Roth Five-Year Rules.

In plain English

There are actually two separate five-year clocks, and people mix them up. The first applies to earnings: your Roth IRA must be open at least five years (and you must be 59 and a half or meet another exception) before the growth comes out completely tax-free. The second applies to conversions: each amount you convert has its own five-year clock before you can withdraw that converted money penalty-free if you are under 59 and a half. Your own direct contributions are different. You can take those back anytime, tax and penalty-free, because you already paid tax on them.

01Why it matters

Pull earnings or recently converted money too soon and you can owe tax, a 10% penalty, or both, even though it is your own Roth account.

02The math, step by step

You open your first Roth IRA at 58 and convert $20,000 into it. At 60 you are past 59 and a half, but the account is only two years old, so withdrawn earnings are not yet qualified and can be taxed. Your $20,000 of converted principal, however, can come out without the early-withdrawal penalty once you are past 59 and a half.

03What this is NOT

04Receipts

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