By Elliot Raphaelson
Based on reader inquiries, many readers do not understand when funds are available after a Roth conversion. When you make a Roth IRA contribution, it is understood, by most, that after you pay the income tax in the year of the contribution, there is no tax or penalty associated with the withdrawal of your contributions. With a Roth conversion, the situation is different.
There is no tax or early withdrawal penalty associated with the withdrawal of the converted amount after five years or distributed after 59 1/2. However, if you established a Roth account earlier, the five-year time frame for conversion starts when you made your first Roth conversion. So, if you made a Roth contribution five years ago, you don’t have to wait five years to avoid an early withdrawal penalty for withdrawal of contributions. Regarding earnings on any Roth conversion, there is no tax or penalty after five years and 59 1/2….