I have a different understanding: over 59 1/2 there is no 5 year rule if the Roth account is over 5 years old. A conversion made in this age is also tax freely distributable without penalty, since it is already taxed at the conversion. However, the earning portion achieved with this conversion is not qualified distribution before the 5 year hold period, it is taxed plus 10% penalty. Just the earning, following IRS' Ordering Rule. And, each conversion starts its own 5 year holding period on the portion, namely the earnings. It comes in play only if the distribution is over the principal. This is my understanding, and here is what I found, -it makes sense:
"Does the five-year rule apply to Roth IRA owners older than age 59½?
Short answer—yes! The five-year rule remains (very) relevant once the account owner attains age 59½. Why? This five-year holding period must still be satisfied if a Roth IRA owner wants tax-free distributions of earnings. As mentioned, a qualified distribution from a Roth IRA requires the owner to be age 59½ and satisfy the five-year holding period.
Example: Maria, age 75, converts $200,000 from her SEP-IRA to a Roth IRA in 2021. In 2024, when her Roth IRA has grown to $225,000, she takes a full distribution thinking it will be tax-free. The first $200,000 will be distributed tax-free. This is because Maria paid taxes on this amount when she converted such funds in 2021. Furthermore, $25,000 (earnings) will also be distributed penalty-free because Maria is over age 59½. However, the $25,000 (earnings) is not a qualified distribution and will therefore be taxable because the five-year rule has not been satisfied. Maria would need to wait until January 1, 2026, to satisfy the five-year holding period and therefore qualify for tax-free treatment."
Therefore to keep things separate, I thought it would be better to do each conversion to a new ROTH account. Otherwise, it would be difficult to define where the distribution comes from, which part is principal, which is earning. Don't I understand something right?
