Roth Conversions Explained With The Five-Year Rules

“Convert or not convert?” sounds like a simple yes-or-no question until you run headfirst into the Roth IRA rulebook. We break it down in plain English, starting with the real difference between tax-deferred retirement accounts like traditional IRAs and 401(k)s and tax-free retirement accounts like Roth IRAs: it’s all about when you pay taxes, how withdrawals are taxed, and what that means for your retirement income plan.

From there, we get specific on the rules that trip people up most: Roth income limits, IRA contribution limits, early withdrawal rules, and required minimum distributions. We also clear up one of the biggest misunderstandings out there, the idea that “Roth means no RMDs” in all situations. The owner has more flexibility, but beneficiaries can still face distribution requirements, especially under the inherited IRA 10-year rule.

The heart of the conversation is the two different Roth IRA five-year rules and why they matter for both taxes and penalties. We explain the two “five-year clocks,” how ordering rules work (contributions first, then conversions, then earnings), and why tracking your own conversion history is critical, especially if you move accounts between firms. We finish with practical listener-style questions, common Roth misconceptions, and how to think about Roth conversions as part of a larger tax planning and estate planning strategy.

If you want fewer surprises from Uncle Sam and more control over future taxes, subscribe, share this with a friend nearing retirement, and leave a review with your biggest Roth conversion question.

To learn more about Brad Pistole and the Ozark Retirement Group, please visit www.ozarksretirement.com 

Transcript

SPEAKER_01 0:11

Welcome to Safe Money Radio with your host, Brad Pistol. Brad is a retirement income and tax planning certified professional, primarily serving clients in the Midwest, but he's sought after nationally for his expertise in helping people secure their retirements. Mr. Pistol is a licensed life insurance professional in approximately 20 different states, and he specializes in working with people who are near retirement and those who have already retired with wealth management, income planning, and asset protection strategies using life, health, long-term care, and annuity insurance products. And now, here to talk with you about securing your retirement, it's your host, Brad Pistol.

