The many advantages of the Roth IRA are too important to ignore. The types of people that may benefit range from the young to pre- or post-retirees. Each group will find tax saving reasons for opening a Roth IRA. Among the many advantages is a change to the Roth IRA rules that limits the length of the waiting period before you can begin making penalty-free withdrawals.
In the 1997 Taxpayer Relief Act, withdrawals from Roth IRAs were restricted by a five-year waiting period. Every time you made a new conversion (rollover) to your Roth IRA, you were required to wait five years before you could take that money out without any penalty. Now the rules have changed.
Under the new rules, (IRS Restructuring and Reform Act of 1998), the waiting period begins with the first contribution or conversion to the Roth IRA. That means, if you open a Roth IRA account for 1998 and make a minimal contribution, your five-year clock begins ticking as of January 1, 1998 and you will be able to make penalty-free withdrawals in the year 2003.
Who benefits from this change?
Persons who are within five years of turning age 59-1/2 will not benefit from this rule. Once you have turned 59-1/2, you no longer incur any penalty for early withdrawal of retirement plan money.
