Are my Roth distributions after conversion subject to a penalty?

Distributions from a Roth IRA after a conversion may be subject to a 10% early withdrawal penalty if certain conditions aren’t met. Here's what you need to know:

No Penalty If:

• You are age 59½ or older.
• The distribution occurs at least five years after the conversion.

• You qualify for an exception (e.g., disability, first-time home purchase, qualified education expenses).

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Penalty Applies If:

• You are under age 59½ and

• You withdraw converted funds within five years of the conversion.

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Key Rules to Remember:

1. Each conversion has its own five-year clock for penalty purposes.
2. The five-year period starts on January 1 of the year in which the conversion occurred.
3. The IRS uses ordering rules for withdrawals:
   1. Contributions – always tax and penalty-free.
   2. Conversions – subject to the five-year rule.
   3. Earnings – tax and penalty-free only if both the five-year rule and a qualifying event are met.

Exceptions to the 10% Penalty:

• Disability
• Death
• Qualified first-time home purchase (up to $10,000 lifetime)
• Qualified education expenses
• Equal periodic payments (SEPP)
• Unreimbursed medical expenses exceeding 7.5% of AGI