Tax-Deferred Versus Tax-Free Accounts

Contribution Limits And Income Rules

RMD Ages And The Roth RMD Myth

Should You Choose Roth Or Traditional

Two Roth Five-Year Rules Explained

Tracking Conversions And Ordering Rules

Spring Forward Example For Roth Clocks

When Roth Makes Sense Long Term

Real Client Questions On Roth Rules

Four Ways To Get Roth Money

Common Roth Misconceptions Corrected

SPEAKER_00 1:03

Well, hello, everyone. Thank you so much for joining us today for Safe Money Radio. I am Brad Pistol, the long running host of this show for more than 16 years. We're grateful that you're here today. Whether it's the first time or whether you've listened to us for more than a decade, we're happy to have you with us. And we're just going to jump right in. I have a question as we get started today because it's such an important show. So here's the question. For those history buffs out there, do you remember this famous line? To be or not to be, that is the question. Well, sorry for my terrible acting skills there, but you might remember that line spoken by the character Prince Hamlet in William Shakespeare's play Hamlet. That was Act 3, scene one, from somewhere around year 1600, maybe even 1599. That famous soliloquy contemplates life, death, and suicide, and weighing the pain of existence against the fear of the unknown in death. And while many of you listening right now may not think that today's topic is quite that serious, I can tell you this when it comes to your financial future and what your family may or may not inherit from you because of Uncle Sam, it might be just as important. But either way, it's one of the most common topics that gets discussed with financial experts in today's world. And here's the question to convert or not to convert, that is the question. And it's what we're going to be talking about today. Having hosted a financial planning radio show and podcast for almost two decades now, I get asked about Roth IRAs and Roth conversions at least four to five times every single week without exception. So today we're going to be talking about tax-deferred accounts versus tax-free accounts and whether or not you should consider doing Roth conversions on your current tax-deferred accounts. And we're going to discuss the many different rules that are involved with these conversions. Yes, that's right. Uncle Sam doesn't make it easy for you to get rid of him. When you convert your IRA to a Roth IRA, it isn't just as simple as paying the tax. There are rules that you have to follow in order to make sure your contributions, your earnings, and your conversions are all tax-free. And yes, there are rules you have to follow for whether or not you can do the conversion, and there are rules that you have to follow after you do the conversion to make sure that you still take the distributions out tax-free. If you don't follow those rules, they won't be. So that's why we need to ask this question today. To convert or not to convert? That is the question. But before we talk about the things that you need to know about the two different sets of Roth IRA rules, and yes, there are two different sets of five-year Roth IRA rules. Let's first talk about the difference between a tax-deferred account and a tax-free account. Or in other words, what is the difference between a Roth 401 and a traditional 401k? What's the difference between a 403B and a Roth 403B? Or an IRA and a Roth IRA? And you might think the answer is easy, but I will tell you, I sit with thousands of people. Friends, I'm licensed in more than 20 states. I have more than 2,500 clients. We have over$300 million in assets under our management, between annuities, life insurance, AUM. We talk to clients everywhere, and so many people will talk to me about their Roth IRA, and then I find out it's an IRA. And I'll say, you mean your IRA? No, it's my Roth. I know it's a Roth. Well, I'm looking at your statement. It's an IRA. Well, no, no, it's a Roth. I know it's a Roth. No, it's an IRA. And so I'm just telling you, people often do not know the difference between the two. You may not know the difference. You may think it's one thing when it's not. So this is very, very important because C one is 100% jointly owned by Uncle Sam, is tax deferred, and you will owe tax on 100% of those distributions. And one is completely tax-free. Do you think there's a big difference in the two? I assure you that there is. So put your seatbelt on and put your thinking cap on because we're going to jump right in. And just know this you can call us anytime, 866-780-SAFE, or just go to Ozarksretirement.com and click on the contact us button. Now I'll say this as we get started. I've been working with America's IRA expert Ed Slott since 2010. He's a great friend of mine. He's been on the show more than 15 times over the years. We have him on very regularly. I sit at his feet and do trainings twice a year. My next training is coming up right about the time this is going to air in late April. I'll be at a training with 500 of the top financial experts in the nation studying IRAs, Roth IRAs, conversions, all the tax rules that go into this. I'm an Ed slot master lead IRA advisor group member and have been for more than 16 years. So the information today is going to come from a lot of Ed's information, a lot of our training group information. So let's jump right in. Here we go. The primary difference between a traditional IRA and a Roth IRA is when you pay the taxes. You see, traditional IRAs offer tax-deferred growth with potential upfront deductions. That's why most people do it. While Roth IRAs use after tax dollars for tax-free growth and withdrawals and retirement. You choose traditional IRAs for immediate tax breaks, and you choose the Roth if you expect to be in a higher tax bracket later, or you want to pass on completely tax-free distributions to your heirs. So let's take a quick glance, a quick look at the tax treatment. Traditional contributions are often tax deductible. It's pre-tax, but the withdrawals are taxed 100%. On the other hand, Roth contributions are made with after tax money. You don't get a tax deduction for putting money into a Roth account, but the withdrawals come back out 100% tax-free. There are income limits involved. Anyone with earned income can contribute to a traditional IRA. Roth IRAs, however, have income limitations. If