Roth IRAs offer tax-free growth and tax-free withdrawals in retirement—but only if you follow the rules. One of the most misunderstood aspects is the “5-year rule”, which plays a different role depending on your age and what kind of withdrawal you’re making (contributions, earnings, or conversions).

Let’s break down how the 5-year rule works before age 59½, at 59½, and after age 59½, with clear examples and a table for comparison.

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Quick Primer: What Is the Roth IRA 5-Year Rule?

There are actually three separate 5-year rules in Roth IRA planning:

1. For contributions, it governs when earnings can be withdrawn tax-free.
2. For conversions, it governs when you can withdraw converted amounts penalty-free.
3. For beneficiaries – applies to inherited Roth IRAs.

This post focuses on the first two as they relate to your own Roth IRA.

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1. Under Age 59½

If you’re under 59½, withdrawals from your Roth IRA fall under stricter rules. Here’s how it works:

• Contributions: Can always be withdrawn tax and penalty-free, no matter your age or how long the money has been in the account.
• Earnings: Taxable and subject to a 10% early withdrawal penalty, unless it’s a qualified distribution (i.e., meets the 5-year rule and you’re 59½ or older).
• Conversions: Withdrawals of converted amounts within 5 years may trigger a 10% penalty, even if you’ve paid taxes on the conversion.

Example 1: Jill, age 45

• Started Roth IRA in 2010.
• Contributed $50,000 over the years and has $20,000 in earnings.
• Wants to withdraw $30,000.

✅ She can withdraw $30,000 from contributions tax and penalty-free.
If she goes beyond that and touches the $20,000 in earnings, she pays tax + 10% penalty.

Example 2: Alex, age 50

• Converted $40,000 from a traditional IRA to Roth in 2023.
• Wants to withdraw $10,000 in 2025.

That $10,000 withdrawal is subject to a 10% penalty because the conversion hasn’t aged 5 years yet (i.e., until 2028).

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2. At Age 59½ (But Roth IRA is <5 Years Old)

Turning 59½ eliminates the 10% penalty, but not the tax. If your first Roth IRA contribution is less than 5 years old, you still owe income tax on the earnings.

Example 3: Maria turns 59½ in 2025

• Opened her first Roth IRA in 2022.
• Withdraws $15,000 (includes $5,000 in earnings) in 2025.

✅ No 10% penalty due to her age.
But she pays income tax on the $5,000 in earnings because her account is only 3 years old.

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3. Over Age 59½ and Roth Open ≥5 Years

This is the sweet spot of Roth IRA withdrawals: If you’re over 59½ and your Roth IRA has been open at least 5 years, all withdrawals—contributions and earnings—are tax- and penalty-free.

Example 4: Tom, age 62

• Opened Roth IRA in 2017.
• Has $100,000 in the account: $70,000 contributions, $30,000 earnings.
• Wants to withdraw $40,000.

✅ The entire $40,000 is tax-free and penalty-free.

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✅ Key Takeaways

• Contributions can always be withdrawn tax- and penalty-free.
• The 5-year clock starts Jan 1 of the year you first contribute to any Roth IRA.
• Conversions have their own 5-year clock (one per conversion).
• Once you’re over 59½ and the Roth is 5+ years old, you’ve unlocked the full tax-free benefit.

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Final Tip: Track Your Roth Sources Carefully

It’s crucial to keep records of:

• Your original contribution year
• Each Roth conversion and the year it was made
• Your current age

This info ensures you don’t accidentally trigger taxes or penalties on early withdrawals.

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