“Hello! I drive a 2004 Subaru, drink sour beers and have a mutt. Lucky to live in Colorado. Love the show. I have an existing Roth – opened in 2020 – I will be 59.5 in 2026 so 5 year rule and 59.5 rule will be satisfied whenever I get around to using the funds after that time. No need for them for the foreseeable future. I have heard you mention that each conversion has its own 5 year clock even if I am over 59.5. Does that mean that if I want to convert stock in this down market now that I need to open a new Roth and if I want to do more next year, I need a third Roth, and so on? Or can, I just convert all of it into the existing Roth? If the answer is the former (separate Roths), can I consolidate them as they each hit the five year mark? Thank you, Jason.”

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LEARN MORE ABOUT: IRA Accounts

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REVEALED: Best Gold Backed IRA

In the world of personal finance, Roth IRAs have become increasingly popular over the years. With the tax-free growth and withdrawals, it’s no surprise that many people are taking advantage of this retirement savings vehicle. But, as with any investment, there are rules and guidelines that you need to follow in order to maximize the benefits.

One important rule that many Roth IRA holders overlook is the “5-year Roth clock.” This rule states that you must have held a Roth IRA account for at least 5 years before you can withdraw your earnings tax-free. This is important to remember when planning your retirement income and withdrawal strategy.

However, what if you want to convert funds from a traditional IRA or 401(k) into a Roth IRA? Do you need to open a new Roth IRA account for each conversion in order to restart the 5-year clock? The answer is no. You can use the same Roth IRA account for multiple conversions, and the 5-year clock will start when you first opened the account.

For example, let’s say you opened a Roth IRA account in 2010 but didn’t make any contributions or conversions until 2018. You then converted $50,000 from your traditional IRA into your Roth IRA in 2018. The 5-year clock would start in 2010, so in 2023, you would be able to withdraw the earnings from that $50,000 tax-free.

It’s important to note that each conversion will have its own 5-year clock. So, if you convert another $50,000 in 2022, that conversion will have a separate 5-year clock and won’t be eligible for tax-free withdrawals until 2027.

Another important thing to remember is that the 5-year clock only applies to earnings, not contributions. Your contributions can be withdrawn tax-free at any time, regardless of the 5-year clock. It’s only the earnings that need to be held in the account for at least 5 years before you can withdraw them tax-free.

In summary, you do not need to open a new Roth IRA account for each conversion. You can use the same account for multiple conversions, and the 5-year clock will start when you first opened the account. Just remember that each conversion will have its own 5-year clock, and that only earnings, not contributions, are subject to the rule.

So, whether you’re just starting out with a Roth IRA or considering a conversion, make sure you understand the 5-year Roth clock and how it applies to your retirement savings strategy. With a little planning and forethought, you can maximize the benefits of your Roth IRA and enjoy tax-free withdrawals in retirement.