Definitive source on how soon Roth conversion can be withdrawn over age 60

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DebiT
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Definitive source on how soon Roth conversion can be withdrawn over age 60

Post by DebiT »

Please help me clear my confusion as I decide how much of my tIRA I may want to convert to a new Roth. I have read many posts and websites , and they seem contradictory.

Since I am older than 59 1/2, with a new Roth account, must I wait 5 years or not to withdraw conversion dollars? And , can anyone point me to an IRS or similarly definitive site for this info? It’s very critical to my tax planning, and I can’t afford to be wrong.

Thanks so much
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Re: Definitive source on how soon Roth conversion can be withdrawn over age 60

Post by Globalviewer58 »

Here’s the text from IRS Pub 590 B section on Roth IRA distributions:

What Are Qualified Distributions?
A qualified distribution is any payment or distribution from your Roth IRA that meets the following requirements.

It is made after the 5-year period beginning with the first tax year for which a contribution was made to a Roth IRA set up for your benefit.
The payment or distribution is:
Made on or after the date you reach age 59½,
Made because you are disabled (defined earlier),
Made to a beneficiary or to your estate after your death, or
One that meets the requirements listed under First home under Exceptions in chapter 1 (up to a $10,000 lifetime limit).
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Re: Definitive source on how soon Roth conversion can be withdrawn over age 60

Post by DSBH »

Got my info also from IRS pub 590-b here - https://www.irs.gov/pub/irs-pdf/p590b.pdf - beginning in chapter 2.
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Re: Definitive source on how soon Roth conversion can be withdrawn over age 60

Post by Duckie »

Here's a table, originally posted by KAWill in 2010, showing taxes/penalties on withdrawals. (There are some missing exceptions shown in the IRS cite below.) The assets come out in order, 1 to 4 by year converted. If your new Roth IRA is the first one you've ever had you are covered by the green section:
  • Roth IRA Distribution Table

    UNDER AGE 59.5
    FIVE YEAR CONVERSION HOLDING PERIOD NOT MET
    1-Contributions: Tax-No; Penalty-No
    2-Conversions: Tax-No; Penalty-Yes (Taxable Portion)
    3-Conversions: Tax-No; Penalty-No (Nontaxable Portion)
    4-Earnings: Tax-Yes; Penalty-Yes

    UNDER AGE 59.5
    FIVE YEAR CONVERSION HOLDING PERIOD MET
    1-Contributions: Tax-No; Penalty-No
    2-Conversions: Tax-No; Penalty-No (Taxable Portion)
    3-Conversions: Tax-No; Penalty-No (Nontaxable Portion)
    4-Earnings: Tax-Yes; Penalty-Yes

    OVER AGE 59.5
    LESS THAN FIVE YEARS SINCE OPENING FIRST ROTH IRA
    1-Contributions: Tax-No; Penalty-No
    2-Conversions: Tax-No; Penalty-No (Taxable Portion)
    3-Conversions: Tax-No; Penalty-No (Nontaxable Portion)
    4-Earnings: Tax-Yes; Penalty-No


    OVER AGE 59.5
    FIVE YEARS OR MORE SINCE OPENING FIRST ROTH IRA
    All Distributions Are Qualified -- No taxes, no penalties
Here is the IRS cite from Publication 590-B: Ordering Rules for Distributions.
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Re: Definitive source on how soon Roth conversion can be withdrawn over age 60

Post by MarkNYC »

DebiT wrote: Mon Jun 21, 2021 8:59 pm
Since I am older than 59 1/2, with a new Roth account, must I wait 5 years or not to withdraw conversion dollars? And , can anyone point me to an IRS or similarly definitive site for this info? It’s very critical to my tax planning, and I can’t afford to be wrong.
Since you are over age 59 1/2, you can withdraw your Roth conversion contribution amounts at any time, both tax-free and penalty-free. After withdrawing conversion amounts, if you also withdraw earnings, they will also be penalty-free, but will be tax-free only if you have met the 5-year holding period for the opening of your first Roth IRA account.
**See IRC Section 72(t)(2)(A)(i); and Treas. Reg. 1.408A-6(b)
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Re: Definitive source on how soon Roth conversion can be withdrawn over age 60

