LAST UPDATED: 03/09/2025
What are the Roth 5-Year Rules?
In order to harness the full potential of a Roth account you’ll want to have a good grasp of the “5 year-rules” so you can plan accordingly.
These 5-year holding requirements must be met in order to have a “qualified distribution” that allows you to take your Roth money out tax and penalty-free.
Tax-free growth on your investments is the main benefit of utilizing a Roth IRA or Roth 401(k).
Roth accounts can also be subject to a 10% early withdrawal penalty on earnings (or principal if a Roth conversion) if you don’t meet certain criteria.
There are some of the inherent complexities with the 5-year rules, particularly when it comes to Roth contributions vs. Roth conversions.
Here, we will explain the different 5-year rules in full detail and give you situational examples to help you navigate your situation correctly.
Requirements For Tax and Penalty-Free Withdrawals
Generally, to have a “qualified distribution” from your Roth account:
- You must be over age 59 1/2.
OR
- A distribution is made due to death, disability, or under the first-time home-buyer rules.
AND
- You must have held the Roth IRA or Roth 401(k) for at least 5 tax-years since your first contribution or first conversion.
Notice how we said contribution, or conversion.
What Are Each of The Roth 5-Year Clocks For?
The first caveat you need to be aware of is that there are two separate 5-year clocks! – one for Roth contributions and one for Roth conversions.
For Contributions
The 5-year rule determines whether or not earnings can be withdrawn from the account tax-free.
For Conversions
The 5-year clock for conversions determines whether or not the principal from the conversion can be withdrawn from the account penalty-free.
Why does this exist?
Because if someone wanted to tap pre-tax IRA money before age 59.5 and avoid the 10% early withdrawal penalty, they would just convert their traditional IRA to Roth, pay the taxes, then immediately withdraw it to avoid the 10% penalty.
When Do Each of The Roth 5-Year Clocks Start?
Your 5-year clock starts the first day of the year you make your very first contribution or conversion to a Roth IRA or Roth 401(k).
Note: A 5-year clock that has been established with a Roth 401(k) will NOT carry over and “continue ticking from where you left off” if you eventually roll it over to a Roth IRA, even if you had the Roth 401(k) for at least 5-years.
The Roth IRA will have its own 5-year clock.
For example:
If you are over age 59.5, the 5-years was met in the Roth 401(k), and there was a rollover to a Roth IRA (new or existing), that rollover amount would all be considered basis in the new Roth IRA and would all be available for withdrawal tax and penalty free.
But how can that be? Where does the 5-year clock for the Roth IRA come in?
If the Roth IRA in this case was brand new and just created (you never had any Roth IRA and contributed to it ever before in your life) to receive the rollover, it would have just started its own new 5-year clock.
However, this clock only affects the future earnings of that rollover to determine whether or not they can come out tax-free. So any earnings that rollover money generates in this particular case can’t come out tax-free for 5 years.
If instead the Roth 401(k) money was rolled into a pre-existing Roth IRA that had already met its own 5-year clock, the rollover amount and any future earnings can be immediately withdrawn tax-free (assuming you are also over age 59.5).
Planning Tip: As you can see, a rollover of funds from a Roth 401(k) to Roth IRA can either speed up the clock for a qualified distribution, or reset it, depending upon how long the Roth IRA clock has been ticking.
If you’re more than 5-years younger than age 59.5, it’s a fairly moot point since you can’t yet take a qualified distribution anyways unless it’s made due to death, disability, or under the first-time home-buyer rules.
What if you are under age 59.5, or hadn’t met the 5-year holding period in the Roth 401(k)?
This is called a non-qualified distribution. Contributions and earnings in the Roth 401(k) will maintain their character even after they are rolled into the Roth IRA.
For example:
You are over age 59.5 but have not met the 5-year rule in the Roth 401(k). You have $50,000 of contributions, and $10,000 in earnings and decide to roll all $60,000 to a Roth IRA.
The $50,000 of employee deferrals will go into the Roth IRA as contributions and the $10,000 will go into the Roth IRA as earnings.
In this case, the 5-year clock we are using to determine whether or not we can take the earnings of $10,000 out tax-free is the Roth IRA’s.
To illustrate the timing of the different 5-year clocks, here are a few examples:
If you contribute to a newly established Roth IRA in June of 2024, your 5-year clock starts January 1st, 2024 even though you didn’t contribute until June.
Note: For an IRA or Roth IRA, you actually have until the tax-filing deadline in April of the following year to make a contribution for the previous tax year.
Therefore, if you make your first new Roth contribution instead on April 1st, 2025, your clock will have started on January 1st, 2024 – pretty cool!
