Roth Conversions and the Five Year Waiting Game: A Misunderstood Rule The Roth Individual Retirement Account (IRA) has long been touted as a tax advantaged savings vehicle for retirees, offering the promise of tax free withdrawals in exchange for certain conditions being met.
One such condition – the five year waiting period – has become a source of confusion for many individuals, particularly those who have undergone multiple conversions and consolidations of their retirement accounts.
A recent question to an advisor highlights the complexity and nuance surrounding this rule. A $40,000 Roth conversion in a lower tax year was followed by a withdrawal from the individual's second Roth IRA.