1 00:00:08,079 --> 00:00:11,879 Suze: September 14, 2025. Welcome everybody to the Women and Money 2 00:00:11,880 --> 00:00:15,760 Suze: podcast as well as everybody smart enough to listen. Suze O here, 3 00:00:15,770 --> 00:00:19,000 Suze: and you get out that Suze notebook right here and 4 00:00:19,000 --> 00:00:22,439 Suze: right now because this is a little bit of a 5 00:00:22,440 --> 00:00:26,709 Suze: master class on the 5 year rule when it comes 6 00:00:26,709 --> 00:00:33,318 Suze: to Roth IRAs, both contributory Roths as well as converted Roths. 7 00:00:33,619 --> 00:00:38,119 Suze: And I'm only dealing with Roth IRAs today, everybody, just 8 00:00:38,119 --> 00:00:40,360 Suze: so you know, are you ready? 9 00:00:41,159 --> 00:00:45,159 Suze: There are two different types of Roth retirement accounts, and 10 00:00:45,159 --> 00:00:48,589 Suze: a Roth retirement account, as you better know by now, 11 00:00:49,279 --> 00:00:52,990 Suze: is an account that is funded with after-tax dollars. 12 00:00:53,930 --> 00:00:56,240 Suze: And it grows and it grows, and if you meet 13 00:00:56,240 --> 00:01:01,909 Suze: certain rules, you can take out everything tax free later on, 14 00:01:02,000 --> 00:01:05,000 Suze: and it is those rules known as the 5 year 15 00:01:05,000 --> 00:01:09,879 Suze: rule that screws everybody up. So let's first begin with 16 00:01:09,879 --> 00:01:15,879 Suze: a contributory Roth. What is a contributory Roth? Just as 17 00:01:15,879 --> 00:01:20,679 Suze: its name says, you contribute to it with after-tax dollars 18 00:01:20,680 --> 00:01:22,480 Suze: every single year. 19 00:01:23,190 --> 00:01:26,620 Suze: It's not coming from another account. It is coming from 20 00:01:26,620 --> 00:01:30,019 Suze: your pocket into this account. 21 00:01:30,720 --> 00:01:34,389 Suze: And the money that you contribute is known as your 22 00:01:34,389 --> 00:01:36,389 Suze: original contributions. 23 00:01:37,290 --> 00:01:42,709 Suze: Now while that money sits in there, obviously it's growing 24 00:01:42,709 --> 00:01:48,540 Suze: and growing. The growth of your original contributions is known 25 00:01:48,540 --> 00:01:53,190 Suze: as earnings, and it is your earnings that the five 26 00:01:53,190 --> 00:01:58,870 Suze: year rule applies to, not your contributions. Let me give 27 00:01:58,870 --> 00:02:00,029 Suze: you an example. 28 00:02:01,099 --> 00:02:04,610 Suze: You are 38 years of age, and you put in 29 00:02:04,610 --> 00:02:10,220 Suze: $7,000 with after-tax money you contribute it to your Roth IRA. 30 00:02:11,018 --> 00:02:13,858 Suze: At 39, you do the same thing. At 40, you 31 00:02:13,858 --> 00:02:20,089 Suze: do the same thing. You have contributed $21,000 and over 32 00:02:20,089 --> 00:02:21,309 Suze: those three years. 33 00:02:22,380 --> 00:02:27,519 Suze: The account is worth $28,000 now, or the difference, that 34 00:02:27,520 --> 00:02:34,240 Suze: $7,000 difference, that is the money that your contributions earned. 35 00:02:35,279 --> 00:02:39,949 Suze: The 5 year rule says you can take out any 36 00:02:39,949 --> 00:02:47,509 Suze: of your original contributions without taxes or penalties regardless of 37 00:02:47,508 --> 00:02:52,059 Suze: your age or how long the account has been open, 38 00:02:52,229 --> 00:02:55,740 Suze: so you are 40 years of age and you need money. 39 00:02:56,389 --> 00:02:58,899 Suze: And where do you get that money from? Your Roth, 40 00:02:59,350 --> 00:03:03,500 Suze: and that Roth has only been open for three years. 41 00:03:04,059 --> 00:03:08,190 Suze: But in this example you can take out up to 42 00:03:08,190 --> 00:03:15,989 Suze: $21,000 of your original contributions without taxes or penalties. 