Five-Year Rule on Roth IRA Contributions and Payouts Kiplinger Tax Letter

It’s important to know when the five-year clock starts for tax-free earnings.

A piggy bank sitting next to a calculator has Roth IRA written on it in black marker.
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Understand the five-year rule on Roth IRA contributions and payouts. It determines whether payouts of Roth IRA earnings are tax-free to you. 

Generally speaking, distributions of earnings from Roth IRAs are tax-free if the owner is at least 59½ at the time of the withdrawal and at least five tax years have passed since the owner first made a contribution to any Roth IRA. 

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When the Five-Year Clock Starts

The five-year clock starts the first time money is deposited into any Roth IRA that you own, through either a contribution or a conversion from a traditional IRA. The clock doesn’t restart for later Roth payins or for newly opened Roth IRA accounts. 

Here’s an example. Say you’ve owned a Roth IRA since 2010, and in Jan. 2021, you opened and funded a second Roth IRA. Because you funded your first Roth IRA in 2010, you needn’t wait five years to take money from your second Roth for the earnings to be tax-free, provided you’re at least 59½ at the time of the payout. Note that it’s only the Roth earnings in the account that this five-year rule applies to.

This first appeared in The Kiplinger Tax Letter. It helps you navigate the complex world of tax by keeping you up-to-date on new and pending changes in tax laws, providing tips to lower your business and personal taxes, and forecasting what the White House and Congress might do with taxes. Get a free issue of The Kiplinger Tax Letter or subscribe.

Joy Taylor
Editor, The Kiplinger Tax Letter

Joy is an experienced CPA and tax attorney with an L.L.M. in Taxation from New York University School of Law. After many years working for big law and accounting firms, Joy saw the light and now puts her education, legal experience and in-depth knowledge of federal tax law to use writing for Kiplinger. She writes and edits The Kiplinger Tax Letter and contributes federal tax and retirement stories to and Kiplinger’s Retirement Report. Her articles have been picked up by the Washington Post and other media outlets. Joy has also appeared as a tax expert in newspapers, on television and on radio discussing federal tax developments.