Roth conversion ladder

I’ve been researching building a Roth conversion ladder. Since I am over 59-1/2, my understanding is that my conversions and earnings can be withdrawn at any time without the 10% penalty, and that the principle can be withdrawn tax free at any time. But each yearly conversion’s earnings has its own 5 year holding rule before it can be withdrawn tax-free.

So my question is: In an account that is actively traded, how can you identify which earnings go with which 5-year period? For example, in my first year suppose I invest the entire conversion into a growth stock that goes up 10x over the next 5 years, though I trade into and out of this stock freely during that time. In the second year, I invest in a stock that goes down 50% in 5 years, but again I am trading in and out with the funds available in the account. And so on and so on.

I have tried to find a suitable answer on-line and have so far been stymied. Anyone have experience with this issue?

DT, Ticker guide ANSS and TXT

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Once you turn 59½, you needn’t worry about the five-year rule, even if you take a payout before your conversion meets the five-year period.

Been asking the same question for a long time and finally found the answer.

Each yearly conversions (not just earnings) having their own 5-year holding period. However, the 10% penalty does not apply if two things are true:

  1. You’ve had a Roth open for 5 years.
  2. You are over 59-1/2.

Here’s a snippet from a Kiplinger article (link below)

Five-Year Rule: Roth IRA conversions
The second rule applies specifically to Roth IRA conversions and whether the 10% early distribution penalty hits pre-age-59½ payouts.This five-year rule doesn’t apply to new contributions to Roth IRAs but to conversions of pre-tax income from traditional IRAs to Roths. Under this rule, if someone under age 59½ does a Roth conversion, and later takes a distribution within five years of the conversion and before turning age 59½, then the amount of conversion principal that is withdrawn is hit with the 10% early distribution penalty. Once you turn 59½, you needn’t worry about this five-year rule, even if you take a payout before your conversion meets the five-year period. For example, there’s no 10% penalty if you do a Roth IRA conversion at age 58 and withdraw funds two years later at age 60. (Author’s note: As long as the Roth has been open for 5 years.),newly%20opened%20Roth%20IRA%20account


That’s the key, how long you have had a ROTH. If that is at least five years, and you are at least 59½, there are no restrictions. Note that if you have more than one ROTH account they are treated as one; the oldest start date among them is where the 5 year clock begins.


I would note that you need to have had a Roth IRA open and funded for at least 5 years. I will also note that a Roth account in an employer plan, like a Roth 401(k), doesn’t count for the years you have had a Roth IRA open, so it’s not just any Roth account - it has to be an IRA. But, yes, having a Roth IRA open and funded for at least 5 years is a requirement for to take qualified distributions, which means that the distributions are totally tax-free.


If you have had a Roth IRA opened and funded since at least 2019, since you are over 59 1/2, all of your distributions will be qualified (i.e tax-free). It’s if you don’t have a Roth IRA open and funded that you will need to jump through some hoops.

If you had thought that there was even a possibility of wanting to do Roth conversions after you retired, I would have strongly recommended that you open and fund a Roth IRA, even if it’s just a few dollars (whatever minimum your broker requires for the account) in the year that you turned 54 1/2 - either by making a regular contribution or doing a conversion.

Since you are now over 59 1/2, that ship has sailed. I will note that if you had earned income in 2023, and meet the income requirements to make a Roth IRA contribution for 2023, you have another month for your Roth IRA to be considered to have been opened for 2023, so it would now be considered 1 year old.

You don’t. Any earnings withdrawn before your Roth IRA account is at least 5 years old are taxed. (Being over 59 1/2 does eliminate the 10% early withdrawal penalty on those earnings.) The ordering rules from IRS Pub 590-B p590b.pdf ( show how to calculate what you are taking out as a part of your distribution, and you document the withdrawals and calculate the taxable amount on Form 8606 f8606.pdf (

Here are the ordering rules:

You can see that you have to take all of the converted amounts out before you start taking out earnings. So if you have converted a total of, say, $100k, even if it’s been over multiple years, you can take out up to $100k without paying taxes. Since you already paid taxes on those conversions, they aren’t taxable. Since you are over 59 1/2, you don’t have to pay the early withdrawal penalty. But once you take out more than $100k, if your account is not at least 5 years old, you will owe taxes (but not the early withdrawal penalty) on the earnings.




