Roth individual retirement accounts (IRAs) come with many tax benefits, including tax-free withdrawals. However, to avoid a 10% early withdrawal penalty and owing income taxes on all or a portion of Roth IRA withdrawals, you need to follow what’🍸s called the five-year rule. Basically, any Roth IRAꦰ withdrawals must be made at least five years following the initial contribution to the account.

How the Roth IRA 5-Year Rule Works

Satisfying the Roth IRA five-year rule is your ticket to avoiding the 10% early withdrawal pe﷽nalty and owing income taxes on all or a portion of Roth IRA withdrawals, also called distributions.

So, what’s the five-year rule exactly? It depends on the situation. There aꦍre two variations of the Roth IRA five-year rule:

• One that applies to withdrawals of earnings
• One that applies to withdrawals of funds converted from a traditional IRA to a Roth IRA

Although the Roth IRA five-year rule looks slightly different in each case, the same principle generally applies: A Roth IRA withdrawa𝓀l satisfies the five-year rule when it occurs at least five years after the money first enters the Roth IRA.

The five-year rule is just one part of the equation. For a Roth IRA withdrawal of earnings to be completely tax- and penalty-free, it must be a 澳洲幸运5官方开奖结果体彩网:qualified distribution. To make a qualified distribution, you must satisfy the five-year rule and at least one of the following conditions:

• You’re at least 59½ years old.
• You’re using the funds to buy or rebuild your first home (up to a lifetime limit of $10,000).
• You’re permanently disabled.
• The original Roth IRA owner has died, and the distribution is being made to the Roth IRA owner’s estate or to you as the Roth IRA owner’s beneficiary.

The Two Roth IRA 5-Year Rules

Let’s ᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚrun through the five-year rule as it relates to each type of Roth IRA distribution.

Withdrawal of Earnings

With few exceptions, earnings in a Roth IRA 𒊎may only be withdrawn tax-free when at least five years have passed between these two dates:

• Jan. 1 of the tax year you first contributed to a Roth IRA
• The date of the withdrawal

Note that the tax year and the calendar year of your f🧸irst Roth IRA contribution might not be the same. That’s because the deadline for making an IRA contribution for the ye𓄧ar is that year’s tax return due date—typically, April 15 of the following calendar year.

Let’s say you made your first Roth IRA contribution on April 10, 2025, and applied it to the 2024 tax year. According to the five-year rule, your first tax-free withdrawal of earnings⛦ can happen on or after Jan. 1, 2029. If you had applied your first Roth IRA contribution to tax year 2025, you would’ve had to wait until Jan. 1, 2030, to satisfy the five-year r💙ule.

This v⭕ersion of the five-year rule isn’t account-specific. Any new Roth IRA accounts you open will be treated as if 𓆉they were opened on Jan. 1 of the year of your first Roth IRA contribution.

Withdrawal of Tradition🌳al-to-Roth🐈 Converted Funds

Direct Roth IRA contributions can be withdrawn penalty- and tax-free at any time, for any reason. The same isn’t always true of funds converted from a traditional IRA to a Roth IRA, such as in a 澳洲幸运5官方开奖结果体彩网:backdoor Roth IRA maneuver.

To make a tax-free withdrawal of funds that were converted to a Roth IRA, you must wait at least five ✤years from Jan. 1 of the year of conversion.

Let’s say you made a tradit𓆏ional-to-Roth IRA conversion on April 10, 2025. Based on the five-year rule, your first tax-free withdrawal of these funds꧟ can happen on or after Jan. 1, 2030.

It's important to note that this version of the five-year rule applies to each conversion. Put another way, a conversion complet🐈ed in 2025 will satisfy the five-year rule in 2030, and a conversion completed in 2026 will satisfy the five-year rule in 2031.

Exceptions to the Roth IRA 5-Year Rule

In general, you must pay a 10% penalty and i🎶ncome tax on earnings withdrawn from a Roth IRA that don’t meet the five-year rule. There are some exceptions.

First, the five-year 🃏rule doesn’t apply to direct Roth🥀 IRA contributions. Any money you deposit from your bank account into a Roth IRA can be withdrawn at any time, penalty-, tax-, and reason-free.

You can avoid the 10% penalty, but not the income tax on earnings, by qualifying for an exception, which includes but isn’t limited to the following situations:

• You’re at least 59½ years old.
• You’re permanently disabled.
• You have a terminal illness.
• You’re the beneficiary of an IRA whose owner died.
• You’re using the funds to buy, build, or rebuild your first home.
• You’re taking a series of substantially equal payments.
• You have unreimbursed medical expenses that exceed 7.5% of your adjusted gross income.
• You’re paying medical insurance premiums while unemployed.
• You’re using the funds to cover qualified higher education expenses.
• The IRS levied the funds.
• Your family had a child through birth or adoption.

Any Roth IRA distributions you make before satisfying the five-year rule are considered non-qualified distributions, and they may be partially or fully taxable. For tax purposes, all of your Roth IRAs are treated as one account, and funds are withdrawn in a prescribed order:

• First, direct contributions, which are tax- and penalty-free
• Second, converted or rollover funds (your older conversions are withdrawn first)—generally tax- and penalty-free
• Third, earnings—subject to tax and penalties

Common Mistakes and Misunderstandings

Roth IRA withdrawal rules aren’t known for their simplicity♓, so it’s easy to get confused by all the details. Let’s clear up some common misunderstandings.

First, you can withdraw your Roth IRA contributions (not earnings) at any time without penalty or income tax—even if you haven’t♔ reached retirement age.

Also, the Roth IRA five-year rule we’re talking about isn’t the same as the so-called five-year rule that applies to beneficiaries of IRAs (both traditional and Roth) whose owners died before 2020. Under that separate five-year rule, with exceptions, those who inherited an IRA from someone who died before 2020 must withdraw everything from the IRA by the end of the fifth year following the IRA owner’s death.

The Bottom Line

Meeting the five-year rule makes it𝄹 easier for you to make tax-free and penalty-free withdrawals from your Roth IRA. If you don’t pass the five-year rule test, you might be on the hook for taxes and a 10% penalty on earnings wꦆithdrawn from your account.