43 00:03:16,839 --> 00:03:22,070 Suze: Regardless of age or how long the account has been open, 44 00:03:22,320 --> 00:03:27,279 Suze: but Suze, it says there's a 5 year rule. Listen 45 00:03:27,279 --> 00:03:32,160 Suze: to me, the 5 year rule does not apply to 46 00:03:32,160 --> 00:03:38,270 Suze: your contributions. It only applies to earnings. So in this case, 47 00:03:38,800 --> 00:03:43,279 Suze: you cannot take out your earnings until the account has 48 00:03:43,279 --> 00:03:45,779 Suze: been opened for 5 years and 49 00:03:46,139 --> 00:03:51,050 Suze: you are 59 and a half years of age. If both of those 50 00:03:51,050 --> 00:03:52,289 Suze: things have been met. 51 00:03:53,190 --> 00:03:56,789 Suze: Then you can take it all out income tax and 52 00:03:56,789 --> 00:03:59,110 Suze: penalty free period done. 53 00:04:00,240 --> 00:04:04,380 Suze: Right, but you're saying to me, OK, but what if 54 00:04:04,380 --> 00:04:10,460 Suze: I don't start a contributory Roth until I'm 58? Then what? 55 00:04:12,110 --> 00:04:17,970 Suze: You're 58, you contribute $8,000 a year at 58, 59 56 00:04:18,089 --> 00:04:24,920 Suze: and 60. All right. And now you have contributed $24,000 57 00:04:25,209 --> 00:04:29,730 Suze: and over those three years it's now grown to $30,000. 58 00:04:30,709 --> 00:04:34,260 Suze: And you want to take out all 30,000 because you 59 00:04:34,260 --> 00:04:44,058 Suze: think you're over 59 and a half. Can you? No, you cannot without taxes. Now, once, 60 00:04:44,059 --> 00:04:49,179 Suze: you listen closely, once you become 59 and a half or older. 61 00:04:49,829 --> 00:04:54,649 Suze: The 10% penalty for age absolutely goes away. 62 00:04:55,399 --> 00:04:58,678 Suze: So you could if you wanted to. Doesn't matter. You 63 00:04:58,678 --> 00:05:02,209 Suze: could take out up to the 24,000 just like if 64 00:05:02,209 --> 00:05:08,049 Suze: you were younger, however, to access the $6,000 in this 65 00:05:08,049 --> 00:05:09,690 Suze: case of earnings. 66 00:05:10,529 --> 00:05:14,690 Suze: You would have to wait until you were 62, five full 67 00:05:14,690 --> 00:05:20,010 Suze: years to take out the earnings. Otherwise you're going to 68 00:05:20,010 --> 00:05:25,160 Suze: pay ordinary income tax on the earnings. Obviously there's no 69 00:05:25,160 --> 00:05:26,769 Suze: age 10% penalty. 70 00:05:27,790 --> 00:05:31,729 Suze: But you are going to owe ordinary income tax on 71 00:05:31,940 --> 00:05:37,899 Suze: that $6,000. Does that make sense? So the 5 year 72 00:05:37,899 --> 00:05:45,380 Suze: taxation rule applies to earnings and how long the account 73 00:05:45,380 --> 00:05:49,940 Suze: has been open. I hope that's clear to all of you. 74 00:05:50,839 --> 00:05:56,269 Suze: Now let's go to conversions. Conversions again, 75 00:05:57,070 --> 00:06:01,670 Suze: are when you convert from a taxable account to an 76 00:06:01,670 --> 00:06:02,988 Suze: after tax account. 77 00:06:03,799 --> 00:06:08,130 Suze: Now I think the best way for you to understand 78 00:06:08,130 --> 00:06:13,760 Suze: conversions is to use examples, but before I give you 79 00:06:13,760 --> 00:06:18,359 Suze: an example, I want you to know that there isn't 80 00:06:18,359 --> 00:06:22,790 Suze: just one 5 year rule. There are two, and this 81 00:06:22,880 --> 00:06:27,320 Suze: is what you have to understand. The first 5 year 82 00:06:27,320 --> 00:06:27,868 Suze: rule 83 00:06:28,678 --> 00:06:34,029 Suze: will be based on your very first Roth IRA opening, 84 00:06:34,350 --> 00:06:39,040 Suze: and that will determine when earnings can be withdrawn tax 85 00:06:39,040 --> 00:06:44,839 Suze: and penalty free, provided you are 59 and a half or older, and 86 00:06:44,839 --> 00:06:46,679 Suze: I'm going to give you an example of that in 87 00:06:46,678 --> 00:06:52,789 Suze: a second. The second 5 year rule applies to each 88 00:06:52,790 --> 00:06:54,708 Suze: Roth conversion. 