Thanks for the reply. I agree with everything you say for contributions to a Roth. Once the account is 5 years old, you’re in the clear regardless of when the contribution is made. But I found several references that contend that each new conversion (not contribution) starts its own five year clock. For example in this Fool’s article that discusses the Roth 5-year rules:

“However, this five-year rule is different in that it applies separately to each Roth conversion you do. Each new conversion starts its own five-year clock, and you’ll need to account for multiple conversions to make sure you don’t take out too much money too soon.”

So I’m in the clear for penalties since I’m over 59-1/2 years old. But the earnings on each conversion have their own five-year clock for tax-free withdrawal, though I can withdraw the principal at any time tax free.

Which brings me to my original question. How do you define which earnings go with which 5-year clock in an actively traded investment account over the years? I suppose you could look at the account balance at the end of each year and assign the earnings for that year? Hmmm - not sure how you’d handle a year where you lost money?

DT, an engineer who often struggles with accounting and taxes :roll_eyes:

Sorry, can’t read the article. It redirects into an ad.

That’s only for non-qualified distributions.

There are 2 different 5 year rules. They should NOT be combined into a single rule, which what the title of that article seems to imply. If the article does try to combine them into a single 5 year rule, IT IS WRONG. (Not the first time I’ve found TMF articles to be wrong, but even when I try to notify someone about the article being wrong, they rarely are corrected.)

The 5 year rule for qualified distributions is:

  • Your Roth IRA must have been open and funded for at least 5 years.

If you meet that criteria, and are 59 1/2 (or another exception, as referred to above), then all of your distributions, be they from contributions, conversions or earnings are qualified distributions, and therefore, tax-free.

It’s only if you are taking a non-qualified distribution that the 5 year rule on conversions is applied. That’s spelled out in the ordering rules that are also referenced above.

It doesn’t matter. As long as your Roth IRA account has been open for more than 5 years, and you are 59 1/2, the conversion clock rules are moot.

Look at this chart from IRS Pub 590-B (link above):

Once you meet the two rules of having the account open for more than 5 years, and being 59 1/2, according to the chart: The distribution from the Roth IRA is a qualified distribution. It isn’t subject to tax or penalty. It doesn’t matter if the origin of distribution is contributions, conversions or earnings.

You can believe me or not, but since I provided confirmation from IRS publications, I’m not sure why you wouldn’t.



And about this specific question - you are trying to add complexity where it doesn’t need to be added. You don’t need to specify which earnings are from a particular conversion. IF (and only IF) you have a non-qualified distribution, you apply the ordering rules:

  1. The first distributions are all of your regular contributions (for example, the $7,000 or $8,000 you are allowed to directly contribute in 2024, depending on your age).

  2. Then you move onto taking out converted amounts and rollover amounts, by year, starting with the earliest year. If you are under 59 1/2, any conversions that are less than 5 years old will be subject to a 10% penalty, but since you would have paid taxes on the conversion amount, you would not have to pay taxes. The rollovers that are being referred to here are rollovers from other qualified plans which are either being converted (from Traditional qualified plans) or were already in a Roth account (for example, a Roth 401(k)).

  3. Once you’ve taken out all of the conversions and rollovers, all you have left in the account is earnings. A distribution of these earnings will be taxed at ordinary income rates. If you are under 59 1/2, unless you meet another exception, there will also be a 10% early withdrawal penalty.

You seem to think that this statement applies to earnings. It doesn’t. It just applies to the amount that was converted - nothing more, nothing less. If the article implies that earnings from a conversion are included in this statement, the article is wrong. (Again, I can’t read the article, so I don’t know the context.) Under rule 2 of the ordering rules, the conversions are taken out by year from earliest to most recent, which is why each conversion amount has a separate 5 year clock. But again, it only applies to the amount that was converted. So even if your $50k conversion has tripled in the last 5 years, you can still only take $50k out under rule 2.