you make too much money, you cannot contribute to a Roth. Your only option would be to do a conversion. And later in the show, we're going to talk about the four different ways to get money into a Roth account and the difference between contributions and conversions. Very, very different, two completely different things. So remember, if your modified adjusted gross income is too high as an individual or a married person, you may not be able to even contribute to a Roth. You may be forced into the traditional IRA. Let's talk about withdrawals before age 59 and a half. You can withdraw Roth IRA contributions, not the earnings, but the contributions at any time, tax and penalty free. Traditional IRAs have early withdrawal penalties of 10% if you take the distributions before the age of 59 and a half. So there's one big difference there. You contribute to an IRA, you take the money out before age 59.5, you're going to pay the tax and you're going to pay a penalty. On a Roth IRA, if you've made contributions, you can take those contributions back out without penalty before age 59 and a half. Big difference. Required minimum distributions. For anyone born before 1960, if you were born 1959, it could be December the 31st of 1959 or earlier. Your traditional IRA is going to require you to start taking a required minimum distribution at age 73. If you were born on January 1st, 1960 or later, your RMD is going to be age 75. Here's a key thing. Roth IRAs do not have RMDs during the owner's lifetime. Now don't get hung up on this because this is one of the misconceptions about Roths we'll talk about at the end of the show. People think that Roth IRAs have no RMDs ever under any circumstance. That's not true. Roth IRAs don't have RMDs for the owner during their lifetime, but there are RMDs for other people who inherit your Roth. I know it's confusing. Uncle Sam and Congress are that way. People have wired in their brain, Roth IRA, no RMD. That's only for the owner. There are required minimum distributions for the non-spousal owner that inherits it, and we're going to talk about it. So let's recap some of these differences before we get jumping into the meat of the program. The differences between the two, between a traditional IRA and a Roth IRA, here we go. Tax treatment. For an IRA, you pay taxes later once you take it out. It's tax deferred going in. On the Roth, you pay the taxes now up front, and withdrawals will be tax-free later. How about a traditional IRA when it comes to tax deductions? Yes, you put your money into a traditional IRA. The contribution may be deductible, but this does depend on your income and your workplace plan, how much you're contributing to your 401k and other type of plans. How about the Roth IRA? Is it tax deductible? No. The contributions are made with after tax dollars. The contribution limits, let's talk about that. I talked about limits. Well, for a traditional IRA, you cannot contribute more than$7,500 per year in 2026 unless you're 50 years of age or older. If you're older than 50, you get a special catch-up contribution, and so your limit's$8,600. The same thing is going to be true of the Roth. This is where they're really close on a rule. Contribution limit for a Roth,$7,500 if you're under the age of$50. But if you're above the age of$50, it's$8,600 because the special catch up contribution. Now, this gets asked all the time, okay, I've got$1,500,$16,000 sitting in the bank doing nothing. I want to contribute to my traditional and to my Roth. I see the limits. I want to put$7,500 into each one of them. You cannot do that. It is a total of$7,500 if you're under the age of$50 between the two. Hey, you could put$7,000 into your traditional IRA and$500 into your Roth, but it cannot exceed$7,500. If you're above the age of$50, it cannot exceed the total of$8,600. You can divide that by two and split it equally or put the amounts in any way you want to, but you cannot exceed the total for your age group. And no, you cannot contribute the max to both. Then let's talk about finally income limitations. As I said before, on the traditional IRA, there isn't an income limitation, but limits do apply to whether or not it's tax deductible. When it comes to a Roth, yes, you cannot contribute to a Roth if your income exceeds certain levels. That's the thing. I cannot contribute to a Roth. I make too much money. I cannot walk in and say, hey, I want to make a Roth contribution to any account. Doesn't matter who I am, what my education level is, it's all about earned income. I make too much money. How can I get money into a Roth? I can convert from what is tax deferred into what is tax-free. Okay, just a couple other quick things too. Let's throw these in. How about the withdrawal rules? Well, for a traditional account, it's taxed as ordinary income when it comes back out. You took a tax deduction up front, so when you take the tax, take the distribution out, it's going to be taxable to you, and there will be a 10% penalty if you're under the age of 59 and a half, unless very few special rules apply. What about for the Roth? Well, the distributions are going to be tax-free. Contributions into the Roth can be withdrawn anytime without penalty. However, there are rules for taking out converted dollars and earnings. And we're going to be talking about that more throughout the show today. I have this special chart in front of me from the EdSlot group. It's called the Roth IRA five-year clocks and distribution ordering rules chart. And I will tell you, even though we're advisors who specialize in this stuff, we drill down on this stuff all the time. We have to take ongoing CE and tests about it all the time. It's so confusing. I keep laminated charts about all these ordering rules in front of me all the time. Why? Because when it comes to Roths, there are three main components. There are contributions, there are conversions, and there are earnings. And all three of them have different rules for them. So you might be thinking, after hearing all this, which account would be the right one for me? And the answer is it depends. It depends on so many different factors. But here are a few things that you might want to keep in mind. You might want to choose a traditional IRA if you're currently in a really high tax bracket and you expect to be in a lower bracket during retirement. That's