This concludes the excellent article on IRAs by Christine Benz on “mistakes that can trip up even seasoned investors.”

 “Mistake 5: Running Afoul of the 5-Year Rule

Withdrawals from Roth accounts during retirement are tax- and penalty-free, right? Yes, most of the time. But that’s not the case if you haven’t met the so-called five-year rule, which stipulates that in order for a Roth withdrawal to be completely tax- and penalty-free, the assets must have been in the account for at least five years before you begin withdrawing them. (Roth contributions can be withdrawn at any time and for any reason without taxes or a penalty.) The clock for that five-year period begins on the first day of the tax year for which the IRA is opened and funded. So if you made a contribution for the 2012 tax year in April 2013, your five-year clock started Jan. 1, 2012.

That’s easy enough to get your head around, but things start to get tricky once you get into conversions from traditional IRAs to Roth. In that case, you need to be either 59 1/2 or five years must have elapsed since your conversion for you to be able to take penalty-free withdrawals on the converted amounts on which you paid taxes at the time of conversion. (You won’t owe taxes on withdrawals of those monies because you have already paid taxes.) The five-year headaches multiply if you have converted your traditional IRAs to Roth in installments, as each of these partial conversions has its own five-year holding period.

“This article goes into a lot more detail on the five-year rule. You don’t need to memorize all of them, but the holding-period rules do underscore the value of having a reasonably long time horizon for any IRA assets that you are considering converting from traditional to Roth. If you need to tap those assets shortly after converting, you risk running afoul of the five-year rule.”