A. Right around the corner-January 2002. Actually, you can withdraw any or all of your principal (the contributions you made to the IRA) free of tax at ay time after you open a Roth. That's because a Roth IRA, unlike a traditional IRA, is funded with after-tax contributions, not pre-tax. In fact, whenever you make withdrawals from a Roth IRA, the law deems the withdrawals to be made from contributions first. Only when the total withdrawals exceed our total contributions are the withdrawals treated as earnings and potentially subject to federal tax.

For the withdrawn earnings to be considered "qualified distributions" and thus tax free, you must be at least age 59 ½ at the time of withdrawal and the Roth account must have meet a five-year-holding rule. This rule applies whether the Roth account is a new one funded from scratch or one you converted from a traditional IRA.

For example, if you open a Roth at age 50 you generally can't make tax-free withdrawals of earning five years later. You must wait until age 59 ½, you'll pay ordinary income taxes on them and probably a ten-percent early withdrawal penalty (there are several formulas for avoiding the penalty). Tax-free earnings of course, are one of several big pluses of a Roth.

Q. Explain the five-year holding rule. Does that apply only to earnings made on contributions deposited at least five years ago?

A. No. Once you open an IRA, the five-year clock starts ticking for all subsequent earnings regardless of when they are earned. Let's say you opened the account in 1998 with $2,000 (the maximum limit of new contributions, not counting conversions of existing traditional IRAs) but didn't contribute any more money until the year 2001, when you contributed another $2,000. Assume you take out all your contributions and earnings from the account in January 2003. The withdrawal of earnings made from the $2,000 you contributed in 2001 qualifies for tax-free treatment the same as the earnings made from your initial 1998 contribution.

Q. Besides opening a Roth in 1998, I converted a regular IRA into a separate Roth account in 2001. Do I have to wait until 2006 for tax-free earning withdrawals from the converted Roth?

A. No, you can start withdrawing in 2003. Multiple Roth accounts, even with different custodians, regardless of when each is started, including those created by converting traditional IRAs, are all governed by the date the first Roth was established.

Q. I didn't open my Roth until June of 1998. Do I have to wait until June 2003 to make tax-free earnings withdrawals?

A. No. Regardless of when during the tax year you open the account, the five-year clock starts ticking on January 1 of that tax year. For example, you could have opened your 1998 Roth as late as April 15 of 1999 and the five-year clock still would have started January 1, 1998 effectively making your wait less that four years.

Q. When I turn 70 ½, do I have to start taking annual minimum required distributions like you do with traditional IRAs?

A. No. That's another one of the great features of a Roth. You don't have to take out any of your contributions or the earnings no matter how old you are, and when you do take them out, they can be as small as you like-not minimum amount required. Consequently, you can let the assets continued to build tax deferred and pass the entire account to your heirs, if that's your desire, instead of being forced to make annual withdrawals.

Whether to leave the funds in or withdraw them is something you'll want to discuss with your financial planner. You should plan carefully how best to withdraw funds from your retirement nest egg in order to stretch out your resources. Should you start first with taxable accounts, traditional IRAs versus Roth IRAs, 401(k) or other retirement accounts? The answer depends on you personal and financial circumstances, needs and the tax laws.

December -30- 2002