Converting IRA to Roth IRA after age 59 1/2

[twb-53]

I am over 59 12.  If I convert an IRA to a Roth IRA (this would be a new Roth IRA), can I withdraw the contribution (not earnings) before 5 years.

A specific example.  I convert $100,000 from my IRA to a Roth and pay the income tax from the conversion.  I understand that I cannot take any earnings out of the Roth for 5 years without penalty.  Can I take any of the initial $100,000 conversion out before the 5 year waiting period.

I have seen some websites that say this is possible, others say it is not.  I have had one tax advisor say it is possible  and another say it is not.

Any help would be appreciated.

[NCperson]

@twb-53 since you are over 59.5, the answer is 'yes'.  there is NEVER a 10% penalty on distributions from an IRA once you turn 59.5.

Your understanding of the earnings is correct.  That Roth IRA needs to be open for 5 calendar years and after than, none of the earnings are taxable either.  Understand, if you have multiple Roth accounts, it's just the oldest one that needs to be open for 5 calendar years. 

and technically, you did a "conversion"; you didn't make a 'contribution' - IRS uses those words differently..:-) 

[twb-53]

I understand that there is no penalty on distributing from an IRA after 59 1/2, but that was not quite the question.  

To restate: The ROTH IRA is opened after 59 1/2.  Can I immediately withdraw the contributions without penalty after opening.  I have been told that I cannot even withdraw the contributions for 5 years.  Your answer only confirmed the earning part.

[twb-53]

Sorry I used the word contributions.  Yes, this is a conversion.

[NCperson · Accepted solution]

@twb-53  you can ALWAYS distribute money from your Roth IRA.  The real question whether there are tax implications

Since you are over 59.5, there is NEVER a 10% penalty. 

The CONTRIBUTIONS and CONVERSIONS dollars can be distributed tax free.  

The EARNINGS are subject to INCOME TAX if any Roth you own has not been open for 5 calendar years.

On distributions, the IRS assumes all the CONTRIBUTIONS are distributed first, all the CONVERSION dollars are distributed 2nd, and then and only then are the earning distributed. 

[twb-53]

Thank you!

[NCperson]

@twb-53 let me clarify this statement - it doesn't read the way I wanted it to read: 

<<The EARNINGS are subject to INCOME TAX if any Roth you own has not been open for 5 calendar years.>>

What I meant to state is if ANY ONE Roth account that you own has been open for five calendar years, there is no tax on the earnings, even if those earnings are sitting in a Roth that has been open for less 5 calendar years. 

[fanfare]

It doesn't make any sense to convert to a Roth IRA and then immediately take a distribution.

@twb-53 

[VolvoGirl]

Yeah, why don’t you just take a distribution from the Traditional IRA?  Is it because they would probably take tax withholding out if it?

[twb-53]

With all due respect it was a question about when you could take out the conversion principle. Not a strategy.  There are many reasons to convert.  An example, if your assets are currently below market value, moving them to a Roth, they get taxed at market rate (think bonds).  When they mature, they mature at face value.  Being in a Roth, there is no tax implication in that gain.  If you just took them out of the IRA, yes there would be less initial tax due to the lower market value, but then you would get taxed on the gain when they mature.  Some numbers to clarify.  You withdraw from an IRA $100,000 face value in bonds, but their market value is $90,000.  Drawing it out as an asset (not sell it and take the cash), you pay tax on $90,000.  When the bond matures, it pays face value, so you have an additional tax liability on the $10,000 gain.  Rolling it into a Roth, you eliminate that liability.

[twb-53]

Of course not, that was an example (noted in the question), not a strategy.

[fanfare]

If you expect your in-kind conversion to grow a.k.a. mature, you have to wait for that to happen before taking it out.

@twb-53 

[twb-53]

I guess you can't read.  The question was about the rules of withdrawal.  You decided to comment on intent.