the key gamble here. Why would you contribute to a tax-deferred account now and join a partnership with Uncle Sam and know that he's going to control the account and have rules for the account? Well, because maybe you're in a 37% tax bracket right now, and when you retire, you hope to be, if taxes don't go up, in a 20% bracket. Well, obviously, defer those taxes and pay taxes when it's the lowest on sale time for you. The thing is, we don't know the future tax rates and we can't control those. So there's a gamble there. But if you're in a high tax bracket and you're probably going to be in a lower tax bracket in the future, it would be a good decision. Take the tax deduction now. You might choose a Roth IRA if you're currently in a lower bracket and expect taxes to rise in the future. Remember, we're$39 trillion in debt right now. It's also a good decision to convert to a Roth if you want to pass on 100% tax-free money to your heirs. They will inherit your Roth account completely tax-free, and they would have to pay taxes on distributions from your IRA or your tax-deferred accounts. And there's some very stringent rules about when and how they have to do it. If they find out, oh, mom and dad died, they left me their IRA, great, write me a check. Then it's going to blow up their tax situation, especially if you leave them$400 or$500,000 in your IRA or$401. They'll add that earned income in on top of their earned income and their spouse's earned income. And they just landed a trip to the highest tax bracket for federal and state, and they're going to just pay tons of money in taxes and you're going to roll over in the grave. Or they could defer it all the way to the 10th year and do the same thing in your 10, or take distributions out over the 10 years. It's called the non-spousal 10-year rule. We're going to talk more about that on this show. But either way, if you left them half a million dollars and they take that out over the next 10 years, that's a big chunk of change that's adding into their taxable income, pushing them up into potentially two or three tax brackets higher over the next 10 years. And so that may not be what you want to leave them. That's not real money. It's money shared with Uncle Sam because they're paying taxes. So if you want to leave them real money, you might consider converting to a Roth or contributing to a Roth. That way they get real tax-free money. Okay, so this is the big thing. We're asking the question today to convert or not to convert. And we're going to get into the five things that you need to know about the different five-year rules after this break. So stay with us. Our number is 866-780-7233. The easiest thing is to just go to Ozarksretirement.com, click on contact us, and know this. I've written a best-selling book about it. I wrote the book back in 2021. I still get deposits from Amazon every single week for people all across this country who are reading the book. If you want to be safe and secure and you want to have a tax-free retirement income plan, the four was written by America's IRA expert Ed Slott. There's a reason why we wrote it and constructed it together. We want people to realize they have a tax tumor inside their retirement plan, and Uncle Sam owns part of it, and that tax time bomb is ticking, and it's going to explode. We've already told you about that on the first part of the show. If you want to read a book like that, just go to Ozarksretirement.com or call in 866-780-7233, and you can request a cop of copy of Bulletproof, the Safe and Secure Retirement Income Plan. I will personally call you and I will reach out to you to set up a time for a free consultation and give you a signed copy of the book. So stay with us. There's always someone standing by to take your call, and we'll jump right back into things after this break. Okay, friends, we're talking about today to convert from a tax-deferred account to a tax-free account. Whether or not you should do that. To convert or not to convert, that is the question. So here's what I want to do. I I recently had my good friend Sarah Brenner on the show. She works with the EdSlot group. She's one of our teachers. She's uh one of their education directors. And here in March of 2026, she recently wrote a great piece, Five Things That You Need to Know About the Roth IRA five-year rules. And I want to share that with you because it goes along with the show today. So here's the thing: we constantly get the most inquiries regarding retirement planning, regarding tax planning. It's what are the rules that come with a Roth? If I contribute, if I convert, am I making too much money? If I do do this conversion and I take what's in my 401k or my IRA and I convert it, you know, get a 1099, I strip the taxable amount from it and turn it into a Roth, what rules am I going to have to follow? It's a great question. And there are a lot of rules. That's why we have this big chart that's in front of me right now. So let's jump into it. Here we go. Number one, yes, there are two different five-year rules when it comes to Roth conversions. One thing that makes the Roth IRA distribution rule so confusing is the fact that there are actually two different five-year rules that you need to understand to properly execute tax and penalty-free Roth IRA distributions. Like I said before, it's not as easy as just paying the tax and getting the monkey off your back. Then you have to follow the rules. One five-year rule applies for tax-free distributions of the earnings. The other applies for tax-free distributions of funds that you've converted. So let's go to number two. The five-year rule for tax-free distributions of earnings starts with your first Roth IRA conversion or contribution, and it never restarts. Let me repeat this. The five-year rule for tax-free distributions or earnings starts with your first Roth IRA conversion or contribution and it never restarts. This rule applies in the aggregate to all of your Roth IRAs. Many of you may have two, three, four Roth IRAs. It can be aggregate. It also is not necessarily five full years. Let me give you an example. If you make a prior year Roth IRA contribution in March of 2026 for 2025, your five-year clock for tax-free distributions on Roth IRA earnings starts January 1 of 2025. So let's use an example. Right now, as I record this in late March, this is going to air