Hello Liangtwn:
Let's review:
*The appreciation $10 ($120-110) of the share is treated as the earnings, correct?
The $10 gain is classified as earnings in the Roth IRA
* Can the the$10 be distributed tax-free and penalty-free on 1/1/2025 because it has been in the Roth for more than 5 years?
In order for earnings tax-free and penalty-free, the distribution must be a Qualified Distribution, which requires two separate conditions to be met:
First condition, 5 year Rule:
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In your case: If the 2/2/2020 conversion was your very first Roth funding event, the 5-year clock started on January 1, 2020.
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The 5-year period ends on December 31, 2024.
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Therefore, as of January 1, 2025, the Earnings 5-Year Rule is met.
Second condition, Qualified Reason:
- You must meet one of the following: Age 59 1/2or older,
- Qualified first-time home purchase (up to $10,000$ lifetime limit),
- Disability, or
- Distribution made to a beneficiary after your death.
Assuming you are at least 59 1/2 years old (or meet another qualified reason), your conclusion is correct: The $10 of earnings can be withdrawn Tax-Free and Penalty-Free starting January 1, 2025.
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