Roth conversions - what can be withdrawn tax-free

Conversions are not contributions, and they have different rules.

Since this conversion was taxable, you have to wait 5 years, but then you can take out the converted amount without taxes or penalties. Any gains still have to wait until 59.5.

This is a great question, and you’re thinking about it the right way with spreading conversions out over time.

On the withdrawal piece, the key distinction is: when you do a Roth conversion, the amount you convert (the $200K in your example) is what gets treated as the basis in the Roth after the 5-year rule is met. Any growth after the conversion (the $50K up to $250K) is considered earnings.

If you want a clean breakdown with other examples of how this works, a financial advisor I follow put together a solid guide on Roth conversions:

www.greenwingwealth.com

You can distribute the converted amount ($200K) after the 5 year waiting period on that particular conversion. You’ll be able to distribute the earnings when you’re 59.5. Note the IRS counts years as the start of each year so if you converted on July 15, 2025, you can distribute the converted amount on January 1, 2030.

I love this question and the guidance given in comments. It makes me think of an additional question I wonder if folks know the answer to.

How does a Roth 401k or 403b factor into this. If you had a Roth 401k at an employer and when you left you rolled into a Roth IRA, would that full amount be viewed as your contribution? I'm guessing it does but wanted more knowledgeable folks to weigh in.

Just to put numbers to it

Pretend

$500k contributions in 401k roth Grows to 1 million (500K growth)

Roll whole thing over to Vanguard. Is the full 1 million viewed as a contribution to your Roth and able to be withdrawn before retirement after you satisfy the 5 year rule?

The 200,000$ in the IRA is all pre-tax. Once rolled over into the ROTH IRA you will have to pay taxes on the entire contribution. Although once funds are in your ROTH any growth is tax free. So you won't pay a dime of that 50,000$ growth as long as you are 59.5 and have waited 5 years since the passing of January 1st AFTER your first contribution towards the account. The base can be withdrawn with no penalties at any time. Any growth (not the base) will have a 10% penalty fee if withdrawn prior to 59.5 or that 5 year wait period. The 5 year wait period is mandatory regardless if you are 59.5 or older.

The general rule is you never have to pay taxes on any money twice. Since you converted and paid taxes on $200,000 that money is now able to be withdrawn tax and penalty free any time. The extra $50,000 is earnings and you'd owe taxes and possibly penalties if you take it out before age 59.5.

None of it is technically "contributions" to the Roth IRA. You have $200,000 of conversions and $50,000 of growth/earnings. The order of withdrawals from Roth IRAs is direct contributions first, then conversions, then earnings.

How old will you be when you start taking distributions from the Roth?