89 00:06:55,140 --> 00:07:00,820 Suze: And governs when you can withdraw that specific converted amount 90 00:07:00,820 --> 00:07:08,380 Suze: penalty free if you are under 59 and a half. Every Roth conversion 91 00:07:08,899 --> 00:07:12,200 Suze: has its own 5 year time clock. 92 00:07:13,269 --> 00:07:16,359 Suze: And you have to know the difference, so I'm going 93 00:07:16,359 --> 00:07:20,369 Suze: to give you examples now, but just keep that in 94 00:07:20,369 --> 00:07:22,640 Suze: mind what I just said to you. 95 00:07:24,119 --> 00:07:25,429 Suze: You're 57. 96 00:07:26,140 --> 00:07:32,220 Suze: And you do your very first Roth conversion in 2025. 97 00:07:32,470 --> 00:07:36,709 Suze: You do not have a Roth IRA. You've never opened 98 00:07:36,709 --> 00:07:39,989 Suze: up any type of Roth prior to this. This is 99 00:07:39,989 --> 00:07:43,799 Suze: going to be your first Roth and your very first 100 00:07:43,799 --> 00:07:45,029 Suze: Roth conversion. 101 00:07:45,790 --> 00:07:49,489 Suze: So you're 57 again and you do your first Roth 102 00:07:49,489 --> 00:07:51,920 Suze: conversion in 2025. 103 00:07:52,700 --> 00:07:57,890 Suze: In 2027 you are going to be 59 and a half. 104 00:07:58,670 --> 00:08:04,299 Suze: And once you are 59 and a half, you can take out the 105 00:08:04,299 --> 00:08:06,380 Suze: amount of money that you converted. 106 00:08:07,399 --> 00:08:12,589 Suze: No tax and no penalty because that's attached to your age, 107 00:08:13,040 --> 00:08:20,559 Suze: but your earnings aren't tax free until 2030. Why? Because 108 00:08:20,559 --> 00:08:25,709 Suze: the account has not been open for at least 5 years. 109 00:08:26,160 --> 00:08:30,040 Suze: So once you attain 59 and a half, you can take out your 110 00:08:30,040 --> 00:08:33,390 Suze: conversion money, no tax, no penalty. 111 00:08:33,689 --> 00:08:38,749 Suze: But earnings in this example you can't take out until 2030. 112 00:08:39,068 --> 00:08:41,439 Suze: Now let me give you another example. 113 00:08:42,739 --> 00:08:46,299 Suze: You've listened to me, and you opened up a Roth 114 00:08:46,299 --> 00:08:51,379 Suze: years ago and it has already met the 5 year requirement. 115 00:08:53,080 --> 00:08:54,689 Suze: You're 57. 116 00:08:55,609 --> 00:09:00,849 Suze: And you do your very first wroth conversion, but you 117 00:09:00,849 --> 00:09:07,729 Suze: already had another Roth for 5 years at 59 and a half in 118 00:09:07,729 --> 00:09:14,000 Suze: the year 2027, everything is going to be tax free. 119 00:09:14,799 --> 00:09:20,939 Suze: Conversions and earnings, no penalty. No penalty because you're already 120 00:09:20,940 --> 00:09:29,199 Suze: now 59 and a half. No taxation on any of it, including the earnings. Why? 121 00:09:29,669 --> 00:09:35,579 Suze: Because your Roth converted account takes on the time frame 122 00:09:35,580 --> 00:09:40,510 Suze: of your very first Roth IRA that you opened. 123 00:09:41,299 --> 00:09:44,280 Suze: I know I have said to you, and it is true, 124 00:09:44,869 --> 00:09:48,299 Suze: every time you convert a Roth, it has its own 125 00:09:48,299 --> 00:09:51,359 Suze: 5 year clock, absolutely true. 126 00:09:52,119 --> 00:09:56,449 Suze: But if you already have a Roth IRA that had 127 00:09:56,450 --> 00:10:02,349 Suze: been open for 5 years, every conversion takes on the 128 00:10:02,349 --> 00:10:08,270 Suze: 5 year clock of your very first Roth IRA that 129 00:10:08,270 --> 00:10:09,789 Suze: you opened. 130 00:10:11,010 --> 00:10:16,299 Suze: That's where the confusion is. Everybody, you think your Roth 131 00:10:16,299 --> 00:10:20,380 Suze: IRA has its own time clock, and it does, but 132 00:10:20,380 --> 00:10:24,789 Suze: it also will take on the time clock of the 133 00:10:24,789 --> 00:10:29,419 Suze: very first Roth IRA that you opened. 