ROTH IRAS

No. Your Roth contributions are always available for tax- & penalty-free withdrawal at any time, at any age. Conversions, as you note, have a different rule, but even then, I don't think it applies for conversions made after age 59.5 (the IRS pub should spell this out for you).

Agree with Mark.

thought that ROTH's had to be held for 5 yrs and you had to be 59.5 to withdraw penalty free? Anyway, some confusion prevails.

bw

Roth _contributions_ can be withdrawn 5 years after _any_ Roth was opened and after age 59.5 without penalty or tax. Roth _conversions_ have to wait 5 years from the year of conversion to avoid penalty. This applies even if the conversion is after age 59.5.

-- Arthur Rubin, CRTP, Brea, CA

Incorrect on both counts. See Pub 590-B.

"You do not include in your gross income qualified distributions or distributions that are a return of your regular contributions from your Roth IRA(s)."

In other words, taking out your contributions is never taxed or penalized, and has no time or age limit restrictions whatsoever, just like I said above. Doesn't matter that it is not a qualified distribution.

Once you are over age 59.5, you can take out conversion amounts penalty-free regardless of how long they have been in the account. If you first opened your Roth at least five years ago (not necessarily by doing a conversion), they are considered qualified distributions, and if not, they meet the over age 59.5 exception, either way they avoid the

The 5-yr conversion rule basically allows you to take money out of a Traditional IRA penalty-free if you are willing to pay the tax up front and then wait five years. But once you reach 59.5, there would not be a penalty anyway for taking money out of the Trad IRA, so it makes no sense that a conversion would somehow extend the early distribution penalty beyond age 59.5

None of this discussion, so far, includes treatment of earnings in the Roth account, which are subject to different rules.

The section on penalties for earlier distributions from Roth accounts in Publication 590-B, and in the earlier Publication 590, is not well written. The Roth chapter of the publication 590-B is not well-written. _If_ it had said that you would have an exemption from any early withdrawal penalty from a Roth if you would have had an exemption from the early withdrawal penalty on from a traditional IRA, instead of listing conditions under which you _might_ have an exemption from penalty, I would agree with you. The actual law seems to differ, and specifies that the penalty is incurred on violations of the 5-year rule, even if over age 59-1/2. I haven't checked the regulations, but it is not unusual for IRS publications be inconsistent with the law, and not unheard of for IRS regulations to be inconsistent with the law. Just look at the 1-year rule for IRA "contributions" within 60 days of withdrawal.

Arthur Rubin, CRTP in Brea, CA

Here (below) is what the regs and the code say. First, I stand by my statement that qualified distribution trumps the five-year conversion rule. I note you also are no longer disputing that contributions can always be withdrawn tax and penalty free at any time, any age.

Then, we are left only with the case where the taxpayer's initial Roth account is opened less than five years before turning 59.5 years old. If conversion money is withdrawn after age 59.5, the 10% penalty is still subject to the Sec. 72(t) exceptions. 72(t) is very clear that after 59.5, the 10% penalty does not apply.

=============================================§408A. Roth IRAs

(F) Special rule for applying section 72 (i) In general

If-

(I) any portion of a distribution from a Roth IRA is properly allocable to a qualified rollover contribution described in this paragraph; and

(II) such distribution is made within the 5-taxable year period beginning with the taxable year in which such contribution was made,

then section 72(t) shall be applied as if such portion were includible in gross income.

============================================= §1.408A-6 Distributions

(b) The 10-percent additional tax under section 72(t) also applies to a nonqualified distribution, even if it is not then includible in gross income, to the extent it is allocable to a conversion contribution, if the distribution is made within the 5-taxable-year period beginning with the first day of the individual's taxable year in which the conversion contribution was made. The 5-taxable-year period ends on the last day of the individual's fifth consecutive taxable year beginning with the taxable year described in the preceding sentence. For purposes of applying the tax, only the amount of the conversion contribution includible in gross income as a result of the conversion is taken into account. The exceptions under section 72(t) also apply to such a distribution.

Question 5 and its answer in the section tou printed says it all.

Q-5. Will the additional tax under 72(t) apply to the amount of a distribution that is not a qualified distribution? A-5. (a) The 10-percent additional tax under section 72(t) will apply (unless the distribution is excepted under section 72(t)) to any distribution from a Roth IRA includible in gross income.

The first exception listed in 72(t) is the age 59 1/2 exception.

OK, same scenario, age 65, after tax contributions, does the gain have to stay 5 years to avoid the penalty as conversion does? tks all

No.