Understanding the Roth IRA Five-Year Rules



Does a Roth IRA owner have to wait five years before taking a Roth IRA distribution?

No. Roth IRA assets can be withdrawn at any time. Whether the distribution will be taxable, or subject to a 10 percent penalty tax on early (pre-59½) withdrawals, depends on when the Roth IRA distribution occurs and the nature of the amount being withdrawn. Roth IRA annual contributions for all years—contributions that were not tax-deductible when made—are deemed to be withdrawn first, and are tax- and penalty-free. Next distributed are amounts converted from Traditional IRAs and pretax amounts that have been rolled over from an employer-sponsored retirement plan to a Roth IRA. Last to be distributed are Roth IRA earnings.

To determine whether there will be taxation on Roth IRA distributions, it is necessary to understand two five-year waiting periods. One five-year period applies to the taxation of Roth IRA earnings, and determines when the earnings can be distributed tax- and penalty-free. The second five-year period applies to Roth IRA conversions and pretax employer plan rollovers to Roth IRAs, and defines when they may be withdrawn without being subject to the early distribution penalty tax.


What is the five-year period for earnings on Roth IRA contributions?

This five-year period determines whether tax-deferred earnings in Roth IRAs will be tax-free when distributed in a “qualified distribution.”

A qualified distribution is one that satisfies two requirements.

1) Five years must have passed since January 1 of the year for which the Roth IRA owner first made an annual contribution, a Traditional-to-Roth IRA conversion, or rolled over pretax employer plan assets to any Roth IRA.

2) The distribution must be made on or after the Roth IRA owner attains age 59½, has died, has become disabled, or has qualified first-time homebuyer expenses.

Each Roth IRA owner has a single five-year period for achieving tax-free earnings. In other words, the five-year period is per Roth IRA owner, not per Roth IRA.

What is the five-year period for conversions and rollovers?

The second five-year period applies to nonqualified distributions of Traditional-to-Roth IRA conversions or non-Roth retirement plan assets rolled over to a Roth IRA, and determines whether the conversion/rollover assets will be penalty tax-free if distributed before age 59½.

While the early distribution penalty tax generally applies only to amounts that are taxable when distributed, an exception is made in the case of Roth IRAs: Conversion/rollover amounts that are distributed within five years of the conversion or rollover will be subject to the early distribution penalty tax if the recipient has not reached age 59½ or met one of the other penalty tax exceptions—even though those amounts were taxed at the time of the conversion or rollover. This is a “recapture” of the early distribution penalty tax because an IRA owner under age 59½ who took a distribution instead of executing a conversion would otherwise have been subject to the penalty tax on taxable amounts.  

If more than one conversion or employer plan-to-Roth IRA rollover was made, each tax year’s conversions and rollovers has its own five-year waiting period. This period begins January 1 of the year that the conversion or rollover was done. Distributions of conversion/rollover assets are deemed to be distributed on a first-in, first-out basis. In other words, the oldest conversion/rollover assets are distributed first and the most recent conversion/rollover assets are last.

After five years, the conversion/rollover assets are no longer subject to the early distribution penalty tax. Bear in mind, as previously noted, that Roth IRA annual contributions for all years are distributed before conversion and rollover amounts are distributed.


In summary, the five-year waiting period for Roth IRA contributions applies to qualified distributions and affects when the earnings may be distributed tax free. The five-year waiting period for conversion/rollover assets affects whether the 10 percent early distribution penalty tax will apply to those assets.