The Roth IRA five-year rules

People often hear that Roth IRA money has to sit for five years before it can be withdrawn tax-free. That is a simplification of two different rules that happen to share the same number. One rule is about whether investment earnings are taxed. The other is about whether a 10% additional tax applies to converted money. Mixing them up leads to wrong conclusions in both directions.

Start with the order money comes out

The five-year rules make more sense once the withdrawal order is clear. IRS Publication 590-B sets out ordering rules for Roth IRA distributions that are not qualified. All of a person's Roth IRAs are treated as one pool, and money is considered to come out in this order:

1. Regular contributions.
2. Conversion and rollover contributions, oldest year first. Within each conversion, the portion that was taxable at conversion comes out before the nontaxable portion.
3. Earnings.

The first layer is the simplest. The publication says a person does not include in income distributions that are a return of regular contributions. Those amounts can be withdrawn at any age without income tax or the 10% additional tax, and neither five-year rule applies to them.

Rule one: the five-year period for tax-free earnings

Earnings are tax-free only if they come out in a qualified distribution. Publication 590-B lists two requirements, and both have to be met:

• The distribution is made after the five-year period beginning with the first tax year for which a contribution was made to a Roth IRA set up for the person's benefit.
• The distribution is made on or after the date the owner reaches age 59½, or because the owner is disabled, or to a beneficiary or the estate after the owner's death, or for a first-home purchase up to a $10,000 lifetime limit.

Some details about how this period is counted:

• It starts on January 1. The period begins with the first day of the tax year the first contribution is made for, not the day the deposit is made. Because a contribution for a given year can be made up to the tax filing deadline of the following year, a contribution made in early 2027 and designated for 2026 starts the period on January 1, 2026.
• It starts once. The period is tied to the person's first Roth IRA contribution. Later contributions and newly opened Roth IRAs do not restart it.
• Age alone is not enough. Someone who opens their first Roth IRA at 63 does not have qualified distributions of earnings at 64, even though they are past 59½. The five years still have to pass.

A hypothetical example

Suppose someone makes their first Roth IRA contribution in March 2027 and designates it for 2026. The five-year period begins January 1, 2026, and ends December 31, 2030. If that person is at least 59½ on January 1, 2031, withdrawals of earnings from that date are qualified and tax-free. If they are 50 on that date, the five-year test is met but the age test is not, so earnings withdrawn would generally be taxable and subject to the 10% additional tax unless an exception applies. Their own contributions could be withdrawn tax-free throughout.

Rule two: the five-year period for each conversion

The second rule deals with money that entered the Roth IRA through a conversion. Tax was paid on the pre-tax portion at conversion, so it is not taxed again when withdrawn. The concern here is the 10% additional tax on early distributions.

Publication 590-B explains that if a person takes a distribution within the five-year period starting with the first day of the tax year in which they converted, they may have to pay the 10% additional tax on the part of the conversion that had to be included in income. The publication adds that a separate five-year period applies to each conversion.

Key points:

• Each conversion has its own period. A conversion in 2025 has a period beginning January 1, 2025. A conversion in 2026 has one beginning January 1, 2026.
• It applies only to the portion that was taxable at conversion. Converted after-tax basis is not subject to this recapture.
• The usual exceptions still apply. The publication lists reaching age 59½ first among the exceptions to the 10% additional tax. In practice, the conversion rule mainly affects people who withdraw converted money before that age.

How the two rules compare

Related situations

Inherited Roth IRAs. A beneficiary generally can withdraw without the 10% additional tax, but earnings are tax-free only if the original owner's five-year period has been met. The beneficiary rules are described in inherited IRAs: the basic rules.

Roth accounts in workplace plans. A designated Roth account in a 401(k) or similar plan has its own five-year period. The IRS explains that the period for a designated Roth account begins on the first day of the tax year for which the participant first made designated Roth contributions to that plan. What happens to that period when plan money moves to a Roth IRA is covered in what happens to Roth 401(k) money in a rollover.