If you convert from a pre-tax account like a traditional IRA or 401(k) to a Roth IRA, those converted dollars will have their own 5-year clock and the rules are slightly different.
If you convert in June of 2024, your 5-year clock starts January 1st, 2024 for those converted dollars.
But if you convert in April of 2025, your clock will start January 1st, 2025. The conversions go by the calendar year in which you actually made the conversion.
Planning Tips: When it comes to the 5-year clocks, all Roth IRAs are aggregated and the clock will be based off the earliest Roth account established and contributed to.
For example, you could have a total of three Roth IRAs and if you contributed to just one of them 15 years ago, the 5-year clock for all of your Roth IRAs is met.
This is not the same for Roth 401(k)s. For Roth 401(k)s, each plan has its own 5-year clock.
If you roll one Roth 401(k) from one plan to another employer’s Roth 401(k), the rule is based on whichever has been around longer – Best to work with a professional on this one.
For conversions, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.
5-Year Rules for Inherited Roth IRA
If you inherit a Roth IRA, you will never be subject to the 10% penalty for a withdrawal before you reach age 59.5. Therefore, for purposes of the 10% early withdrawal penalty, no 5-year clock applies.
However, the 5-year clock for contributions we mentioned previously will apply to determine whether or not any earnings can be withdrawn tax-free.
In this case, the 5-year holding period will continue running off of the deceased’s holding period.
If you inherit a Roth IRA as a spouse, you are also subject to this same 5-year holding period to determine if you can withdraw the inherited Roth IRA earnings tax-free.
However, if the spouse decides to do a spousal rollover (rather than keeping it as an inherited Roth IRA), they are able to use the 5-year holding period on the Roth IRA inherited from their spouse, or the 5-year holding period from their own Roth IRA(s), whichever is more beneficial!
Under Age 59 1/2 Situational Examples
You are under 59 1/2 but have met the Roth 5-year holding period:
All earnings are subject to taxes and penalty.
Taxes and penalties can be avoided if earnings are used for first-time home purchase, death, or disability.
You are under 59 1/2 and have not met the Roth 5-year holding period:
All earnings are subject to tax and penalty.
You can possibly avoid just the penalty if you are disabled, use earnings for first-time home purchase, qualified education expenses, unreimbursed medical expenses, or upon death.
You are under 59 1/2 and have met the 5-year holding period in a Roth 401(k):
If you satisfied the 5-year clock in your Roth 401(k) before rolling it out and are under 59.5, your rollover is a “non-qualified distribution”.
This means for example that if you had $50,000 in contributions to your Roth 401(k), $10,000 in earnings, and roll it to a new Roth IRA, the amount you can withdrawal tax and penalty-free is just your contribution amount (basis) of $50,000.
The $10,000 in earnings would be subject to both taxation and the 10% early withdrawal.
This is because you are not yet 59.5 (or disabled) and you just started a new 5-year clock for the Roth IRA.
Now you will have to wait to satisfy both to tap that $10,000 and any additional earnings going forward without taxes and penalties.
You are under age 59 1/2 and have converted funds to any Roth IRA:
You will pay taxes on the converted amount, and it will start its own 5-year clock in the calendar year converted.
Anytime after the conversion, you can take out the amount converted (principal) tax-free since you already paid the taxes. However, the entire principal amount would be subject to a 10% penalty if withdrawn before 5-years from conversion.
Any earnings made after conversion in this situation would be subject to the normal contribution rules. This means that you would need to wait until 59.5 to get those out tax and penalty-free.
Imagine you convert $60,000 total from a Traditional IRA or 401(k) to a Roth IRA and are under age 59.5.
Your contributions make up $50,000 and your earnings make up $10,000. You pay tax on the entire amount in the year you convert and a new 5-year clock begins.
You can take any amount of this $60,000 out tax-free at this point but you would owe the 10% penalty on any amount taken before the 5-year holding requirement is met.
However, if you wait 5-years from the conversion year, you can now take this same $60,000 out tax and penalty-free.
After waiting 5-years, you may have $10,000 of additional earnings since the day you converted. That $10,000 in earnings is subject to the regular contribution rules.
In this case, those earnings would be subject to taxes and penalty if taken before you reach 59.5.
You are under age 59.5 and inherited a Roth IRA from someone other than your spouse:
You inherited a Roth IRA from your mother in 2025. She had previously converted her $200,000 traditional IRA to her first ever Roth IRA in 2022.
The account has since grown to $240,000. If you take a total distribution of the Roth IRA in 2025, $200,000 in converted funds will be distributed penalty free even though it has been less than 5 years since the funds were converted.
However, the 5-year rule that determines whether or not the $40,000 in earnings can come out tax-free has not been satisfied since your mother started her Roth IRA only three years earlier in 2022.