That’s how a Roth conversion ladder works for those who are under 59 1/2. Each year, they figure out how much they think they will need to withdraw from their Roth IRA in 5 years. So, for a 50 year-old who thinks that in 2029, they will want to withdraw $50k from their Roth IRA, in 2024, they would convert $50k, paying the taxes on the conversion. Then in 2029, they will be able to withdraw that $50k tax and penalty-free, because it was a conversion that was at least 5 years old that already had taxes paid on it. Each year is a rung of the ladder, and they need to plan 5 years ahead. Once they reach 54 1/2, they don’t have to worry about adding any more rungs to the ladder because they will be 59 1/2 in 5 years, so their distributions will be qualified - which means the ordering rules (including the conversion clock) are thrown out.

Rule 3 covers all of the earnings, which is basically anything that you didn’t move from another account into your Roth IRA, including contributions, rollovers and conversions. Non-qualified distributions of earnings are taxed at ordinary income rates, plus a 10% early withdrawal penalty will be applied if you don’t meet an exception to the penalty.



Hi AJ,

Here is link to video that discusses this subject. Part that is applicable to my situation starts at about 7:00.

Thanks for discussion.

You pays your money, you takes your choice. Personally, I’d go with the information directly from the IRS in IRS Pub 590-B p590b.pdf ( which has been given to you multiple times in this thread, rather than relying interpretations from others in articles and videos.

No matter how many articles and videos you provide links for, your initial premise that a qualified distribution is also subject to a conversion clock is still going to be wrong.



@CMFDoubtingThom I know tax law doesn’t always make sense, but how would it make any sense at all to put a [separate] 5 year clock on something that you literally JUST PAID TAXES ON? A conversion is taking previously untaxed money and paying the taxes on it to convert it to Roth status.

I think @CMFDoubtingThom was concerned about a conversion clock for the earnings - which, as already explained, isn’t a thing. That’s because conversion clocks are only applicable when taking non-qualified distributions, and for non-qualified distributions, the ordering rules result in the earnings all being lumped together, and are the last thing removed from the Roth IRA. If a non-qualified distribution is taken, there can be an early withdrawal penalty assessed, but only earnings (the last bucket, using rule 3) are subject to being taxed as ordinary income - not any converted amounts, which are taken out before the earnings are (in rule 2).

That said, @CMFDoubtingThom is over 59 1/2, so there would be no early withdrawal penalty assessed. If he did conversions, @CMFDoubtingThom would apparently be taking qualified distributions, which means that the conversion clock is moot. Unfortunately, it doesn’t seem that @CMFDoubtingThom wants to believe that the conversion clock is moot, since he keeps coming up with links that he says validate his (incorrect) premise that it isn’t moot.

At this point, my suggestion to @CMFDoubtingThom would be to go ask his question to the guy who made the YouTube that he says validates his premise, since @CMFDoubtingThom doesn’t seem to like the answers that he got here. That’s because the answers here aren’t going to change, no matter how many different links trying to validate his premise that he provides.



@aj485 Could the confusion be regarding something else? Maybe some people thought they could avoid the 10% non-qualified distribution penalty from a traditional IRA by first converting to a Roth IRA (and paying the requisite taxes), and then withdrawing that “contribution” (conversion) from the Roth instead? Still obviously incorrect, but still maybe that was the root of all this confusion?

Not when I read the first paragraph of @CMFDoubtingThom’s original post:

It’s very clear that he’s asking about a conversion clock on earnings.

He further confirms that with his question:

I’ve tried multiple ways to explain to him that he has a significant misunderstanding, but he seems to keep spending his time attempting to find links that he says validate his misunderstanding, rather than, say, actually reading the IRS documentation that’s been provided.


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Okay, I’m going to try one more time to convince you to read the IRS documentation.

I am also over 59 1/2. Many moons ago when I took Freshman Engineering (BSEE here), they taught us that if there was a conflict between two interpretations of data, that you needed to go back and look at the data itself. In this case, the original data is the documentation from the IRS - even your YouTube guy (starting at 1:23) says Publication 590 is a great publication that you should look at every now and again I would suggest that you follow his advice and go look at it. Despite TMF’s warning that I’ve posted it before, so you don’t even have to scroll up, here’s the link again: p590b.pdf (

Taxes should be very understandable to engineers. They’re just a collection of rules that need to be followed, which engineers are trained to do. I would suggest volunteering for a VITA or Tax-Aide group in your area next year. You will get training on taxes while providing a service for your community.