Roth IRA 5-year rules.
Two separate rules most people confuse.
The Roth IRA has two distinct 5-year rules. They apply to different situations and have different consequences. Confusing them leads to unexpected tax bills.
US-only. Roth IRA rules are part of the US Internal Revenue Code (IRC 408A).
Rule 1: your Roth IRA must be 5 years old before earnings can be withdrawn tax-free. Rule 2: each Roth conversion has its own separate 5-year clock before converted funds can be withdrawn penalty-free. Contributions are always accessible without penalty or tax. The two clocks operate independently.
Section 1 · The two rules
Rule 1: The earnings rule
- Applies to: tax-free withdrawal of EARNINGS (growth).
- Clock starts: January 1 of the year you make your first Roth IRA contribution, to any Roth IRA.
- Once the clock is satisfied AND you are 59½+: earnings come out tax-free.
- If you withdraw earnings early: income tax + 10% penalty (with some exceptions).
- Key: one clock for all your Roth IRAs, not per account.
Rule 2: The conversion rule
- Applies to: penalty-free withdrawal of CONVERTED FUNDS (not contributions, not earnings).
- Clock starts: January 1 of the year each conversion was made.
- Withdraw converted funds before 5 years AND before 59½: 10% penalty (no income tax, since tax was already paid at conversion, but the penalty applies).
- After 59½: the 5-year clock on conversions does not matter. Withdrawals are penalty-free.
- Key: EACH CONVERSION has its own 5-year clock verify×DON'T TRUST, VERIFYClaim: Roth IRA has two separate 5-year rules: one for earnings (tied to the first Roth contribution) and one for each conversion.Verify at: IRS Publication 590-B ↗Pub 590-B contains the ordering rules and the two 5-year clocks..
Section 2 · The ordering rules
When you withdraw from a Roth IRA, the IRS treats the money as coming out in this order:
- Contributions first (always tax and penalty-free).
- Conversions next (by year, oldest first).
- Earnings last (may be taxed and penalized).
This ordering is critical for early retirees using the Roth conversion ladder. Contributions come out first (always accessible). Then the oldest conversions (tax-free if 5 years old). Earnings are last (typically not touched until 59½).
Section 3 · The conversion ladder in practice
Example with the Roth conversion ladder:
- 2026: Convert $40,000 from Traditional IRA to Roth. Clock starts for this conversion: January 1, 2026.
- 2027: Convert another $40,000. Separate clock: January 1, 2027.
- 2028, 2029, 2030: Continue annual conversions, each with its own clock.
- 2031: Withdraw $40,000 from the 2026 conversion. Five years have passed. Penalty-free access (assuming under 59½, the 5-year rule protects from the 10% penalty; tax was paid at conversion).
This is the mechanic behind the Roth conversion ladder for early retirees. See The Roth Conversion Ladder for the full strategy.
- IRS Publication 590-B. Distributions from Individual Retirement Arrangements (IRAs) · irs.gov/pub/irs-pdf/p590b.pdf.
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