 70.5 and older. Here's how to implement the best strategies for clients.
  8. Taxes

    2. Taking Required Minimum Distributions

    Avoiding these five common tax mistakes can really pay off on your way to retirement
  9. Financial Advisors

    Required Minimum Distributions: A Reminder

    For many retirees with IRAs and other retirement plans, the end of the year means taking a minimum distribution. Here's what you need to know.
  10. Options & Futures

    Roth IRAs: Introduction

    The Roth IRA is a retirement saving account to which individuals can make contributions with after-tax dollars. If certain requirements are met, distributions from the Roth IRA will be tax-free. ...
RELATED TERMS
  1. Qualified Distribution

    Distributions made from a Roth IRA that are tax and penalty free. ...
  2. Non-Qualified Distribution

    1) A distribution from a Roth IRA that occurs before the Roth ...
  3. Roth IRA

    An individual retirement plan that bears many similarities to ...
  4. Roth IRA Conversion

    A reportable movement of assets from a Traditional, SEP or SIMPLE ...
  5. Ordering Rules

    The order in which Roth IRA assets are distributed. Assets are ...
  6. Required Minimum Distribution - RMD

    The amount that Traditional, SEP and SIMPLE IRA owners and qualified ...

You May Also Like

Trading Center