When Can You Withdraw Contributions in a Conversion of a Traditional IRA from a Roth IRA?

Comparing the Roth IRA to the traditional IRA is kind of like comparing your lenient aunt or grandma to a rule-mongering parent. For example, until retirement, withdrawing traditional IRA contributions incurs tax and penalty. With a Roth, you can take out your principal at any time. When you convert IRA funds to a Roth, distribution rules are a little less lax. You have to wait five years, or until age 59 1/2 to avoid a penalty on conversion monies.

Withdrawing Conversions

When you convert traditional IRA monies to a Roth, the IRS requires that you wait five years from the date of the conversion or until you reach age 59 1/2 -- whichever comes first -- before withdrawing those funds penalty-free. More specifically, you will be eligible to take out conversion amounts on the first day of the fifth tax year after the conversion. For example, say you convert in November 2012. You can make a withdrawal without penalty on January 1, 2017. If you make more than one conversion, each is assigned its own five-year clock. So if you make a second conversion in September 2014, you'll have to wait until January 2019 to get at those funds. If before age 59 1/2, you withdraw converted funds before the five years have passed, with rare exceptions, you will have to pay a 10 percent penalty. If you are already 59 1/2 when you convert, you won't pay a penalty.

Unlimited Number of Accounts

The IRS does not limit the number of Roth accounts you can own. For accounting purposes, it may prove useful to move the funds from each conversion into a separate account. It will be easier to track the five-year clock for each conversion.

Roth Ordering Rules

No matter how many Roth accounts you own, when it comes to the order of distributions, the IRS views all IRAs as one. The agency puts withdrawals in this order: contributions, conversions and earnings. This policy can work to your advantage. For example, say you put $5,000 into your first Roth in 2012 at age 30. In 2014, you put $4,000 in a separate Roth. In 2017, you convert $6,000 from a traditional IRA. In January 2022, you withdraw $10,000. The IRS considers $9,000 as regular contribution money and the remaining $1,000 as conversion funds.

First In, First Out

If you do make more than one conversion when you withdraw conversion monies, the IRS considers the first conversion amounts you withdraw to be taken from your first conversion. Subsequent conversion distributions are considered in sequence.

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