Post by DebiT »

Thank you all so much. Very very helpful
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Re: Definitive source on how soon Roth conversion can be withdrawn over age 60

Post by DebiT »

Ok, now that I've read the IRS publication, how to reconcile what it says on page 32 flowchart? To me that means that I cannot withdraw funds before 5 years without penalty or tax.
https://www.irs.gov/pub/irs-pdf/p590b.pdf
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Re: Definitive source on how soon Roth conversion can be withdrawn over age 60

Post by MathWizard »

DebiT wrote: Tue Jun 22, 2021 1:25 pm Ok, now that I've read the IRS publication, how to reconcile what it says on page 32 flowchart? To me that means that I cannot withdraw funds before 5 years without penalty or tax.
https://www.irs.gov/pub/irs-pdf/p590b.pdf
The chart does not explicitly cover your situation.

My understanding is that if it did, they would need to add a box after the first no,
which asks "were you over 59 1/2" and split the box with
"The portion of the distribution allocable to earnings may be subject to tax
and it may be subject to the 10% additional tax." into two boxes:


A no from this second box from the first no sends you to a box with earnings are taxable and there is a penalty (additional 10% tax).
A yes from this second box from the first no sends you to a box with earnings are taxable but no penalty.

I'm not sure why they include may with the "earnings may be taxable" since they would always be.
The "may" in the current box should only depend on whether you were old enough.
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Re: Definitive source on how soon Roth conversion can be withdrawn over age 60

Post by ResearchMed »

DebiT wrote: Tue Jun 22, 2021 1:25 pm Ok, now that I've read the IRS publication, how to reconcile what it says on page 32 flowchart? To me that means that I cannot withdraw funds before 5 years without penalty or tax.
https://www.irs.gov/pub/irs-pdf/p590b.pdf
Did you click on the little link on page 30, where it states:
"...Unless one of the exceptions listed later applies..."

And that flow chart does seem to be misleading:
The FIRST question is whether the Roth has been there for at least 5 years, and THEN the flow chart asks about age, but only if you have answered yes...
But there is a separate section about "early distributions" (see PAGE 24) that addresses:
"After age 591/2 and before age 72."

The flow chart is wrong - or at least easily misleading - in my opinion, in that it doesn't clearly address the case of those with Roths less the 5 years old, but the person is over 59,5.

Hopefully that will address your concern?

If you are over 59.5, the ONLY possible "penalty/tax" you would need to pay AFAIK is the *tax* and only if you didn't have any Roth account that is at least 5 years old.
The information you've already been given is correct (at this time).
Don't go looking for worries in governmentese :wink:

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Re: Definitive source on how soon Roth conversion can be withdrawn over age 60

Post by vanbogle59 »

I hope to not disrail this thread, but do I have this right?

On my 60th birthday, I convert $1 from tIRA to Roth.
I pay the tax for the withdrawal that year. I put it in a money market.

On my 65th birthday, it's worth $1.05. I convert another $1,000. I pay the tax for that withdrawal.
But now I put the money in Gamestop, at just the right moment. One week later, my Roth is worth $1M.

I can withdraw all of it without further tax or penalty.
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Re: Definitive source on how soon Roth conversion can be withdrawn over age 60

Post by Alan S. »

vanbogle59 wrote: Tue Jun 22, 2021 1:55 pm I hope to not disrail this thread, but do I have this right?

On my 60th birthday, I convert $1 from tIRA to Roth.
I pay the tax for the withdrawal that year. I put it in a money market.

On my 65th birthday, it's worth $1.05. I convert another $1,000. I pay the tax for that withdrawal.
But now I put the money in Gamestop, at just the right moment. One week later, my Roth is worth $1M.

