Can I Touch It Yet?
The two Roth five-year rules, and why a December conversion counts for the whole year
Robert turned his laptop around so I could see the conversion form from his custodian. "Before I sign this, I want to know one thing," he said. "Once the money is in the Roth, can I touch it?"
Robert is 67 and two years into retirement. Readers met him in "How to Actually Use Your Roth Window," where we mapped out a plan to convert about $60,000 a year from his $1.1 million traditional IRA over six years. This December's conversion is the first one. He has never owned a Roth IRA, and at some point he picked up the idea that a five-year rule would lock his money up until 2031.
It won't. The confusion is understandable, though, because the two five-year rules measure different things, and most writing about them blends them. The rule Robert was worried about mostly does not apply to him. The one that does apply starts this year.
The Clock Starts January 1
Both five-year clocks run on tax years, not calendar days. A Roth conversion is treated as if it happened on January 1 of the year you complete it. Robert's conversion will settle sometime in early December 2026, but for five-year purposes it counts from January 1, 2026. Five tax years later, 2026 through 2030, the clock is satisfied on January 1, 2031.
That means a December conversion gets nearly a full year of credit it did not earn on the calendar. A conversion completed on January 2, 2027 starts its clock a full year later, even though the two dates are only a few weeks apart.
There is one catch. A conversion has to be completed by December 31 to count for this year. Unlike a regular Roth contribution, there is no April grace period. Many custodians also stop processing conversions well before the last week of December, so planning around December 30 is planning on luck.
Rule One: The Account Clock for Earnings
The first rule determines when your Roth growth comes out tax-free. A withdrawal is "qualified" (fully tax-free and penalty-free) when two conditions are met: you are 59½ or older, and at least five tax years have passed since you first funded any Roth IRA. Disability and death also satisfy the first condition, which matters for heirs, and we will come back to that.
This clock runs once per person. It is not tracked per account or per conversion. Once your first Roth IRA reaches five years, it covers every Roth IRA you own, including ones you open later. That is why this rule matters most for people who have never had a Roth. Robert's December conversion starts the only account clock he will ever need, and every conversion he does in 2027 and beyond rides on it.
Two details trip people up. Roth money in a workplace plan, such as a Roth 401(k) or Roth 403(b), runs on its own separate clock, and those years do not count toward your Roth IRA clock. Rolling a Roth 401(k) into a brand-new Roth IRA does not carry its years over; the Roth IRA's own start date governs. Spouses also have separate clocks. If Robert's wife ever converts from her own IRA, her Roth IRA will need its own start date.
What Robert Can Touch Before 2031
The IRS decides what comes out of a Roth first, and the order works in your favor. Withdrawals are treated as coming out of all your Roth IRAs in a fixed sequence: regular contributions first, then converted dollars oldest conversion first, then earnings last.
Converted dollars were already taxed in the year of the conversion, so they come out tax-free. If Robert converts $60,000 this December and needs $20,000 for a new roof in 2028, that $20,000 comes out of converted principal with no tax and no penalty. Only the earnings wait until 2031. Even if he somehow took from earnings early, he would owe ordinary income tax on that slice but no 10% penalty because he is over 59½. With a new $60,000 conversion landing each year, he'd need a very large withdrawal to reach his earnings.
So the answer to Robert's question is yes. He can use the money he converted. The growth on it waits until the account clock runs out.
Rule Two: The Per-Conversion Clock for the Penalty
The second rule closes a loophole. Without it, someone under 59½ could convert a traditional IRA and withdraw the money the next week, sidestepping the 10% early-withdrawal penalty that would have applied to a direct IRA withdrawal.To prevent that, each conversion gets its own five-year clock, which also starts on January 1 of the conversion year. If you are under 59½ and withdraw the taxable portion of a conversion before its five years are up, the 10% penalty applies to that amount. Once you reach 59½, this rule falls away entirely.
For gap-years retirees (people between retirement and the start of required minimum distributions), nearly everyone is already past 59½, so this rule mostly does not apply. It matters for someone who retired at 55 or 57 and converts before 59½. That person needs to track the start year of each conversion before spending it. Robert does not.
Why a Small First Conversion Matters
If you have never had a Roth IRA, the account clock is worth starting now, even if your real conversion plan begins next year or later. A small conversion this December, say $5,000 in the 12% bracket, costs roughly $600 in federal tax and moves your qualified-distribution date up a full year compared with waiting until 2027.
The benefit extends to your heirs. A beneficiary who inherits a Roth IRA receives the earnings tax-free only if the original owner's five-year clock has been satisfied, and that clock counts from the owner's first Roth funding. Starting it early protects them too.
If you or your spouse still has earned income, there is a second door. A regular Roth IRA contribution made by the April 2027 filing deadline for 2026 also starts the clock on January 1, 2026. Income limits apply to contributions, so confirm eligibility before counting on it.
What to Do This December
- Find out whether you have ever funded a Roth IRA. An old Roth opened years ago, even one with a small balance, may mean your account clock is already satisfied. Your custodian's records and any past Form 5498 (the annual statement custodians send showing IRA contributions and conversions) will tell you. Remember that a Roth 401(k) or Roth 403(b) does not count.
- Confirm your custodian's conversion cutoff. You must complete the conversion by December 31, and many firms stop processing earlier in the month. Call now and get the date in writing, then plan to submit the request in the first half of December.
- Size the conversion with a tax projection, not a guess. The figures in this piece are approximate. A conversion adds to your taxable income, which can change how much of your Social Security is taxed, phase out part of the senior deduction, and raise Medicare premiums through IRMAA (the income-related surcharge on Medicare Part B and D) two years later. If you are already taking required minimum distributions, which begin at 73 or 75 depending on your birth year, you must take the RMD first, and you cannot convert it.
- Keep a one-page conversion log. Write down the year and dollar amount of each conversion. Your Form 1099-R and Form 8606 record the same information, but a simple list saves time when you want to tap converted dollars and gives your spouse or heirs a clear picture of what is in the account.
Back to Robert
I told Robert to sign the form, submit it the first week of December, and stop worrying about the money being locked up. He wrote two dates on the back of the printout: January 1, 2026, when his clock starts, and January 1, 2031, when the last of it comes off.
Start the clock this year. Every conversion after it inherits the head start.
If you are new to Robert's story, start with "How to Actually Use Your Roth Window," which walks through how we sized his conversions.
Thanks for reading The Pensioner's Paradox. I write biweekly on retirement income, tax planning, and the structural side of retiring with confidence. If this piece resonated, subscribe at phil.cpa to get new pieces in your inbox. If you would like to talk through how these ideas apply to your own situation, you can reach me at phil.cpa.