Open Your First Roth at 66 With a $200,000 Conversion and Empty It at 70, and the $43,000 of Growth Is Taxable, Because the Account Is a Year Short of Five

Assume a retiree turns 66 in 2026 and converts $200,000 to a Roth IRA. By age 70, the account grows to $243,000, and the retiree withdraws it all. The conversion tax was paid upfront, yet the withdrawal triggers federal income tax on the $43,000 of growth.

The cause is timing: the retiree cleared out the account about four years after the conversion, falling short of the five-year holding period the IRS requires before earnings come out tax-free. Many people in their 60s convert traditional IRA money to a Roth before required minimum distributions begin, so this gap affects retirees who start late.

Two Clocks Run Inside Every Roth IRA

A Roth IRA runs two separate five-year clocks. The first applies to each conversion and governs only the 10% early-withdrawal penalty, which ends applying once the owner is past 59½. The second covers the owner’s Roth IRAs as a group and decides whether earnings are taxed. A withdrawal of earnings is fully tax-free only when the Roth has been open at least 5 years, and the owner is at least 59½.

Suze Orman explained this to a 68-year-old listener who had converted $15,000: “Because you’re over 59 and a half, it’s moot. The 10% penalty does not apply to you.” She then noted: “It’s the earnings that you will owe taxes on for five years.” Being older than 59½ removes the penalty but does nothing to cut the five-year clock on earnings.

How the Calendar Leaves Retirees a Year Short

The clock starts on January 1 of the tax year in which the first Roth contribution or conversion was made. A conversion done at any point in 2026 counts as if it happened on January 1, 2026. The five tax years run through 2030, and earnings become eligible for tax-free withdrawal on January 1, 2031. A saver who is 66 in 2026 turns 70 in 2030, so emptying the account at 70 happens before that date.

As one tax guide puts it, “Reaching age 59½ supplies an exception to the 10% additional tax, but it does not by itself complete the 5-tax-year requirement.” A retiree opening a first Roth in their mid-60s has no earlier account to carry over, so the clock starts from zero.

Ordering Rules Put Earnings Last in Line

IRS ordering rules set the sequence in which money leaves a Roth: regular contributions first, then converted amounts (oldest conversion first), and earnings last. For this retiree, the first $200,000 withdrawn is converted principal. It was already taxed in 2026, so it comes out tax- and penalty-free. The last $43,000 is earnings, a 21.5% gain on the conversion, and in a nonqualified withdrawal, it is taxed as ordinary income.

What $43,000 of Ordinary Income Costs

Under the IRS’ 2026 brackets, taxable income over $50,400 is taxed at 22% for single filers, while taxable income over $105,700 is taxed at 24%. Nonqualified earnings are added to whatever other income the retiree reports that year, such as Social Security, pension payments, or traditional IRA distributions, which can push those earnings into a higher bracket.

At a 22% marginal rate, the $43,000 of growth adds $9,460 in federal tax. At 24%, the bill rises to $10,320. Even a retiree whose taxable income sits entirely within the 12% bracket would still owe $5,160. Withdrawing earnings early forfeits the tax-free growth the upfront conversion tax was meant to secure.

Three Ways to Keep the Growth Tax-Free

1. Wait until January 1, 2031. Roth IRAs have no required minimum distributions for the original owner. The Roth has no such requirement. Nothing forces money out at 70.
2. Start the clock years earlier. A listener on Clark Howard’s June 12, 2026 show suggested converting a small amount early: “$1 is fine with Fidelity. This way you can start the 5-year clock.” A small conversion at 61 means a large conversion at 66 benefits from a clock already running.
3. Take only principal before the clock finishes. Because of the ordering rules, a retiree needing cash before 2031 can withdraw up to the $200,000 converted amount without owing tax, then leave the earnings in place until they qualify.

What to Watch From Here

In this example, the tax bill depends entirely on the withdrawal date. The same $43,000 is taxable if taken in 2030 and tax-free if taken on or after January 1, 2031. Retirees planning conversions should note two dates: the year their first Roth was funded and the date five tax years later. Financial advisor Wes Moss said on Clark Howard’s show that “there is no one answer or plan for a Roth conversion,” because income changes year to year. A conversion can be well executed and still lose its tax-free growth if the account is cleared out before the five-year clock runs out.

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