A man completes a Roth conversion to avoid RMDs, but wants to withdraw the money soon after. Understanding the five-year rule for Roth IRAs is crucial to avoid income taxes and penalties on withdrawals.

There are two five-year rules for Roth IRAs, one for contributions and another for conversions. Withdrawals must meet age and time requirements to be tax-free.

If you’re 59 ½ but haven’t met the five-year rule, you’ll pay taxes on earnings withdrawn. Contributions are tax-free, but early gains are taxable with a 10% penalty.

The second rule applies to Roth conversions and early withdrawals. Each conversion has its own five-year clock starting from Jan. 1 of the conversion year.

The IRS requires contributions to be withdrawn first, then conversions, and finally investment earnings. Consult a financial advisor to navigate Roth IRA rules effectively.

The five-year rules for Roth IRAs can be complex. Contributions and conversions have separate rules that impact tax consequences for early withdrawals.

Having an emergency fund in a liquid account is essential for unexpected expenses. Consider high-interest accounts for compound interest while maintaining liquidity.

Financial advisors can help navigate the intricacies of Roth IRA rules. SmartAsset’s tool matches you with vetted advisors for free introductory calls.

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Read more at Yahoo Finance: Does the 5-Year Rule Apply If I Convert to a Roth IRA at Age 65?