Does the 5 year rule on roth earnings reset if I do a roth conversion this year and another next year? I am 67 and have a 6 year old roth now.

[bobr5]

My humble opion thinks I need a new roth account each year I do an additional ira to roth conversion so I can track the 5 year rule on roth earnings seperately.  

[Opus 17]

Each conversion has a separate 5 year clock.

However, that is irrelevant for you and you can ignore the conversion clock after age 59-1/2.  When you do the conversion, you pay the regular income tax on the converted amount.  The 5 year conversion rule says that if you withdraw the converted funds in less than 5 years, you pay a 10% penalty for early withdrawal.  But that penalty never applies once you are over age 59-1/2.  

[Opus 17]

Let me try again, I think I misunderstood your question.  No, you don't need multiple IRA accounts.

There are two different 5 year clocks.  The "earnings" clock, as you refer to it, says that withdrawal of earnings are taxable if the account has been open less than 5 years, even if you are over age 59-1/2.  There is also a "conversion" clock that means that if you make a traditional to Roth conversion, this is subject to a 10% penalty for early withdrawal if the conversion is less than 5 years old AND you are under age 59-1/2.  Each conversion has its own 5 year conversion clock, but the "earnings" clock only has to be satisfied once.  As long as it has been at least 5 years since opening ANY Roth IRA, all your Roth IRA accounts are deemed to have satisfied the earnings clock.  

Plus, as stated, the conversion clock doesn't apply after you are over age 59-1/2.

All Roth withdrawals are treated as though you withdraw contributions first, conversions second, and earnings last.  You don't track individual dollars, and you don't track the balances of separate Roth accounts separately (if you had more than one account).  All Roth IRAs are aggregated for this purpose.  You simply need to know the amount of your contributions and the amounts and dates of your conversions. 

The bottom line really, is you can ignore all of this.  You are over age 59-1/2, and your Roth account was opened more than 5 years ago.  From now on, all your withdrawals are tax-free, no matter if they are conversions, contributions or earnings, and no matter how long ago a conversion was. 

[dmertz · Accepted solution]

The 5-year conversion clock has only to do with assessing an early-distribution penalty on amounts attributable to taxable conversions and there is no early-distribution penalty on converted amounts after age 59½.  If you are over age 59½, there is no 5-year conversion clock to be concerned about.

The 5-year clock for determining whether or not your Roth IRA distributions are qualified distributions is an entirely different clock that began on January 1 of the year for which you first made any Roth IRA contribution (other than an excess contribution) and never resets.  You've already satisfied this 5-year clock, so any amount that you take out of your Roth IRAs is free of any tax.

[NCperson]

@bobr5 simply: 

as long as you are over 59.5 years old AND ANY Roth IRA account in your name has been open prior to 1/1/19 (5 calendar years), there is no tax of any sort on a Roth distribution that occurs in 2023.  

rest easy.  

[randsom]

If I want to convert every year over the next 5 years and then withdraw eranings tax free AFTER 59.5, will my 5 year clocks count from the first conversion or will each conversion have its own clock?

[dmertz]

If you have reached age 59½ and also 5 years have elapsed since the beginning of the year for which your first Roth IRA conversion is deposited, the distribution will be qualified distributions free of any tax or penalty.  The timing of subsequent Roth conversions will have no effect on the 5-year qualification clock.

Regarding 5-year conversion clocks, these are only used to determine if a distribution of a converted amount is subject to a recapture of the 10% early-distribution penalty, and distributions after age 59½ are not subject to that penalty.  5-year conversion clocks become meaningless upon reaching age 59½.

[randsom]

Perfect thank you.  But if I’m 58 and do my first conversion or contribution, then I would have to wait five years (63) in order to get my profit or earnings tax-free correct?

[dmertz]

" if I’m 58 and do my first conversion or contribution, then I would have to wait five years (63) in order to get my profit or earnings tax-free correct?"

If you are now age 58 and establish your first Roth IRA in 2025, your Roth IRA distributions will be qualified distributions as of January 1, 2030.  Earnings come out last, so if before January 1, 2030, but after age 59½, you take out no more than the amounts that you have converted or have otherwise contributed, distributions will be free of tax and penalty.

[randsom]

Before I get started on doing this and just to make sure, can you refer me to the official IRS rule on this?  Thank you!

[Opus 17]

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@randsom wrote:

Before I get started on doing this and just to make sure, can you refer me to the official IRS rule on this?  Thank you!

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All the rules are in publication 590-b

https://www.irs.gov/pub/irs-pdf/p590b.pdf

But the bottom line is this:

Every conversion has a separate 5 year clock.  However, because you pay the income tax when you perform the conversion, the only tax for withdrawing a conversion in less than 5 years is the 10% penalty for early withdrawal.  And the 10% penalty NEVER APPLIES if you are over age 59-1/2, no matter what other rules or clocks might apply.