in April. Remember, every year you've got this window between January 1 and April the 15th to make a contribution to a traditional IRA or a Roth IRA for the previous year. So right now in 2026 in March, you could contribute to a Roth for last year. If you do that, even though there's this five-year rule for taking out the earnings, if you contribute now for last year, that five-year clock starts January the 1st of last year. In other words, you got what 14 months of free time on that five year clock? That's the way that works. Let's go into the next rule. The five year rule for penalty free distributions of converted funds applies separately for each and every conversion. While a distribution of converted funds, Funds is never taxable, the 10% early distribution penalty can apply if a five-year holding period is not satisfied. The five-year rule is only an issue if you're under 59 and a half. It applies separately to each conversion that you do. It also may not be five full years, like we just talked about. For example, if you converted on December the 31st of 2025, just a few months prior, a few months ago, if you decided on the very last day of 2025, hey, I've bought in, I'm going to convert my IRA to a Roth IRA, you can take penalty-free distributions on January the 1st of 2030. Why? Because it's like that started on January 1st of 2025, not December 31st of 2025. That's how the conversion rules and the time periods start. Let's go to the next one. Beneficiaries are subject to the five-year holding period for tax-free distributions of Roth IRA earnings. So let's say you do a conversion and then you pass away. Your beneficiaries are subject to the five-year holding period for tax-free distributions from Roth IRA earnings. If a Roth IRA owner has not satisfied this five-year rule, the beneficiary must finish it out. A spouse beneficiary can use the more favorable of their own or their deceased spouse's five-year holding period. Only a spouse can do this. So let's say you're married, you each have your own Roth account, they each have their own five-year clocks ticking, and your spouse dies, you can use whichever one's the more favorable of the two. The five-year rule for penalty-free distributions of converted funds is never an issue for beneficiaries because all IRA distributions due to death are penalty-free. Now, keep in mind, there's a difference in the things that I just mentioned. I talked about earnings and I talked about converted funds. Those are two different things. Someone has$100,000 in their account, their IRA, they convert it to a Roth. That is converted funds. Okay? But if they have$100,000, they've converted it and it's now worth$120,000 because of gains, those are called earnings. There's a different tax rule for the$100,000 of converted funds versus the$120,000 because$20,000 of it is earnings. Different five-year clock rules. Never a rule for a beneficiary due to death. The converted funds are penalty-free, but there are rules for the earnings of that account. You have to keep these rules in mind. And here's the fifth one: the Roth IRA owner must track the five-year rules themselves. Ultimately, it's up to the Roth IRA owner to keep good records and ensure that they are not violating any of the Roth IRA five-year rules. The taxation of Roth IRA distributions is determined in aggregate with all of the individuals' Roth IRAs being considered and ordering rules being applied. Contributions come out first, then conversions, and then finally earnings. Custodians do not necessarily have all the information they need to determine if the Roth five-year rules are satisfied. Roth IRA owners must understand these rules. Think about it. Let's say you have a fidelity account and you convert it, and you converted it back in 2020. But then in 2022, you didn't like what was going on in the market when the market was down 20%. And so you fired your fidelity guy and you moved it over to Schwab. Is Schwab going to know when you converted those funds? All they know is they have a Roth account there now. It's not up to Schwab to keep up with your rules and your contributions and your earnings and when did you do the conversion? That's on you as the owner. So you have to keep record of the rules and how they're applied. So here's another way to think about these confusing rules. There was a following example that I'm going to share here by another colleague of ours at the Ed Slot group, Ian Berger. And Ian is an IRA analyst for the Ed Slot group. He presents at the same meetings that Sarah Brenner presents at. And he recently wrote also in March a great example of moving the clocks ahead and reviewing the five-year Roth IRA rules. Because remember, we spring forward in the spring with our clocks. So let's listen to what Ian had to say here. A few Saturdays ago, many of us moved our clocks one hour ahead to usher in daylight savings time. Adjusting our clocks is a reminder to review the very confusing rules surrounding Roth IRA distributions. It's not a surprise that we continue to get more and more questions about these rules than just about any other topic we face. A good way to keep these rules straight is to remember that there are two different five-year clocks known as holding periods. The first determines whether or not a distribution of converted funds is subject to a 10% early distribution penalty. The second determines whether a distribution of earnings on Roth IRA contributions or conversions is subject to tax. So let's talk about the first clock. Is a distribution of converted dollars subject to penalty? You are never subject to a 10% penalty when you do a Roth IRA conversion, even if you're under 59.5. You are also never subject to a penalty if you receive a distribution of converted Roth amounts when you're age 59.5 or older. But you could be hit with a penalty if you receive a distribution of converted funds when you're under 59 and a half. This is the only time the five-year clock comes into play. The first clock starts ticking on January 1st of the year of the conversion, no matter what the date was during the year when you did it. We've already talked about that. If you're under 59 and a half and you take out converted dollars before the end of the five-year period, you'll be penalized, assuming no penalty exception applies. If you do Roth conversions in different years, each