I can withdraw all of it without further tax or penalty.
Yes, you can because your Roth IRA is now qualified.
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Re: Definitive source on how soon Roth conversion can be withdrawn over age 60

Post by ResearchMed »

vanbogle59 wrote: Tue Jun 22, 2021 1:55 pm I hope to not disrail this thread, but do I have this right?

On my 60th birthday, I convert $1 from tIRA to Roth.
I pay the tax for the withdrawal that year. I put it in a money market.

On my 65th birthday, it's worth $1.05. I convert another $1,000. I pay the tax for that withdrawal.
But now I put the money in Gamestop, at just the right moment. One week later, my Roth is worth $1M.

I can withdraw all of it without further tax or penalty.
I think I understand what you are getting at, and yes, that's the beauty of Roths.
Er, other than getting the timing right (twice), just a mere detail...

But at these interest rates, do you really think you'll have that extra nickel? :twisted:

We each opened Roths, using $1k, just to start that clock.
(We started us a bit late. We are already mid '70s, but better late than never. Also, our situation is one in which I think the Roth's will be of limited use, but I've got 'em started just in case...)

RM
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Re: Definitive source on how soon Roth conversion can be withdrawn over age 60

Post by Lee_WSP »

MarkNYC wrote: Mon Jun 21, 2021 10:12 pm
DebiT wrote: Mon Jun 21, 2021 8:59 pm
Since I am older than 59 1/2, with a new Roth account, must I wait 5 years or not to withdraw conversion dollars? And , can anyone point me to an IRS or similarly definitive site for this info? It’s very critical to my tax planning, and I can’t afford to be wrong.
Since you are over age 59 1/2, you can withdraw your Roth conversion contribution amounts at any time, both tax-free and penalty-free. After withdrawing conversion amounts, if you also withdraw earnings, they will also be penalty-free, but will be tax-free only if you have met the 5-year holding period for the opening of your first Roth IRA account.
**See IRC Section 72(t)(2)(A)(i); and Treas. Reg. 1.408A-6(b)
This. This is the only response that cites the actual rules. IRS publications are guidance only.
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Re: Definitive source on how soon Roth conversion can be withdrawn over age 60

Post by Jablean »

Have you ever had a Roth account before?
If yes, do you still have it or did you take all the money out and close it?
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Re: Definitive source on how soon Roth conversion can be withdrawn over age 60

Post by RickBoglehead »

vanbogle59 wrote: Tue Jun 22, 2021 1:55 pm I hope to not disrail this thread, but do I have this right?

On my 60th birthday, I convert $1 from tIRA to Roth.
I pay the tax for the withdrawal that year. I put it in a money market.

On my 65th birthday, it's worth $1.05. I convert another $1,000. I pay the tax for that withdrawal.
But now I put the money in Gamestop, at just the right moment. One week later, my Roth is worth $1M.

I can withdraw all of it without further tax or penalty.
No. Because GameStop will not be worth $1million... :twisted:
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Re: Definitive source on how soon Roth conversion can be withdrawn over age 60

Post by retiredjg »

Globalviewer58 wrote: Mon Jun 21, 2021 9:20 pm Here’s the text from IRS Pub 590 B section on Roth IRA distributions:

What Are Qualified Distributions?
A qualified distribution is any payment or distribution from your Roth IRA that meets the following requirements.

It is made after the 5-year period beginning with the first tax year for which a contribution was made to a Roth IRA set up for your benefit.
The payment or distribution is:
Made on or after the date you reach age 59½,
Made because you are disabled (defined earlier),
Made to a beneficiary or to your estate after your death, or
One that meets the requirements listed under First home under Exceptions in chapter 1 (up to a $10,000 lifetime limit).
This is the definition of qualified distributions and all qualified distributions are tax and penalty free....but...the reverse is not true. There are many distributions that are tax and penalty free but they are not qualified.

