The Roth IRA 5-Year Rule: What to Know

Roth IRAs offer significant tax advantages — and, unsurprisingly, there are strings attached. You’ll need to abide by IRS rules for these investment retirement accounts to avoid the sticker shock of penalties or taxes when you take distributions.

Here's a summary of how it works:

• Contributions:

  You can withdraw contributions you made to the Roth IRA penalty- and tax-free at any time.

• Earnings:

  The five-year rule kicks in. If you're under 59 ½ and have held the account for less than five years, withdrawals of earnings are subject to taxes and penalties unless you qualify for an exception.

• Conversions and beneficiaries

  : If you convert a traditional IRA or 401(k) to a Roth IRA, withdrawals are subject to a five-year waiting period to avoid a penalty. Distributions to beneficiaries of a deceased IRA holder are also subject to the five-year rule.

Roth IRA five-year rule for withdrawals

If you've had your Roth IRA account open for at least five years and are age 59 ½ or older, you can withdraw your investment earnings tax-free and penalty-free. If you don't wait five years before withdrawing earnings, you may have to pay taxes and a 10% penalty on the earnings portion of your withdrawal.

The five-year period begins Jan. 1 of the year you made your first contribution to a Roth IRA. Once you clear that five-year period, for withdrawals of earnings to qualify as tax-free, they must also be done after you've reached age 59 ½.

If you've had your Roth for less than five years or are under 59 ½, there are also exceptions that can get you off the hook for the 10% penalty on withdrawn earnings and, in some cases, you might be able to bypass income taxes as well.

It’s important to note that the five-year rule applies specifically to investment earnings. Contributions that you've made to your Roth IRA can be withdrawn at any time. And because you've already paid taxes on that money, you don't need to worry about factoring in any extra costs.

» Learn more

Exceptions to the 10% penalty

Here's a roundup of the conditions that may let you bypass the 10% penalty or both the 10% penalty and the income taxes you would otherwise owe on withdrawn earnings:

Five-year rule for Roth IRA conversions

Similar to the rule above, withdrawals of money from the conversion of a traditional IRA or 401(k) to a Roth IRA are subject to a five-year waiting period to avoid a penalty.

For this rule, the five-year period begins on the first day of the tax year in which you converted money from a traditional IRA (or did a rollover from a qualified retirement plan) to your Roth IRA. For example, if you do a conversion on May 1, 2025, the rule for that conversion actually begins on January 1, 2025. Each conversion or rollover you make is subject to a separate five-year waiting period.

If you don’t wait the requisite five-year period from conversion to withdrawal, you may have to pay a 10% penalty, along with any income taxes owed. The same exceptions apply to the five-year rule of withdrawals of conversions as any other type of early distributions — see chart above for examples.

» Learn more

Five-year rule for Roth IRA beneficiaries

The final five-year rule applies to distributions to beneficiaries of a deceased IRA holder. As noted by the other two rules, death is an exception to penalties for early withdrawals — but to avoid ordinary taxes, beneficiaries still must abide by the two prior rules pertaining to the waiting period for making withdrawals of investment earnings or converted amounts.

If you are the beneficiary of a Roth IRA, double-check the timing of the account's initial contributions, conversions or rollovers.

Distributions of earnings and rollovers won’t necessarily qualify as tax-free if any of the five-year rules prohibit it, even though the original owner of the Roth IRA has died. Those amounts will be included in the beneficiary’s gross income and therefore subject to income taxes, just as if the money had gone to the original IRA owner instead.

» Read more: