I am confused about taxes when taking Roth IRA distributions. Let me use a concrete example:
1) I am over 65 years old.
2) I already have a Roth IRA that is well over five years old. It has about $20K in it.
3) I have a traditional IRA that has $500K and I would like to convert to the Roth IRA over a five-year period (so, $100K per year for this hypothetical).
4) I do not plan to make any contributions to the Roth IRA in the future including this year (2026).
As I understand it, any conversions that I make into the Roth IRA can be withdrawn tax free at any time (because they are not earnings) and penalty free (because I am older than 59.5 years).
As I understand it, I am responsible for keeping track of the conversion amounts. Now, if I convert $100K in 2026 and withdraw $70K in early 2027 (before converting the planned annual amount for 2027 of $100K), then do I deduct $70K from the $100K entry in the column for year 2026 in my spreadsheet?
Now what about earnings. Are the earnings subject to any five-year rule at all? If so, how can I possible parse out what portion of an earnings withdrawal applies to a specific conversion year. So, if I withdraw $20K of earnings in 2031, do I have to know which portions of that $20K apply to which conversion years? Also, does this mean that at the end of each year, I need to enter the earnings for that year into my spreadsheet as earnings for that year? If so, how do you handle subsequent years when earnings are also being made on conversions from prior years as well as any earnings from prior years that were not withdrawn?