The most common example is that a Roth IRA contribution (but not the earnings) is available immediately without tax or penalty...without regard for age of person or age of Roth IRA.
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Re: Definitive source on how soon Roth conversion can be withdrawn over age 60

Post by DebiT »

Jablean wrote: Tue Jun 22, 2021 3:02 pm Have you ever had a Roth account before?
If yes, do you still have it or did you take all the money out and close it?

Never before, just now opened it, preparing to make a Roth conversion plan, and want to know in worst case situation if I needed that money, could I get to it without tax or penalty. Naturally, it is not simple to find out definitively. IRS flowchart is flawed if this is a yes.
ResearchMed wrote: Tue Jun 22, 2021 1:45 pm

If you are over 59.5, the ONLY possible "penalty/tax" you would need to pay AFAIK is the *tax* and only if you didn't have any Roth account that is at least 5 years old.
The information you've already been given is correct (at this time).
Don't go looking for worries in governmentese :wink:

RM
But isn't this exactly my case, over 60 but Roth is not at least 5 years old? PS I always go looking for worries. Here there be dragons, and if so, I want to know!

I'm reading the tax code and treasury sections cited above, but of course can't make heads or tails out of those either. Hopefully it will become clear to me at some point.
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Re: Definitive source on how soon Roth conversion can be withdrawn over age 60

Post by ResearchMed »

DebiT wrote: Tue Jun 22, 2021 4:23 pm But isn't this exactly my case, over 60 but Roth is not at least 5 years old? PS I always go looking for worries. Here there be dragons, and if so, I want to know!
Yes, but ALL you would have to pay is the tax on any gains, but no penalty.
You can get your contributions back without penalty at any time; you've already paud taxes on those when you put the money into the Roth.

RM
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Re: Definitive source on how soon Roth conversion can be withdrawn over age 60

Post by DebiT »

OK, I know this is the right answer with 99% of my brain. I guess I just need to let go of the fact that it is so darn hard to see where that answer comes from. Oh well, time to move on, right?
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Re: Definitive source on how soon Roth conversion can be withdrawn over age 60

Post by Artsdoctor »

Schwab has a very clear Roth page:

https://www.schwab.com/ira/roth-ira/withdrawal-rules
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Re: Definitive source on how soon Roth conversion can be withdrawn over age 60

Post by Silk McCue »

DebiT wrote: Tue Jun 22, 2021 4:32 pm OK, I know this is the right answer with 99% of my brain. I guess I just need to let go of the fact that it is so darn hard to see where that answer comes from. Oh well, time to move on, right?
IRS regs can be very confusing. That’s why we have the KAWill table posted above to cut through the noise. I have referenced it on numerous other threads and use it myself as the reference.

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Re: Definitive source on how soon Roth conversion can be withdrawn over age 60

Post by Lee_WSP »

DebiT wrote: Tue Jun 22, 2021 4:23 pm But isn't this exactly my case, over 60 but Roth is not at least 5 years old? PS I always go looking for worries. Here there be dragons, and if so, I want to know!

I'm reading the tax code and treasury sections cited above, but of course can't make heads or tails out of those either. Hopefully it will become clear to me at some point.
I may be beating the dead horse here, but the Regs say that if you withdraw any *earnings*, such earnings will be included in your gross income if you haven't contributed or converted to a Roth account and satisfy the five year rule. However, the order of withdrawal is any contributions, then any conversions, and then any earnings. So, unless you are withdrawing *more than* your total of contributions + conversions, it is not going to be includible in your gross income. All withdrawals past 59.5 are penalty free.
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Re: Definitive source on how soon Roth conversion can be withdrawn over age 60

Post by DebiT »

