The Roth IRA 5-year aging rule is a set of regulations that governs the tax treatment of withdrawals from Roth IRAs. There are actually three different 5-year rules, depending on the type of withdrawal:
- The 5-year rule for contributions: This rule applies to the direct contributions you make to a Roth IRA. You can always withdraw these contributions tax-free and penalty-free at any time or any age. However, if you want to withdraw the earnings on your contributions, you need to meet the 5-year rule for earnings.
- The 5-year rule for earnings: This rule applies to the earnings or growth on your Roth IRA contributions. To withdraw these earnings tax-free and penalty-free, you need to meet two conditions: 1) You must be at least 59½ years old, and 2) You must have opened your first Roth IRA at least 5 years ago. The 5-year period starts on January 1 of the tax year of your first contribution, even if you make it later in the year or for the prior year.
- The 5-year rule for conversions: This rule applies to the amounts you convert from a traditional IRA to a Roth IRA. You can withdraw these converted amounts tax-free at any time or any age, but you may have to pay a 10% penalty if you withdraw them within 5 years of the conversion. The 5-year period starts on January 1 of the tax year of the conversion, and it applies separately to each conversion you make.
Fidelity: Roth IRA 5-year aging rule
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