134 00:10:30,020 --> 00:10:35,358 Suze: And it is this time clock that allows you, once 135 00:10:35,359 --> 00:10:41,200 Suze: you are 59 and a half years of age or older, that determines 136 00:10:41,450 --> 00:10:46,809 Suze: when your earnings can be withdrawn tax and penalty free, 137 00:10:46,929 --> 00:10:53,419 Suze: but the key is you have to be 59 and a half or older. 138 00:10:54,130 --> 00:10:55,238 Suze: That's why 139 00:10:55,950 --> 00:10:58,819 Suze: if you converted at the age of 57, but you 140 00:10:58,820 --> 00:11:04,229 Suze: already had a Roth for 5 years at 59 and a half in 141 00:11:04,229 --> 00:11:09,069 Suze: just 2 and a half years, everything is tax-free conversion and earnings. 142 00:11:09,859 --> 00:11:11,679 Suze: That is why I've always said to you. 143 00:11:12,450 --> 00:11:14,960 Suze: Actually, I haven't said it to you. I've begged you. 144 00:11:15,330 --> 00:11:18,609 Suze: I've begged you on my hands and knees, everybody, to 145 00:11:18,609 --> 00:11:21,728 Suze: open up a Roth IRA, whether you're going to fund 146 00:11:21,729 --> 00:11:25,059 Suze: it or not. I don't care if you put $1 147 00:11:25,059 --> 00:11:27,780 Suze: in it. I don't care how you get that $1 148 00:11:27,780 --> 00:11:32,169 Suze: in it, but if you open a Roth IRA and 149 00:11:32,169 --> 00:11:36,640 Suze: fund it with just $1 that is the Roth IRA 150 00:11:36,890 --> 00:11:38,809 Suze: that is going to follow you. 151 00:11:39,280 --> 00:11:42,979 Suze: And your time clocks for the rest of your life. 152 00:11:43,309 --> 00:11:47,750 Suze: Every conversion, your 5 year time clock is going to 153 00:11:47,750 --> 00:11:52,669 Suze: be attached to the very first Roth that you have opened. 154 00:11:53,609 --> 00:11:57,369 Suze: When it comes to being able to withdraw your earnings, 155 00:11:57,650 --> 00:12:03,679 Suze: tax and penalty free, provided you are aged 59 and a half or older, 156 00:12:03,969 --> 00:12:09,270 Suze: let me give you another example though. Maybe you're 40 157 00:12:09,770 --> 00:12:16,169 Suze: and you convert $20,000 into a brand new Roth. 158 00:12:17,190 --> 00:12:23,799 Suze: You can't touch that conversion for 5 years without a 10% penalty, 159 00:12:24,130 --> 00:12:28,969 Suze: and you can't touch the earnings until you're 59 and a half and 160 00:12:28,969 --> 00:12:33,650 Suze: the Roth has been open for 5 years. So let's 161 00:12:33,650 --> 00:12:37,880 Suze: just say, however, notice that I said you can't touch 162 00:12:37,880 --> 00:12:42,650 Suze: that conversion for 5 years without a 10% penalty. Remember 163 00:12:42,650 --> 00:12:45,809 Suze: you have already paid taxes on it. 164 00:12:46,570 --> 00:12:51,919 Suze: The 10% penalty in this case is not attached to age. 165 00:12:52,390 --> 00:12:56,270 Suze: It is attached to how long the Roth IRA you 166 00:12:56,270 --> 00:12:58,579 Suze: just converted to has been open. 167 00:12:59,500 --> 00:13:04,690 Suze: Now in this case here this is where the second 168 00:13:04,690 --> 00:13:09,729 Suze: 5 year rule applies because when it comes to a 169 00:13:09,729 --> 00:13:15,219 Suze: conversion and you wanting to touch the converted amount. 170 00:13:16,369 --> 00:13:20,840 Suze: What's key here is that this 5 year time clock 171 00:13:20,840 --> 00:13:25,569 Suze: is not attached to the first Roth IRA you ever open. 172 00:13:26,330 --> 00:13:31,439 Suze: It is in this particular case that every single converted 173 00:13:31,440 --> 00:13:35,510 Suze: Roth has its own 5 year time clock. 174 00:13:36,419 --> 00:13:42,429 Suze: And you cannot touch the money that you originally converted 175 00:13:42,880 --> 00:13:48,520 Suze: for at least 5 years, assuming you're under 59 and a half, all right, 176 00:13:49,000 --> 00:13:55,710 Suze: without a 10% penalty. Do you see, so it's very important. 