Artsdoctor wrote: Tue Jun 22, 2021 4:37 pm Schwab has a very clear Roth page:

https://www.schwab.com/ira/roth-ira/withdrawal-rules
Very clear, except they need to add a sentence to this section
Over age 59½
Withdrawals from a Roth IRA you've had less than five years.
If you haven't met the five-year holding requirement, your earnings will be subject to taxes but not penalties.
to say, But, you can take out your contributions with no tax, no penalties. Once again, on that page, nowhere does it say that. I may be a little OCD, but I'm not wrong. (this is my motto, unfortunately). :(
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Re: Definitive source on how soon Roth conversion can be withdrawn over age 60

Post by Silk McCue »

DebiT wrote: Tue Jun 22, 2021 5:16 pm
Artsdoctor wrote: Tue Jun 22, 2021 4:37 pm Schwab has a very clear Roth page:

https://www.schwab.com/ira/roth-ira/withdrawal-rules
Very clear, except they need to add a sentence to this section
Over age 59½
Withdrawals from a Roth IRA you've had less than five years.
If you haven't met the five-year holding requirement, your earnings will be subject to taxes but not penalties.
to say, But, you can take out your contributions with no tax, no penalties. Once again, on that page, nowhere does it say that. I may be a little OCD, but I'm not wrong. (this is my motto, unfortunately). :(
No, they don’t need to say that. They explicitly stated the scenario where taxes but not penalties would be due. The reader is expected to take this in the context of the prior statements.

Cheers
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Re: Definitive source on how soon Roth conversion can be withdrawn over age 60

Post by MarkNYC »

Artsdoctor wrote: Tue Jun 22, 2021 4:37 pm Schwab has a very clear Roth page:

https://www.schwab.com/ira/roth-ira/withdrawal-rules
I have to disagree. I think the Schwab summary is poorly written, contains several misleading statements, makes no distinction between taxation/penalties for distributions of annual contributions vs conversion contributions when under age 59.5, and makes a grossly inaccurate statement, which is this:

-- "If you're under age 59.5 and your Roth IRA has been open 5 years or more, your earnings will not be subject to taxes if":

1. the funds are used for a first-time home purchase, up to $10K
2. the funds are used to pay for qualified education expenses
3. you become disabled, or pass away
4. the funds are used for unreimbursed medical expenses
5. the funds are paid as a series of substantially equal periodic payments

These are exceptions to the 10% penalty on early distributions, not exemptions from income tax on earnings.

In my opinion, it is incomplete, misleading and inaccurate Roth IRA summaries like Schwab's that cause so much confusion among taxpayers regarding taxation of Roth IRA distributions.
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Re: Definitive source on how soon Roth conversion can be withdrawn over age 60

Post by RyeBourbon »

DebiT wrote: Tue Jun 22, 2021 5:16 pm
Artsdoctor wrote: Tue Jun 22, 2021 4:37 pm Schwab has a very clear Roth page:

https://www.schwab.com/ira/roth-ira/withdrawal-rules
Very clear, except they need to add a sentence to this section
Over age 59½
Withdrawals from a Roth IRA you've had less than five years.
If you haven't met the five-year holding requirement, your earnings will be subject to taxes but not penalties.
to say, But, you can take out your contributions with no tax, no penalties. Once again, on that page, nowhere does it say that. I may be a little OCD, but I'm not wrong. (this is my motto, unfortunately). :(
Earnings and contributions are two very distinct things. In *all* cases, contributions to Roth can be removed tax and penalty free.
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Re: Definitive source on how soon Roth conversion can be withdrawn over age 60

Post by MarkNYC »

RyeBourbon wrote: Tue Jun 22, 2021 6:41 pm
DebiT wrote: Tue Jun 22, 2021 5:16 pm
Artsdoctor wrote: Tue Jun 22, 2021 4:37 pm Schwab has a very clear Roth page:

https://www.schwab.com/ira/roth-ira/withdrawal-rules
Very clear, except they need to add a sentence to this section
Over age 59½
Withdrawals from a Roth IRA you've had less than five years.
If you haven't met the five-year holding requirement, your earnings will be subject to taxes but not penalties.
to say, But, you can take out your contributions with no tax, no penalties. Once again, on that page, nowhere does it say that. I may be a little OCD, but I'm not wrong. (this is my motto, unfortunately). :(
Earnings and contributions are two very distinct things. In *all* cases, contributions to Roth can be removed tax and penalty free.
That is true for annual contributions, but not always true for conversion contributions.

