Everything You Ever Wanted to Know About the Roth IRA 5-Year Rules

Key Points

• There are two 5-year rules: One for contributions and the other for conversions.

• A subset of rules exists, based on your age.

• It’s important to know which qualified expenses allow you to withdraw money without paying a penalty.

• The $23,760 Social Security bonus most retirees completely overlook ›

It's easy to understand why Roth IRAs (individual retirement accounts) are a popular retirement savings vehicle. IRAs are funded with after-tax dollars and offer tax-free growth and withdrawals. And unlike some retirement accounts, Roth IRAs don't require you to take a minimum distribution in your 70s -- a true benefit to anyone who expects to be in a higher tax bracket following retirement.

When investing in a Roth IRA, all account holders should understand the 5-year rules. One deals with contributions and the other with conversions. Here's a breakdown of each.

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Contributions

The first Roth 5-year rule concerns contributions, those investments you make into your account. Roth IRA contributions -- but not earnings -- can be withdrawn at any time, tax and penalty-free because you've already paid taxes on the money.

The 5-year rule says you must wait five years from the first day of the tax year in which you made your first contribution before withdrawing earnings on a tax-free basis. Let's say you file your 2025 taxes on April 15, 2026, and then you make your first contribution for the 2025 tax year. Since the contribution was made for the 2025 tax year, you must wait until January 1, 2030, before withdrawing any earnings without owing taxes on those earnings. Subsequent contributions do not restart the clock. Your first-ever Roth is what determines when this 5-year rule starts running.

In general, you must also be age 59 1/2 or older to withdraw earnings tax-free. However, there are exceptions, such as for a first-time home purchase.

Bear in mind that this rule doesn't cover penalties for early withdrawal. If you're younger than age 59 1/2, you'll owe penalties even if you meet the 5-year rule on earnings unless various exceptions apply.

Conversions

Converting a traditional retirement account to a Roth IRA invokes a different 5-year rule. This one works as follows:

• Like contributions, the five-year holding period begins on Jan. 1 of the year the conversion occurs.
• Unlike contributions, however, the clock resets for each conversion. For example, if you make multiple conversions in different years, each conversion has its own five-year holding period.
• Before the five years is up, if you withdraw converted funds before reaching age 59 1/2, you'll have to pay a 10% penalty on any pre-tax assets you've converted and the earnings.
• After reaching age 59 1/2, converted funds can be withdrawn without a penalty even if five years hasn't yet passed. Again, though, the other 5-year rule on taxation of earnings may still apply.

How to know where your withdrawal is coming from

With a Roth IRA, the IRS assumes any withdrawals you make are coming out of your account in the following order:

1. Contributions
2. Converted balances (oldest conversion first)
3. Earnings

As with most retirement accounts, making withdrawals from a Roth IRA becomes less complicated as you age. This loosening of the Roth IRA rules makes sense when you consider that accounts like Roth IRAs are designed to help you live the life you want in your golden years.

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