177 00:13:55,880 --> 00:13:57,159 Suze: So again this 178 00:13:57,909 --> 00:14:02,400 Suze: situation does not use the clock from your original Roth 179 00:14:02,400 --> 00:14:06,900 Suze: IRA even if you opened it up years ago. If 180 00:14:06,900 --> 00:14:11,169 Suze: it hasn't been opened for 5 years, you can withdraw 181 00:14:11,380 --> 00:14:14,900 Suze: that $20,000. You're not going to pay taxes on it 182 00:14:14,900 --> 00:14:17,099 Suze: because you already did, but you're going to have to 183 00:14:17,099 --> 00:14:22,419 Suze: pay a 10% penalty. Are you understanding when it's taxed 184 00:14:22,419 --> 00:14:23,659 Suze: and when it's not? 185 00:14:24,270 --> 00:14:27,700 Suze: If you really want to make your life really simple 186 00:14:28,229 --> 00:14:34,000 Suze: with a converted Roth, simply open up a Roth IRA 187 00:14:34,000 --> 00:14:38,989 Suze: today and get that 5 year time clock moving. 188 00:14:39,830 --> 00:14:44,700 Suze: And remember when you do convert, just leave the amount 189 00:14:44,700 --> 00:14:46,260 Suze: you converted alone, 190 00:14:47,320 --> 00:14:53,415 Suze: for at least 5 years to avoid the 10% penalty, 191 00:14:53,415 --> 00:14:58,750 Suze: if you are under 59 and a half. Just know those two things 192 00:14:58,750 --> 00:15:01,150 Suze: and your life will be pretty simple. 193 00:15:02,080 --> 00:15:05,609 Suze: Now I hope that has cleared it up for you. 194 00:15:05,859 --> 00:15:09,650 Suze: What are some of the biggest mistakes really that all 195 00:15:09,650 --> 00:15:10,830 Suze: of you make? 196 00:15:11,719 --> 00:15:14,989 Suze: Believing that you can take out a conversion any time 197 00:15:14,989 --> 00:15:18,950 Suze: you can't if you're under 59 and a half, forgetting 198 00:15:18,950 --> 00:15:21,549 Suze: that earnings come out last. 199 00:15:22,409 --> 00:15:27,159 Suze: And they aren't tax free until 5 years plus 59 and a half 200 00:15:27,159 --> 00:15:28,000 Suze: have been met. 201 00:15:28,830 --> 00:15:32,390 Suze: You're waiting too long to open a Roth IRA because 202 00:15:32,390 --> 00:15:36,590 Suze: even that $1 gets your clock going and you're mixing 203 00:15:36,590 --> 00:15:41,840 Suze: up the two rules, one for earnings and one for conversions. 204 00:15:42,070 --> 00:15:43,780 Suze: Don't confuse them. 205 00:15:44,679 --> 00:15:47,109 Suze: So I hope I haven't confused you more. 206 00:15:47,440 --> 00:15:48,479 KT: Hi everybody, it's KT! 207 00:15:49,880 --> 00:15:52,270 KT: She, she confused me, but I'm here. 208 00:15:52,599 --> 00:15:54,239 Suze: She's been so good. 209 00:15:54,320 --> 00:15:54,479 KT: I've 210 00:15:54,479 --> 00:15:59,000 KT: been listening and I have some questions for Suze, but 211 00:15:59,000 --> 00:16:01,039 KT: I just want you to know I promised I'd be 212 00:16:01,039 --> 00:16:02,789 KT: at Suze School and I'm here. 213 00:16:03,159 --> 00:16:03,599 KT: It's 214 00:16:03,599 --> 00:16:04,510 KT: Sunday and I'm here, baby. 215 00:16:04,559 --> 00:16:07,599 Suze: Right? And believe it or not, it is 216 00:16:07,674 --> 00:16:11,065 Suze: a very, very complicated topic. 217 00:16:11,065 --> 00:16:11,265 KT: So it's not just me. 218 00:16:11,265 --> 00:16:13,945 Suze: So it's not just KT, and I was like, KT, 219 00:16:14,145 --> 00:16:16,974 Suze: if I do this Suze school, you have to sit 220 00:16:16,974 --> 00:16:20,825 Suze: there and not drink water, not reach for this because 221 00:16:20,825 --> 00:16:23,265 Suze: KT fidgets. You just fidget, don't you? 222 00:16:23,375 --> 00:16:24,955 KT: It's hard for me to be still. 223 00:16:24,955 --> 00:16:26,784 Suze: And so and then it distracts me and then I 224 00:16:26,784 --> 00:16:30,655 Suze: have to start over so it can be very complicated. However... 