year of conversion has its own five-year clock. But remember, if you don't touch the converted funds until age 59 and a half or later, you'll never have to worry about that first five-year clock. Just wait till 59 and a half or later. Here's the second clock. Is a distribution of earnings subject to taxes? The second clock helps determine whether or not earnings on a Roth IRA contribution and the conversions are taxable when they're taken back out. Earnings avoid taxes if two conditions are met. The second five-year clock is satisfied and you're at least 59 and a half, or disabled or a first-time home buyer. If you satisfy both conditions, your distribution is considered a qualified distribution and there's no penalty. The second clock starts ticking on January 1st of the year of your first contribution or conversion to any Roth IRA. Friends, I converted my first account from a traditional to a Roth all the way back in 2008 during the financial crisis when I was 37 years old. That clock started way back then. Okay? Unlike the first clock, there's always just one five-year period for the second clock. If you take out earnings before the end of this five-year clock, those earnings will be taxable regardless of your age. Getting this second clock ticking is why it's so important to open up a Roth IRA as early as possible, like I did way back when in 2008, even if it's funded with a small amount. What if you withdraw from your Roth IRA before you meet conditions for a qualified distribution? Favorable Roth IRA ordering rules allow contributions and conversions to come out before the earnings. This means you can always receive a tax-free distribution of an amount equal to your Roth IRA contributions and conversions. The amount equal to your contributions is always penalty-free, and the amount equal to your conversions is penalty-free at age 59 and a half or after the first clock described above is satisfied. Only after an amount equal to all your Roth IRA contributions and conversions is depleted do you even reach your earnings. Since your withdrawal is non-qualified, you'll have to pay taxes and possibly a penalty on that portion of your withdrawal. Now, friends, let me say this. Well, I will say this. A lot of times people look at me, they look at what I do for a living, they'll see success and go, man, I wish I could do what you do. Really? Do you really want to know what I have to know to do all this? It's not the easiest thing in the world. There are a lot of rules, but I can tell you this in a lot of cases, I'm a huge advocate of Roth accounts. I have a lot of my money moved into Roth accounts. Why would I want to keep up with all these rules and regulations? Because tax-free beats taxable every day of the week and twice on Sunday. It's somewhere down the road,$39 trillion is going to be a massive issue for this country. And here's the key: just like you go see a doctor when something's wrong, you go see a dentist when something's wrong. You need to go see a qualified, knowledgeable financial professional when it comes to your finances. This is not a do it on your own. This is not a I can figure this out on my own. I can probably invest as good as they can. I can probably figure these tax rules out like they can. It's not that easy. Friends, there's a reason why I became a TPCP, a tax planning certified professional, because I didn't want to be just a financial professional that sold things to people and then said, well, go see your CPA about those questions, about those Roth conversions. I wanted to be an expert on all things financial planning. So if we can help you in any way, we're going to continue the show with some very common practical questions that you probably have in mind. We're going to share some common client questions here in a minute, but call us 866-780-7233, or go to our website, Ozarksretirement.com, click on the contact us button, and I'll reach back out to you. Let's jump into some real life questions about Roth conversions and contributions and show you just how confusing things can get, but also how easy it can be to solve it. So here's a question. Hey, I'm age 72 and my wife is 63. I want to open a spousal Roth IRA. I already have a Roth for myself that I've owned for more than five years. Would she have to wait five years before she can make a withdrawal without a penalty? Or does she have to have it in place for five years before she can withdraw anything? Well, here's the answer. If one spouse has little to no income but the other spouse does, the spouse with no income can make a traditional or Roth IRA contribution based on the income of the spouse who has eligible earnings, assuming they file a joint tax return. This is called a spousal IRA or a spousal contribution. This spousal IRA is fully owned by the spouse with no income, and the normal rules apply as if she had funded it with her own earnings. Since your wife is over 59 and a half, there is never a penalty for withdrawing those funds. But she will have her own five-year clock to wait for the tax-free earnings. Now, the beauty to this being a podcast, and the reason I'm doing a show that's so technical like this, is you can subscribe to the podcast, go to uh ozarksretirement.com or just go to YouTube, type on Brad Pistol. When you subscribe, you can go back and replay these questions over and over again because many of them are going to apply to your own situations and the things you're thinking about. Here's another great question. What options are available for a non-working spouse to contribute to a traditional or Roth IRA, provided that her significant other is employed and has earned income? As mentioned above in the first question that we dealt with, both a traditional IRA and a Roth IRA are available for a non-working spouse regardless of their age. If the working spouse has enough compensation to cover both the spouse's contribution and his own, then he can proceed to fund both of them. The couple must file a joint tax return, and once the funds are in the nonworking spouse's IRA, they are hers to do with as she pleases. All the normal IRA rules will apply. If the working spouse is not covered by a retirement plan at work, then a spousal contribution to a traditional IRA can also be deducted. If the working spouse is covered by a work plan, there is a phase out range to deduct the non-working spouse's