The Roth IRA 5-year rule: when your earnings become tax-free

What the Roth IRA 5-year rule decides

A Roth IRA has three layers of money: what you contributed, what you converted, and what the investments earned. The first two were taxed before they went in. The third — the growth — has never been taxed, and the promise of a Roth is that it never will be. The Roth IRA 5-year rule is the condition attached to that promise.

The rule sits in IRC §408A(d)(2)(B), which says a distribution cannot be a qualified distribution if it is made within the five-taxable-year period beginning with the first year you made a contribution to a Roth IRA. Only a qualified distribution brings the earnings out tax-free. So the practical question the rule answers is narrow and specific: if I withdraw growth, will I owe income tax on it?

It does not decide whether you can take money out (you always can), and it does not govern converted principal, which runs on a separate clock.

The two tests for a qualified distribution

IRS Publication 590-B, in the section "What are qualified distributions?" under "Are Distributions Taxable?", sets out a two-part test (IRS Pub. 590-B). A distribution is qualified only if both are true:

1. The five-year test. It is made after the five-year period beginning with the first tax year for which a contribution was made to a Roth IRA set up for your benefit.
2. A trigger. It is made on or after the date you reach 59½; because you are disabled; to a beneficiary or your estate after your death; or for a qualified first-time home purchase, up to a $10,000 lifetime limit (§408A(d)(2)(A) and (d)(5)).

The word that matters is and. The age test with a young account is not enough, and neither is an old account at 45 with no other trigger. Fail either half and the distribution is non-qualified — which usually matters less than it sounds, because a non-qualified distribution is only taxable once it reaches the earnings layer. The basic definition is also summarised in do Roth withdrawals count as income; this page is the long version.

When the clock starts

The Treasury regulation is precise. Under Treas. Reg. §1.408A-6, Q&A-2, the period begins on the first day of the tax year for which your first regular contribution is made to any Roth IRA — or, if earlier, the first day of the tax year in which your first conversion is made. It ends on the last day of the fifth consecutive tax year.

Two consequences are worth more than they look:

• The clock is backdated to January 1. It counts tax years, not 60 months. A first contribution made in November is credited with the whole calendar year.
• A prior-year contribution backdates it further. Regular contributions can be made up to the filing deadline for the previous year. Make your first contribution in April 2027, designate it for tax year 2026, and the clock starts on January 1, 2026. Five tax years — 2026 through 2030 — and the test is met on January 1, 2031. Your money was in the account for well under four years.

One exception runs the other way. If you make a contribution and then withdraw it as a corrective distribution of an excess contribution, the regulation treats it as if it was never contributed — so it does not start the clock.

One clock for every Roth IRA you own

The same regulation states the consequence plainly: each Roth IRA owner has only one five-taxable-year period for all the Roth IRAs he or she owns. That has three practical effects.

• New accounts do not restart it. Opened your first Roth in 2015 and a second at a different broker in 2026? The 2026 account's earnings are measured from 2015.
• Moving money does not restart it. A trustee-to-trustee transfer or rollover between Roth IRAs keeps the original start date; Publication 590-A says the same.
• Emptying the account does not restart it. The period is tied to your first funding year, not to an account staying open. Someone who funded a Roth in 2012, drained it in 2018 and returns in 2026 has already satisfied the test.

The flip side is that you cannot use a second Roth to isolate anything. For the ordering rules, all of your Roth IRAs are aggregated and treated as one.

Why the rule only ever touches earnings

This is the point that should take most of the anxiety out of the subject. Under §408A(d)(4), every Roth IRA distribution is deemed to come out in a fixed order: regular contributions first, then conversion and rollover amounts, oldest first, and earnings last. A non-qualified distribution is taxable only to the extent it exceeds your total contributions (§1.408A-6, Q&A-4).

So a young account is only exposed if you withdraw more than everything you have put in. The ordering rules and the penalty side of this — including the full list of exceptions to the 10% additional tax — are covered in the Roth IRA early withdrawal penalty guide, and proving your contribution total if the IRS asks is a records exercise covered in how to track Roth IRA basis. A worked example shows how the layers interact.

Clock start: January 1, 2023, so the five tax years are 2023–2027 and the test is met from January 1, 2028. The rows show the same account at two different owner ages; figures are illustrative.

The two five-year rules, side by side

Most confusion about Roth IRAs comes from merging two unrelated clocks that happen to share a number. The conversion clock in §408A(d)(3)(F) exists to stop people under 59½ from converting a traditional IRA and immediately withdrawing the money penalty-free. The account clock exists to decide when growth becomes tax-free. Publication 590-B makes the same point: the conversion period is separately determined for each conversion and is not necessarily the same as the qualified-distribution period.