225 00:16:31,179 --> 00:16:33,380 Suze: You have been writing and, and by the way, when 226 00:16:33,380 --> 00:16:35,260 Suze: you want to write in a question, you do it 227 00:16:35,260 --> 00:16:41,080 Suze: at ask Suze SUZE podcast at gmail.com, and I said, KT, 228 00:16:41,299 --> 00:16:43,669 Suze: forget the names. Who cares about the names because too 229 00:16:43,669 --> 00:16:47,260 Suze: many people wrote in the same questions, right? But KT 230 00:16:47,260 --> 00:16:48,809 Suze: I think picked five. 231 00:16:49,020 --> 00:16:51,780 KT: I have five questions that I thought would be good. 232 00:16:52,039 --> 00:16:52,369 Suze: Do I look like 233 00:16:52,489 --> 00:16:54,580 Suze: I just put myself through it to explain all this. 234 00:16:54,619 --> 00:16:55,419 Suze: All right, go on. 235 00:16:55,940 --> 00:16:57,900 KT: She spent everyone. OK... 236 00:16:58,739 --> 00:16:59,469 Suze: It takes more than that to spend me. 237 00:17:00,164 --> 00:17:00,695 KT: My first 238 00:17:00,695 --> 00:17:07,055 KT: question says, hey, Suze, I'm 58. I just converted $100,000. 239 00:17:07,344 --> 00:17:11,055 KT: I'll be 63 when the 5 year clock is up. 240 00:17:11,344 --> 00:17:16,094 KT: Do I still owe the 10% penalty if I withdraw 241 00:17:16,094 --> 00:17:19,505 KT: before then since I'm over 59 and a half? 242 00:17:20,500 --> 00:17:21,260 Suze: How would you answer that? 243 00:17:21,729 --> 00:17:24,640 KT: No, because she, she already gave everyone the answer. She's 244 00:17:24,640 --> 00:17:26,449 KT: over 59 and a half. 245 00:17:27,260 --> 00:17:31,688 Suze: So the truth is, remember everybody, the magic age is 59 and a half. 246 00:17:32,420 --> 00:17:37,810 Suze: Once you all reach 59 and a half, it doesn't matter when you convert. 247 00:17:37,819 --> 00:17:39,379 Suze: It doesn't matter about anything. 248 00:17:39,780 --> 00:17:45,400 Suze: The 10% early withdrawal penalty for age no longer applies, 249 00:17:45,439 --> 00:17:50,680 Suze: but the 5 year clock on conversions really only matter 250 00:17:50,680 --> 00:17:54,959 Suze: if you're under 59 and a half for the amount you converted. Earnings 251 00:17:54,959 --> 00:17:56,930 Suze: are a different thing, but anyway, OK. 252 00:17:57,199 --> 00:17:59,079 KT: So that's why I have the next question. 253 00:17:59,420 --> 00:18:04,879 KT: I'm 45. I converted $20,000 at the age of 40. 254 00:18:05,400 --> 00:18:07,149 Suze: So funny. I use that as an example. 255 00:18:07,479 --> 00:18:10,189 KT: The 5 years are up. Can I take out my 256 00:18:10,189 --> 00:18:14,639 KT: conversion dollars now and what happens to the earnings? 257 00:18:14,880 --> 00:18:15,909 Suze: So as I 258 00:18:15,954 --> 00:18:20,185 Suze: said in the podcast, right, is that KT, this person 259 00:18:20,185 --> 00:18:24,025 Suze: can take out the $20,000 that they converted because they 260 00:18:24,025 --> 00:18:26,744 Suze: already pay taxes on it, so they don't have to 261 00:18:26,744 --> 00:18:31,145 Suze: pay tax or penalties again as long as the five 262 00:18:31,145 --> 00:18:35,625 Suze: years are up. But those five years only apply to 263 00:18:35,625 --> 00:18:39,744 Suze: the converted amounts. The earnings on that money, if they 264 00:18:39,744 --> 00:18:44,025 Suze: touch it before 59 and a half, they're going to owe taxes and 265 00:18:44,025 --> 00:18:45,104 Suze: penalties on it. 266 00:18:45,660 --> 00:18:49,099 Suze: All right, so there's a difference between the amount they 267 00:18:49,099 --> 00:18:53,819 Suze: converted and the earnings. So I hope that's clear to 268 00:18:53,819 --> 00:18:55,410 Suze: all of you. Was that clear to you? 269 00:18:55,699 --> 00:18:58,219 KT: I just have to ask you, you said penalties. Is 270 00:18:58,219 --> 00:19:00,170 KT: it just the 10% penalty? 