Q: Does the establishment of ANY Roth IRA start the clock on the 5-year rule? For example, a 40-year-old establishes a Roth IRA in January 2007. In March 2012, he establishes another Roth IRA, which contains funds converted from a Traditional IRA. Could he withdraw those converted funds and not pay a penalty tax?

A: There are two 5-year rules, one for tax-free distributions and one for penalty-free distributions. The 5-year rule for tax-free distributions starts when the first Roth IRA was established in January 2007. That Roth IRA can be used to satisfy any additional Roth IRAs established. Once five years pass and the other qualifications for a qualified distribution are met (age 59 1/2, death, disability, first-time home buyer), all distributions are tax-free. A non-qualified distribution of earnings in the Roth account will be subject to income tax and the 10% early distribution penalty, if applicable. Converted funds in a Roth IRA have their own 5-year rule. If the account owner is under age 59 1/2 and the converted amount has been held for less than five years, then the distribution is subject to the 10% penalty. Each conversion has its own 5-year holding period.