Generally, year-end Roth IRA conversions are a smart move. That’s because all Roth IRA distributions will be tax free after 5 years and after age 59½. For all Roth IRA conversions, the 5 year mark starts on January 1. Therefore, a year-end conversion may cut the wait to just over 4 years.
Example: Kim Parker, age 56, has $100,000 in a traditional IRA, which she converts to a Roth IRA in December 2012. For Kim, the 5 year clock starts on January 1, 2012. Therefore, Kim will be able to take any amount from her Roth IRA, tax free, on or after January 1, 2017—4 years and one month later.
Read more in our December 2012 Newsletter.