When does the five-year rule apply to Roth IRAs?

A conversion to a Roth IRA can be a smart tax move but there are several rules one must know to take full advantage.

Q.: My wife and I had traditional IRAs for years, then two years ago she switched hers over to a Roth and paid the penalties. Last year, I rolled mine over and paid the penalties. Can we draw both of these out without penalty since the initial IRA was over five years ago?

— Thanks, Charles A.

A.: Charles, There is usually some taxable income but there are no penalties upon a conversion.

Many get confused about the so-called “five-year rule” that applies to Roth IRAs because there is more than one five-year rule.

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