Ask an Advisor: I’ve Been Converting My IRA into a Roth for a Several Years. When Can I Withdraw Dividends Tax-Free?

I am retired but not yet 73. I have been doing Roth IRA conversions for a few years. I know you can’t withdraw the converted principal for a period of five years. My question is when I can access the on-going dividends that were generated from the converted stocks without paying a penalty?

– Mayboline

If you’re doing Roth conversions it’s good that you’ve taken the time to familiarize yourself with the rules surrounding them. That can save you a headache, as people often run into issues simply because they aren’t aware of these rules. In your case, however, I think I have some good news: You may be in a position to withdraw both earnings and principal now without waiting five years after each conversion. That will be true if the two following conditions are met:

You are over 59 ½ years old
You have had any Roth IRA for at least five years.

I’ll walk you through the rules and how these conditions satisfy any five-year waiting period. Then, you can decide if you are able to withdraw from your Roth now or whether you need to wait. (And if you need additional guidance as you manage your finances in retirement or plan for it, con nect with a financial advisor.)

The 5-Year Rules for Roth IRAs

First, I think it’s necessary to point out that there are two different five-year Roth IRA rules that may apply here. They are independent of each other, so either one or both of them may apply depending on the situation.

5-Year Rule for Roth Conversions

We’ll start with the rule for Roth conversions, since that’s the one you mentioned in your question. Each conversion you make has its own five-year clock that starts Jan. 1 of that year. For example, if a person converted $50,000 on April 30, 2025, they would need to wait until Jan. 1, 2030, to withdraw that $50,000. If they withdraw converted amounts before that period ends and they’re younger than 59 ½, they will face the 10% early withdrawal penalty.

This rule exists to prevent people from using conversions to get around the early withdrawal penalty rules. Once you’re over 59 ½, though, the penalty no longer applies, regardless of how long ago you converted the funds.

5-Year Rule for Roth Contributions

There’s another five-year rule that may come into play, as well. Under this rule, if it’s been less than five years since you opened your first Roth IRA, withdrawn earnings are subject to income tax, even if you’re over 59 ½. Unlike conversions, which each have their own separate clocks, this contribution rule only needs to be satisfied once.

Keep in mind that contributions themselves can always be withdrawn tax- and penalty-free; the five-year rule here applies only to earnings. (And if you need help figuring out how these rules may apply to you, speak with a financial advisor.)

How These Rules Apply

Because these two rules operate independently of each other, they can have different effects, so it’s important to make sure we don’t mix them up. Now you can look at your own situation to see which rule may apply, if either.

No tax or penalties: If you are over 59 ½ and it has been at least five years since you contributed to your first Roth IRA, then you can withdraw any amount from any Roth IRA without incurring taxes or penalties.
Income tax applies, but no penalties: If you are over 59 ½ and it has not been at least five years since you opened a Roth IRA, the withdrawal of earnings will be subject to income tax. Early withdrawal penalties will not apply, though.
Income tax and penalties apply: If you are under 59 ½, taxes will apply to the withdrawal of earnings. A 10% early withdrawal penalty will also apply to earnings, as well as to the withdrawal of principal from any Roth conversion that occurred less than five years ago.

As I mentioned above, you can always withdraw the money you’ve contributed directly to a Roth IRA (but not converted balances) without taxation or penalty. It doesn’t matter what your age is or how long the account has been open.

Bottom Line

Most retirees don’t have to worry about either of the five-year rules. That’s because retirees are often older than 59 ½ and opened a Roth IRA more than five years ago. Even if your first Roth is more recent and the contribution rule hasn’t yet been satisfied, you can still withdraw converted principal without tax or penalty once you’re at least 59 ½.

Retirement Planning Tips

A financial advisor can help you do Roth conversions, build income streams and cover other areas o the retirement planning process. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Run scenarios using tax software or a financial planning calculator to compare different withdrawal orders. For example, drawing from taxable accounts first allows tax-deferred accounts to keep compounding. Alternatively, partial Roth conversions in your 60s may reduce required minimum distributions (RMDs) and future tax bills.

Brandon Renfro, CFP®, is a SmartAsset financial planning columnist and answers reader questions on personal finance and tax topics. Got a question you’d like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.

Please note that Brandon is not an employee of SmartAsset and is not a participant in SmartAsset AMP. He has been compensated for this article. Some reader-submitted questions are edited for clarity or brevity.