At Losavio & DeJean, LLC, The Louisiana Elder Law Firm, we understand that a lot of people are confused about the five-year rule concerning Roth conversions. One of the reasons for this is that there are actually two 5-year rules.
There are some advantages to converting later in the year. Rule One starts the clock on the five-year rule concerning five years before withdraws of converted balances to January 1st of the year you do the conversion, no matter when it happens during the year. If you withdraw sooner than 5 years, then you have to pay a 10% penalty.
There is a different 5-year rule for withdrawals of earnings. For Rule 2, it must have been five years since your first Roth conversion or contribution. You must also be age 59 1/2 or otherwise eligible to make penalty-free withdrawals.
If you have more questions about the five-year rule for Roth conversions, don’t hesitate to contact us at (800) 835-5864 so we can assist with these complex rules. Schedule your consultation with our Louisiana Board Certified Tax Specialist and Louisiana Certified Public Accountant today.