Conversion contributions that are distributed prior to age 59.5 will be subject to the 10% early distribution penalty unless the 5-year holding period for that specific conversion contribution has been met.
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Re: Definitive source on how soon Roth conversion can be withdrawn over age 60

Post by Oicuryy »

DebiT,

Have you read the instructions for Part III of Form 8606? That is where you calculate the taxable part of your non-qualified distributions from your Roth IRA. Note that line 24 means you will not have to pay taxes again on the amounts you converted from traditional IRAs.

Ron
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Re: Definitive source on how soon Roth conversion can be withdrawn over age 60

Post by ResearchMed »

ResearchMed wrote: Tue Jun 22, 2021 2:08 pm
vanbogle59 wrote: Tue Jun 22, 2021 1:55 pm I hope to not disrail this thread, but do I have this right?

On my 60th birthday, I convert $1 from tIRA to Roth.
I pay the tax for the withdrawal that year. I put it in a money market.

On my 65th birthday, it's worth $1.05. I convert another $1,000. I pay the tax for that withdrawal.
But now I put the money in Gamestop, at just the right moment. One week later, my Roth is worth $1M.

I can withdraw all of it without further tax or penalty.
I think I understand what you are getting at, and yes, that's the beauty of Roths.
Er, other than getting the timing right (twice), just a mere detail...

But at these interest rates, do you really think you'll have that extra nickel? :twisted:

We each opened Roths, using $1k, just to start that clock.
(We started us a bit late. We are already mid '70s, but better late than never. Also, our situation is one in which I think the Roth's will be of limited use, but I've got 'em started just in case...)

RM
Apparently (per CNBC, so it must be true, right?) Peter Thiel is in the process of doing something just like this.

He put in legal - and relatively small amounts - into a Roth.
He invested it in (PayPal, I think) at *very* low price.
It's now worth approximately $5B (that's a "B" for "BILLION"), but who's counting...?

At about 60, he'll have access to all of that completely tax free.

Nice gig if you can get it.

RM
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Re: Definitive source on how soon Roth conversion can be withdrawn over age 60

Post by Katietsu »

DebiT wrote: Tue Jun 22, 2021 1:25 pm Ok, now that I've read the IRS publication, how to reconcile what it says on page 32 flowchart? To me that means that I cannot withdraw funds before 5 years without penalty or tax.
https://www.irs.gov/pub/irs-pdf/p590b.pdf
The chart on page 32 addresses qualified distributions. Before the 5 year mark your distributions are non-qualified. Qualified Distributions are ALWAYS tax free and penalty free. A non-qualified distribution is subject to all the rules and exceptions discussed in this thread. Being non-qualified means you MAY have taxes and/or penalties, it does NOT mean you WILL.
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Re: Definitive source on how soon Roth conversion can be withdrawn over age 60

Post by Artsdoctor »

Tough crowd, but of course that's what is so valuable about Bogleheads. I thought the Schwab statement was clear but I can understand how it could have been reworded.

Several years ago, Michael Kitces did a summary which was very detailed and probably needs to be read a couple of times (at least I found it that way), but all of the information is there. This will probably answer (hopefully answer?) all questions:

https://www.kitces.com/blog/understandi ... nversions/
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Re: Definitive source on how soon Roth conversion can be withdrawn over age 60

Post by David Jay »

The whole thread is a great reminder that everyone who does not currently have a Roth should go ahead and get a Roth funded to start the 5 year clock. If nothing else, do a $225 taxable conversion from a tax-deferred IRA balance and buy one share of VTI.
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