Roth Conversion IRA, 5-yr rule for Roth Conversion IRA Options

[Yesnam]

I have had a regular Roth IRA for over five years. I have just rolled over my 403(b) into a Rollover IRA (I was told I could even though I am still employed). I am planning to convert portion of this Rollover IRA into the Roth IRA.

My question: If I convert the Rollover IRA to the Roth (I will be over 59½ at the time of this partial conversion), do I still have to wait for five years before taking distributions from the converted Roth to avoid a 10% tax penalty?

[masteff]

IRS Publication 590 tells us that "A separate 5-year period applies to each conversion".... "is determined separately for each conversion, and is not necessarily the same as the 5-year period used for determining whether a distribution is a qualified distribution." I read this to mean you could be past the 5-year mark to pay tax on earnings, but could still have to pay 10% penalty.

Note that page 67 specifies that Roth contributions come out of the account before Roth conversions... so depending on how much contributions you have, it might be possible to take distributions w/out incurring the 10% penalty.

http://www.irs.gov/pub/irs-pdf/p590.pdf

[Appleby]

IRS Publication 590 tells us that "A separate 5-year period applies to each conversion".... "is determined separately for each conversion, and is not necessarily the same as the 5-year period used for determining whether a distribution is a qualified distribution." I read this to mean you could be past the 5-year mark to pay tax on earnings, but could still have to pay 10% penalty.

Note that page 67 specifies that Roth contributions come out of the account before Roth conversions... so depending on how much contributions you have, it might be possible to take distributions w/out incurring the 10% penalty.

http://www.irs.gov/pub/irs-pdf/p590.pdf

But because Yesnam will be at least age 59 ½, the 10 % penalty will not apply.
A good way to look at it is:
Would the 10% penalty apply if the amount was withdrawn from the traditional IRA? If the answer is no, then it does not apply to the Roth IRA.
If the answer is yes, then we would need to look at how much the convert amount has aged.

Since you are at least age 59 ½, and your first Roth IRA was established more than five years ago, all your Roth IRA distributions will be qualified and therefore tax and penalty-free.

[Yesnam]

Does this also include any earnings on the converted amount?

[Appleby]

Yes.
Because your distribution will be qualified, any amount you withdraw will be tax and penalty-free. Qualified distribution defined here http://www.retirementdictionary.com/qualif...bution-roth.htm

[Yesnam]

Thank you very much for clarifying the issue.

Yesnam