traditional IRA contribution. And we could go through all those, I won't, for time's sake, but for 2026, in order for it to be deductible, you've got to fall under the income limitations and contribution limitations. So here's another question. We have a client, age 73, that wants to start converting his traditional IRA to a Roth IRA over a period of several years. He has other Roth IRAs that were established more than five years ago. He was told by an IRS representative that each Roth conversion would have its own five-year rule before the earnings could be withdrawn without a penalty. I thought that since he's over the age of 59 and a half and that he has other IRAs in place, other Roth IRAs in place that were established more than five years ago, that the five-year rule would not apply to his Roth conversions. What would you say about this? I can't seem to find the answer anywhere on the IRS website. Well, here's the answer in this situation. Remember, there are two five-year holding periods or clocks for Roth IRA distributions. One for determining if there's a penalty on the distribution of converted amounts before age 59 and a half, and the other for determining if the earnings on the Roth IRA contributions and conversions are taxable. Your client doesn't have anything to worry about on the first five-year clock because the withdrawals will be coming out after age 59 and a half. He also doesn't have to worry about the second clock because his withdrawals will come out after age 59 and a half, and he has had a Roth IRA for at least five years. So all of his Roth IRA distributions will be tax and penalty free. Now, these are the kind of great things that you think about when you go through questions about whether or not to convert. So as we wrap up the show today, let's talk about some of the most common questions and misconceptions that come with Roth accounts. There are a lot of confusing rules. There's a lot of difference between what a Roth conversion is and what a Roth contribution is. Those are completely separate things. So remember, in my opinion, there are only four ways to obtain a Roth account. If you Google search this or Chat GPT, it's going to give you three. I'll give you four. Here are the ways to obtain a Roth account. Number one, you contribute. You take money and you contribute into the account. Number two, you convert. That's taking a tax-deferred account like an IRA or a 401k and you convert it, pay the tax, and move it into a Roth. Number three, they'll list rollover. Now, I kind of beg to differ on this. It's a little questionable whether or not a rollover is putting money into a Roth. A rollover means it was already in a Roth account. So you have it in a Roth 403B, and you leave that place of employment and you roll it over to a Roth IRA. Yes, it's a way to get it into a Roth, but it was already in a Roth. So you could roll over from a 401k, Roth 401k to a Roth IRA. You could roll it over from a Roth 403B to a Roth IRA, but you can do a rollover. So contribute, convert, roll over, and here's number four, the best way. Inherit. You can inherit Roth money. You don't have to do any of these things. However, you're not in control of that. So those of you who are lucky, like my kids, they will inherit Roth accounts. But remember, we're going to talk about in a minute, there are special rules for the non-spousal beneficiaries who inherit those Roth dollars. The most common misconception about Roth accounts typically involves confusion over all the rules, the income limits, and the tax efficiency. While Roth IRAs offer unique tax advantages, they are often misunderstood as being more restrictive or less accessible than they actually are. So let's talk about some of these common misconceptions. Here's one. Well, I don't want to contribute to a Roth because you can't withdraw any of the money until you're 59.5. Now we've already talked about this. You can withdraw your direct contributions, the money that you put in. And you can do this at any time for any reason, tax and penalty free. But here's the nuance. The 10% penalty in taxes applies to the earnings, the growth, if you take them out before 59.5 and before the account has been opened for five years. Here's another one. High income earners are completely barred from having a Roth IRA. We know this is not true. I already told you. I'm a high income earner. I can't contribute, but I do have Roth IRAs. How is that? Well, here you go. While there are income limits for direct contributions, high earners can still get the money into a Roth through either a backdoor Roth IRA, which the process involves making a non-deductible contribution to a traditional IRA and then immediately converting it to a Roth. There are also mega backdoor Roth contributions and conversions. You need to talk to a qualified professional about that. And then of course you can do conversions. Here's another misconception. Roth accounts are always better than traditional accounts. A Roth is really only better if your tax rate in retirement is higher than it is now. If it's going to be higher in the future, then you made the right bet. If you're currently in a high tax bracket and you expect to be in a lower one during retirement, a traditional IRA might actually save you money because you'd be paying less in tax. Here's another one I hear a lot of times, generally from older people, people above the age of 60, they'll say, Well, there's no need for me to convert to a Roth. That's for young people. Age is less important than your expected future tax bracket and your plan for the money. Even older retirees might decide to convert to avoid future required minimum distributions or to pass on tax-free money to their heirs. So you need to ask yourself, what is the purpose for moving the money from a tax-deferred account into a tax-free account? Here's another misconception. You must have an employer-sponsored plan in order to open one. That's not true. This isn't a 401k or a 403B. You can open a Roth IRA at almost any location you want to. You just have to have earned income from either a job or self-employment, or a spouse can have earned income and can open that account. Here's one. You can only convert once per year. You better be sure about when you want to do that conversion because you've only got once a year to do it. Many people will confuse this