271 00:19:00,439 --> 00:19:04,180 Suze: Yes, but if you take out, you convert $20,000. You 272 00:19:04,180 --> 00:19:07,020 Suze: already pay taxes on it. Three months later you decide, 273 00:19:07,180 --> 00:19:08,180 Suze: I want that money. 274 00:19:08,520 --> 00:19:11,938 Suze: It hasn't been in there for 5 years yet. If 275 00:19:11,939 --> 00:19:15,760 Suze: you take it out, they're going to charge you a 10% 276 00:19:15,760 --> 00:19:18,939 Suze: penalty because you have to think about it this way, KT. 277 00:19:19,380 --> 00:19:24,380 Suze: That $20,000 came from a traditional IRA. Never paid taxes 278 00:19:24,380 --> 00:19:27,530 Suze: on it, anything, you're 40 some odd years of age, 279 00:19:27,739 --> 00:19:32,379 Suze: and you just withdrew all $20,000. You'd have to pay 280 00:19:32,380 --> 00:19:34,650 Suze: taxes and a 10% penalty. 281 00:19:35,640 --> 00:19:40,708 Suze: Therefore, when you convert it, the IRS is like, no, no, no, no, 282 00:19:41,000 --> 00:19:43,880 Suze: I'm not letting you get money out of your IRA, 283 00:19:43,959 --> 00:19:46,510 Suze: so to speak, and not have to wait to touch it. 284 00:19:47,239 --> 00:19:51,149 Suze: That's why the 5 year penalty was put into effect. 285 00:19:51,439 --> 00:19:55,239 Suze: So when you convert, you have to leave it there 286 00:19:55,239 --> 00:19:57,359 Suze: for 5 years. 287 00:19:58,479 --> 00:20:01,479 Suze: Otherwise, if you then take out what you converted, you 288 00:20:01,479 --> 00:20:05,459 Suze: still owe the 10% penalty because you already paid the taxes. 289 00:20:06,319 --> 00:20:06,930 Suze: Did that make sense? 290 00:20:07,250 --> 00:20:10,198 KT: It makes sense, but just so that everyone knows, it's 291 00:20:10,199 --> 00:20:12,989 KT: not even if you take out that full amount, any amount, 292 00:20:13,040 --> 00:20:14,170 KT: you have a penalty. 293 00:20:14,280 --> 00:20:20,430 Suze: Any amount that you originally converted, you will owe a 10% 294 00:20:20,430 --> 00:20:25,680 Suze: penalty on if the account hasn't been opened for 5 years. 295 00:20:26,119 --> 00:20:27,000 KT: Ok, next question. 296 00:20:27,439 --> 00:20:30,329 KT: This is really important, everybody, because this is what I 297 00:20:30,329 --> 00:20:33,569 KT: call the what ifs. These are the what ifs. If 298 00:20:33,569 --> 00:20:36,969 KT: I do a Roth conversion this year and then I 299 00:20:36,969 --> 00:20:41,290 KT: die next year, does my beneficiary have to wait out 300 00:20:41,290 --> 00:20:44,089 KT: the 5 year conversion clock? 301 00:20:45,310 --> 00:20:49,790 Suze: No, thank God, right. So beneficiaries, everybody are not subject 302 00:20:49,790 --> 00:20:56,000 Suze: to that 10% early withdrawal penalty. However, they may still 303 00:20:56,000 --> 00:21:00,228 Suze: owe income tax on the earnings if the Roth wasn't 304 00:21:00,229 --> 00:21:04,399 Suze: open for at least 5 years, but the 5 year clock, 305 00:21:04,510 --> 00:21:08,479 Suze: so to speak, doesn't affect them with the 10% penalty. 306 00:21:08,790 --> 00:21:09,819 Suze: That is why, 307 00:21:10,349 --> 00:21:13,489 Suze: you are to open up a Roth IRA first thing 308 00:21:13,489 --> 00:21:16,150 Suze: Monday morning if you do not have one. All right, go on. 309 00:21:16,150 --> 00:21:20,270 KT: All right, that's good. Next question, Suze. I've had a 310 00:21:20,270 --> 00:21:22,879 KT: Roth IRA since 2010. 311 00:21:22,969 --> 00:21:23,180 Suze: Good. 312 00:21:23,369 --> 00:21:28,329 KT: I'm 62. I just converted more money last year. Do 313 00:21:28,329 --> 00:21:31,889 KT: I have to wait 5 years before I can touch 314 00:21:31,890 --> 00:21:33,649 KT: the earnings from that conversion? 