Therefore, in this scenario the $40,000 in earnings will be taxable.
Over Age 59 1/2 Situational Examples
You are over 59 1/2 and have met the Roth 5-year holding period:
All money can be withdrawn tax and penalty free.
You are over 59 1/2 but have not met the Roth 5-year holding period:
No 10% early withdrawal penalty on the earnings withdrawn, but will be subject to income tax on earnings.
You are over 59 1/2 and have met the 5-year holding period in a Roth 401(k):
This situation confuses just about everyone, which is why we are going over it a second time.
In this situation, if you roll money out to a new Roth IRA, this would be a “qualified distribution” – meaning your basis in the new Roth IRA (amount you can get out tax and penalty-free) is the entire amount you rolled over!
But remember, the new Roth IRA starts a new 5-year clock. This means that any growth or earnings made after the rollover would be subject to the 5-year rule in order to take those earnings out tax-free.
Therefore, if you have $50,000 in contributions and $10,000 in earnings in the Roth 401(k) that you roll to a brand-new Roth IRA (and you’ve never contributed to any other IRA before), you can then withdrawal that entire rollover amount tax and penalty-free!
But if after you roll it over it subsequently earns another $15,000, that $15,000 in earnings is subject to the new 5-year clock for the Roth IRA.
You are over age 59 1/2 and have converted funds to any Roth IRA:
You will pay taxes upon conversion and in this exact situation the 5-year clock for conversions will not affect you!
That conversion amount gets its own new 5-year clock but it essentially doesn’t matter.
The reason is that upon conversion you will pay all taxes due on principal and earnings (as always with a conversion from pre-tax accounts), and the fact that you are already over age 59.5 means you have met the exception for the 10% early withdrawal penalty!
Roth 401(k) Rollover Situational Examples
You had a Roth 401(k) balance and subsequently roll it to a new Roth IRA:
That Roth IRA will have its own new 5-year clock. As mentioned previously, it doesn’t necessarily matter how long ago you contributed to your Roth 401(k), its clock won’t carry over and the Roth IRA clock will take precedence.
You had a Roth 401(k) balance and subsequently roll it to an existing Roth IRA:
If the money is rolled from your Roth 401(k) into an existing Roth IRA, you would not have to start a new 5-year clock as it will be based off of your current Roth IRA clock.
If you are over 59.5 and met the 5-year clock in your Roth 401(k), then roll it to an existing Roth IRA that has also satisfied the 5-year clock, then you won’t have to worry about any taxes or penalties at all going forward.
Additional Tips For Roth IRAs
- Remember that for contributions the 5-year rule determines whether or not earnings can be withdrawn tax-free; While the other 5-year clock for conversions determines whether or not the principal is penalty-free.
- Roth IRA deemed order of withdrawals – When you make a withdrawal from a Roth IRA, the IRS will assume the money comes out in the following order:
1. Contributions
2. Conversions (if multiple, earliest conversion first, and so on)
3. Earnings
It is important to know that there is no reporting from your investment custodian that will report this. You will need to keep track on your own.
- You may want to consider opening new Roth IRAs for each conversion you do if you plan to do multiple. Creating multiple Roth IRAs isn’t required, but it can help you keep track of where each conversion is in its own 5-year holding period.
- Remember that if you are already RMD age and plan on making Roth conversions, you must take your RMD before converting any amount to a Roth IRA. This means that you will recognize additional taxable income from your traditional IRA above and beyond the conversion amount. Do not forget to account for this in your planning strategies!
- Depending on your financial plan, it may be useful for you to open a Roth IRA ASAP, even if it is with a mere $100. This way you get your clock running!
- If you don’t qualify to contribute directly to a Roth IRA due to the income limitations, no worries! In order to get your Roth IRA 5-year clock started, either convert a small amount from your traditional IRA, or make a non-deductible contribution to a traditional IRA then later convert it to a Roth IRA. This is also known as the Back-Door Roth IRA strategy – Please consult your tax and financial advisors before implementing this strategy on your own.
Cameron Valadez is a CERTIFIED FINANCIAL PLANNER™ and Enrolled Agent in Riverside and Orange County, California.
He is the host of the Retired·ish Podcast for pre-retirees and retirees age 50+ and author of “Finding Financial Clarity & Confidence When Starting Over”, a book for women who are suddenly responsible for their own financial security (not for sale – available free upon request).
Disclosures:
Securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC.
This information is for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
Distributions from earnings are not subject to the 10% penalty if you qualify for an IRS exception — please consult with your tax advisor for details. Distributions from a conversion amount must satisfy a five-year investment period to avoid the 10% penalty. This pertains only to the conversion amount that was treated as income for tax purposes.
Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.
A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.
Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, and CFP® in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.