with the once per year IRA rollover. A IRA rollover can only happen one time per year, but that is not to be confused with a Roth conversion. You can convert 15 times if you want to during a year. There is no limit. And finally, this is another big misconception that I want to talk more about. Well, when you contribute to a Roth, there are no RMDs for the lifetime of that account. Now, while the original owners of Roth IRAs do not have required minimum distributions known as RMDs during their own lifetime, they do have RMD requirements for the beneficiaries who inherit the account. This is very important. This is a rule. Uncle Sam is going to enforce it and pay attention to it. So let's take a quick look at this as we close the show. In 2026, most non-spousal beneficiaries of a Roth IRA must empty the account by the end of the tenth year following the owner's death. However, they generally do not have to take the annual RMD during years one through nine if the original owner died before their RMD start date. This RMD start date is known as the RBD, the required beginning date. If the beneficiary is not an eligible designated beneficiary, and the original owner died after their RMD start date, then annual distributions, known as RMDs, may be required and they must follow along with the 10-year rule. So here are some key things to consider when you're thinking about the Roth no RMD rule. There's a 10-year rule. The primary requirement for most non-spousal beneficiaries is to fully distribute the account by the end of the 10th year after the owner's death. Annual RMDs. They're not required for inherited Roth IRA owners during years one through nine as long as they meet the conditions we talked about earlier. How about eligible designated beneficiaries, EDBs? Individuals who are spouses, disabled, chronically ill, or not more than 10 years younger than the deceased, or they could be a minor child of the deceased, they might be able to stretch their payments over their lifetime. A spouse can roll over the Roth IRA into their own name and then treat it like it was their own Roth IRA account, and this would eliminate RMDs for them altogether. Then there is the death after RMD age rule. If the original Roth IRA owner passed away after they were already taking their own RMDs, the beneficiary might have to continue taking annual RMDs in addition to the 10-year rule. Now I know what you might be thinking. Well, wait a second. If that person died after age 73, the RMD age, they weren't taking RMDs because it was a Roth. That is correct. But they still died after their RBD and their non-spousal beneficiaries do have to take distributions from a Roth. So with all these crazy rules in mind, we're back to where we started at the beginning of the show today. To convert or not to convert? That is the question. And the answer is, it depends. It's like any other question that I get asked every single day. Here's one, my most favorite. When is the best time for me to file for my Social Security benefits? And my answer always is that depends on your answer to the next 10 questions that I'm about to ask you. You see, when it comes to Roth contributions and conversions and earnings, there are many things for you to think about before deciding whether or not to do it. Especially the decision to convert, because this involves much larger sums of money and much larger upfront tax consequences. You definitely need to consider consulting your CPA about this, but you also, and in my opinion, more importantly, need to work with a qualified financial professional who specializes in tax planning. Friends, this is why I decided to become a TPCP, tax planning certified professional through the American College. Don't get me wrong, CPAs are very important. Mine saves me literally hundreds of thousands of dollars. Thank you, Gary Wood. But here's the thing your CPA doesn't always know where all your financial accounts are. They don't know what you're invested in or how they work. They're not a financial professional in that regard. So it would be better if your financial professional who knows where all of these accounts are, knows the rules for Roth's versus traditional versus five-year clocks versus all these things, who knows where all those dollars are held and invested. It would be better if they worked with you on this. But if the standard answer from your financial professional when it comes to tax planning is, oh, well, I don't do the tax side. You need to go talk to your CPA, then you've got a problem. Then you have to gather together all your accounts, all your investments, where things are, and you take it in and say, hey, should I convert or not convert based on XYZ? And a lot of times that's a challenge for that CPA because while they're a tax professional, they're not an investment person or someone who understands all the things that come with your financial planning. It's great when you can have your financial professional also be a tax professional and when they're in cahoons with your CPA and they can work together. Friends, if you want to work with a team like that, that's exactly who we are at the Ozarks Retirement Group. I'm an RICP and a TPCP. My son is an RICP. Both Kinsley and I are registered Social Security analysts. We've taken the time to do all the financial planning and training that goes into helping you with all aspects of your financial planning. So whether or not it's Medicare, it's Social Security and Income Planning, it's tax planning, it's retirement questions, we're here to help you. 866-780-7233, or simply go to Ozarksretirement.com, click on the contact us button, and I will personally reach out to you. Hey, thanks for listening today. I know it was a lot of information. Go to the podcast so you can play, pause, rewind to get all the facts straight about the five-year clocks and distribution ordering rules for Roth IRAs. Well, I'm about out of time, and I would like to thank you for listening to Safe Money Radio. If you're serious about your financial future, give me a call, and together we'll get your retirement savings on the fast track to accumulation while reducing exposure to market losses. Thanks for listening, and until next time at the same time, I'm Brad Pistol, reminding you to stay safe so you can step into a secure future.

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