315 00:21:34,670 --> 00:21:37,948 Suze: This is why I am telling you to open up 316 00:21:37,949 --> 00:21:42,629 Suze: a Roth IRA right now, and the answer is KT, no, 317 00:21:43,189 --> 00:21:46,180 Suze: because their Roth had already been opened for more than 318 00:21:46,180 --> 00:21:50,300 Suze: 5 years. They opened up a Roth in 2010. The 319 00:21:50,300 --> 00:21:54,069 Suze: 5 year clock started in 2010. 320 00:21:54,719 --> 00:21:55,670 Suze: So therefore, 321 00:21:55,739 --> 00:21:57,660 KT: And and it's a he just so you know, and 322 00:21:57,660 --> 00:21:58,540 KT: he's 62, 323 00:21:58,699 --> 00:22:04,089 Suze: All right. And so because he's over 59 and a half and because 324 00:22:04,300 --> 00:22:08,420 Suze: the Roth took on the time frame of the 2010 one. 325 00:22:09,349 --> 00:22:15,569 Suze: There are no penalties and everything is tax-free, earnings as 326 00:22:15,569 --> 00:22:18,010 Suze: well as contributions. All right. 327 00:22:18,329 --> 00:22:23,209 KT: Go have a party. So Suze, my last question is 328 00:22:23,209 --> 00:22:23,569 KT: from 329 00:22:24,040 --> 00:22:28,829 KT: a listener who wrote in, I converted $50,000 at 35, 330 00:22:29,030 --> 00:22:33,949 KT: at 38, I now need $10,000 back from my conversion. Suze, 331 00:22:34,369 --> 00:22:38,270 KT: can I just withdraw part of what I converted, or 332 00:22:38,270 --> 00:22:40,819 KT: do I trigger penalties on the whole thing? 333 00:22:41,270 --> 00:22:44,310 Suze: No, sweetheart, you absolute... is it a woman? Yeah, all right, 334 00:22:44,589 --> 00:22:46,390 Suze: so you absolutely can withdraw 335 00:22:46,520 --> 00:22:50,030 Suze: part, but any amount you take out from a conversion 336 00:22:50,030 --> 00:22:53,469 Suze: within its 5 year clock and before the age of 337 00:22:53,469 --> 00:22:58,790 Suze: 59 will be hit with the 10% penalty. The rest 338 00:22:58,790 --> 00:23:01,630 Suze: can keep growing inside of the Roth, so you are 339 00:23:01,630 --> 00:23:07,979 Suze: going to pay a 10% penalty on that $10,000 just 340 00:23:07,979 --> 00:23:08,859 Suze: that simple. 341 00:23:09,459 --> 00:23:11,099 Suze: Was that everything, or you have a lot there and 342 00:23:11,099 --> 00:23:12,449 Suze: you think that's enough for everybody? 343 00:23:12,449 --> 00:23:16,489 KT: I think that's good. Yeah, these are my favorite Roth questions. 344 00:23:17,380 --> 00:23:20,109 KT: I almost know the answers to all of them. I've been, 345 00:23:20,300 --> 00:23:24,060 KT: I mean, I'm sitting here listening like you are, so 346 00:23:24,540 --> 00:23:25,459 KT: don't do a quizzy. 347 00:23:25,819 --> 00:23:29,339 Suze: I'm just like, is she tempting me? Is she tempting me? 348 00:23:29,420 --> 00:23:30,180 KT: Don't do a quizzy. 349 00:23:30,619 --> 00:23:35,379 Suze: All right, everybody, I hope that has helped you and 350 00:23:35,380 --> 00:23:37,410 Suze: clarified it for you. 351 00:23:38,099 --> 00:23:42,060 Suze: If not, I'm sure I'll hear from you. But until Thursday, 352 00:23:42,180 --> 00:23:43,500 Suze: what do you want to say, KT? 353 00:23:44,500 --> 00:23:48,010 KT: OK everyone, remember people first, then money, then things. 354 00:23:48,099 --> 00:23:50,739 Suze: That is the correct order, everybody... 355 00:23:50,979 --> 00:23:52,689 KT: And have a great Sunday today. 356 00:23:52,939 --> 00:23:55,349 Suze: Yeah, but I have to say one other thing. When 357 00:23:55,349 --> 00:23:59,489 Suze: we say people first, we mean you. 358 00:23:59,839 --> 00:24:03,180 Suze: You have to give to yourself as much as you 359 00:24:03,180 --> 00:24:07,329 Suze: give of yourself. Don't you ever forget that I said that. 360 00:24:07,540 --> 00:24:11,738 Suze: All right, stay safe, stay healthy, and stay secure. See 361 00:24:11,739 --> 00:24:13,290 Suze: you Thursday. Bye bye.