Is EVERYONE Subject to the 5-Year Conversion Rule?

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Understanding Roth Conversion rules is critical to building a tax-efficient income strategy in retirement.

When it comes to some rules, that's easier said than done.

One of the most confusing set of rules are the 5-year Roth Rules. In part, they are confusing because they are all referred to as the '5-year rule' but they are several 5-year rules.

We find the 5-year rule specific to conversions can be especially cumbersome.

In summary, this rule specifies that every Roth Conversion starts a 5-year clock. You are not able to touch that conversion, without penalty, for five tax years. A 2021 conversion cannot be accessed until 2026.

If you break this rule, you will owe a 10% early withdrawal penalty in addition to the taxes you owed on the conversion. In most situations, this destroys the value of the conversion.

So does that mean everyone has to follow this 5-year conversion rule?

Well, not exactly.

The IRS lays out a list of exceptions to this 5-year rule. If you qualify for an exception, that Roth Conversion is immediately accessible.

In this video, we walk through who exactly qualifies for an exception and clear up any additional confusion around this Roth Conversion 5 year rule.

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