One link between them: your first conversion also starts the account clock, if you have never contributed. A single conversion in 2026 therefore starts two clocks on January 1, 2026 — one for that conversion's penalty exposure, and your lifetime earnings clock. For per-conversion clocks, ladders and the recapture calculation, see the Roth conversion 5-year rule.

Over 59½: the earnings clock still applies

This is where the two rules diverge most sharply, and where retirees most often get caught. Turning 59½ ends any exposure to the 10% additional tax on Roth distributions. It does not satisfy the five-year test. A 63-year-old who opens a first Roth IRA in 2026 cannot take tax-free earnings until January 1, 2031, when the five tax years 2026–2030 have passed.

The exposure is narrower than it sounds. Contributions and converted principal come out ahead of earnings, so a retiree drawing a few years of spending from a new Roth will rarely reach the growth at all. For a late starter, the planning point is to leave the growth alone until the clock finishes.

Rolling a Roth 401(k) into a Roth IRA

This is the trap the rule sets for careful savers. A Roth 401(k) — a "designated Roth account" — has its own five-year participation period. When you roll it into a Roth IRA, those years do not carry over. Under Treas. Reg. §1.408A-10, Q&A-4, the Roth IRA's period begins with the earlier of your first Roth IRA funding year or the year of the rollover, and the two periods are determined independently.

• If you already have a Roth IRA whose clock has run, the rolled-in money and its future growth come out qualified, even if the 401(k) clock had not finished (the regulation's Example 1).
• If the rollover opens your first Roth IRA, the clock starts in the rollover year — even if you made Roth 401(k) deferrals for fifteen years (Examples 2 and 3).

Some cushion is built in. Under Q&A-3 of the same regulation, if the 401(k) payout was itself a qualified distribution, the entire rolled amount is treated as a regular contribution to the Roth IRA. It comes out first and tax-free under the ordering rules; only growth after the rollover is exposed. If the payout was not qualified, only your contributions in the plan carry over as contribution basis, and the plan's earnings are treated as earnings in the IRA. Either way, the inexpensive fix is the same: open and fund a Roth IRA years before you expect to roll a Roth 401(k) into one.

Inherited Roth IRAs keep the owner's clock

The clock is not reset at death. Under §1.408A-6, Q&A-7, a beneficiary's holding period includes the time the account was held by the deceased owner. If the owner first funded a Roth more than five tax years before, the beneficiary's withdrawals of earnings are qualified from day one, because death is itself a trigger. If the owner's clock had not finished, earnings withdrawn before it does are taxable to the beneficiary, but not penalised.

A surviving spouse who treats the inherited Roth as their own uses whichever finishes first: the decedent's period or the spouse's own. An inherited Roth IRA is also tracked separately from the beneficiary's own Roth IRAs. The distribution timetable — the ten-year window and who is exempt from it — is a separate question, covered in the inherited Roth IRA rules guide.

Missing the clock: cost, reporting and planning

If you withdraw earnings before the five-year test is met, the earnings portion is ordinary income in that year. If you are also under 59½ and no exception applies, the 10% additional tax under §72(t) applies to that taxable amount, calculated on Form 5329. Your contributions in the same withdrawal remain tax-free regardless.

Reporting falls on you. Your custodian's 1099-R carries a box 7 code, but the custodian often cannot verify your contribution history or first Roth year, especially across several firms. The taxable amount is worked out on Form 8606, Part III, using the contribution total you can document. Keep a permanent record of the tax year of your first Roth funding — a dated statement or the return that reported it — because that one date controls the rule for the rest of your life.

The planning lessons follow directly:

• Start the clock early, even with a small amount. A modest contribution at 50 means the account test is long satisfied by the time you need the money. It does not cover a later conversion's own penalty clock — but that clock stops mattering at 59½ anyway.
• Use the prior-year window. A first contribution made before the filing deadline and designated for the prior year buys a full year of clock.
• Fund a Roth IRA before a Roth 401(k) rollover. The plan's years will not follow the money.
• Draw contributions and conversions before earnings while the clock is running. The ordering rules do this automatically, provided you do not over-withdraw.

Whether more Roth money makes sense at all — and how a conversion fits your bracket — is the subject of the Roth conversion guide. The calculator models what moving money into a Roth now, and letting both clocks run, is worth across a full retirement.

Investment risk note: a Roth IRA holds investments whose value can fall as well as rise. Nothing here forecasts a return; the five-year rule governs the tax treatment of earnings, not whether there will be any.