Dear Liz: In a recent column you mentioned that you can take money out of a Roth IRA at age 59½ without a penalty. I believe a Roth IRA must be in force for at least five years before you can take money out, regardless of age. Is this correct?
Answer: At any time and at any age, you can withdraw an amount equal to what you contributed to a Roth IRA. So if you’ve contributed $5,000 a year for four years to a Roth, you can withdraw $20,000 without worrying about taxes or penalties.
The five-year rule kicks in when you start to withdraw earnings. You can avoid both taxes and penalties on these withdrawals if the account was established at least five years ago and you’re 59½ or older. If the account isn’t at least 5 years old, you must pay taxes on the earnings withdrawn but don’t have to pay the usual 10% penalty if you’re 59½ or older.
A five-year rule also applies to Roth conversions. Each conversion or rollover you make is subject to a separate five-year waiting period.
Hi Liz, I read your answer (dated 6/26/2023) on Roth IRA withdrawal rules. You ended by saying that, “A five-year rule also applies to Roth conversions. Each conversion or rollover you make is subject to a separate five-year waiting period.” My husband has a Roth IRA that he established over twenty years ago. He is now 66 and wants to convert some of his tax-deferred 401k retirement contributions to a Roth IRA. Will he have to wait 5 years (after converting) to withdraw–without penalty or taxes–the earnings from this conversion? Or since he is over 59 1/2, do the rules no longer apply? Thank you.
Here’s more about how that works: https://www.nerdwallet.com/article/investing/roth-ira-5-year-rule. I can’t give your husband direct tax advice so he should consider talking to a tax pro.
Hi Liz, how does the tax break for electric vehicle or solar panel work if one does not itemize and just takes standard deduction?
You don’t have to itemize. Here’s how it works: https://www.nerdwallet.com/article/taxes/ev-tax-credit-electric-vehicle-tax-credit