So are you all also saying......but if you opened a ROTH like 10 years ago, with a contribution or conversion, and then made a Traditional IRA to ROTH conversion at age 58, upon turning 60 you can take out the earnings from that conversion tax free and penalty free without having to wait "the 5 year-rule" because the account is like 12 years old at this point?
Yes, that's correct (actually age 59½, not 60). People get confused because there are two different 5-year rules that apply to Roth IRAs established in different parts of the tax code, one that applies to conversions and one that applies to qualified distributions. Once the requirements for qualified distributions are met, including satisfying the 5-year rule for distributions to be qualified distributions, the 5-year rule for conversions is no longer relevant; the 5-year rule for conversions effectively no longer applies.
The Investopedia article does nothing to help understand the difference between the two different 5-year rules. The article is a bit misleading because it assumes, without saying so, that the Roth IRA that the 58-year-old opened with a Roth conversion is the individual's first Roth IRA. In that example it also keeps referring to "the" Roth IRA, when, in fact, the 5-year holding period for determining qualified distributions is determined by the individual's entire history of having Roth IRAs, not just the account that received the Roth conversion.
§ 408A(d)(2) defines a qualified distribution, which includes the definition of the "nonexclusion period," the period during which distributions are not permitted to be treated as qualified, as beginning with the year the the individual first made any contribution to any Roth IRA. Contributions include regular contributions, conversion contributions and rollover contributions, all of which are reported on Form 5498 for the year for which the contribution was made. (Conversion and rollover contributions are made "for" the year in which the deposit to the Roth IRA occurs while regular contributions for a particular year can be made up until the regular filing deadline for the individual's income tax return.)
That is the only thing that you need to get you out of paying tax on the earnings before 5 years go by is that your ROTH needed to be started with like $1, 5-years prior?
And you meet that age 59½ or disability requirement (or, for your beneficiaries, you die).
My 86 year old mother is opening a ROTH, her first ROTH, she will have to wait 5 (really 4) years now for tax free distributions just because she never started even a tiny one earlier.
Correct. That's why I encourage everyone to start at least a small Roth IRA as soon as practical, or at least by the year they reach age 55. If they think that they will ever purchase a home, it makes sense to make a Roth IRA contribution at least 5 years prior to that since up to $10k of earnings distributed for the purpose of purchasing a home can be treated as qualified (penalty free and tax free) if the 5-year qualification period has been completed, regardless of the individual's age.
