The two Roth five year rules

How it works

The first clock starts on January 1 of the year of a person's first contribution to any Roth IRA, and it never restarts. Earnings come out tax free only when that clock has run five years and the person is 59 and a half, disabled, or using the first home exception. The second clock applies to each conversion separately: converted money withdrawn within five years of that conversion, by a person under 59 and a half, carries the 10 percent addition even though it was already taxed. Withdrawals follow an ordering rule, contributions first, then conversions oldest first, then earnings, which is why regular contributions can always come out with no tax or penalty. A contribution made by the April deadline for the prior year starts the first clock in that prior year.

What it gives

Regular contributions can be withdrawn at any time, in any amount, under the ordering rule.

The first clock starts with the very first dollar, so a small early contribution starts it for life.

After both clocks and age 59 and a half, every dollar in the account comes out tax free.

What it costs, or where the catch is

A person who opens a first Roth at 58 waits until 63 for tax free earnings, even though they pass 59 and a half sooner.

Each conversion has its own clock, so a series of conversions needs careful records.

The ordering rule and the two clocks are easy to confuse, and tax software asks about them in a cramped form.

A worked example

Fiona opened her first Roth IRA at 57 with $3,000 and converted $20,000 at 58. At 60 she withdraws $10,000. Her first clock has run only three years, so any earnings would be taxed, but the ordering rule treats the $10,000 as $3,000 of contributions and then $7,000 of her conversion. She is over 59 and a half, so the 10 percent addition does not apply, and nothing in the $10,000 is earnings, so her tax on it is $0.

Where it goes wrong

The common miss is assuming age 59 and a half alone makes everything tax free, when a Roth opened recently still has earnings taxed until its first clock runs out.

Who confirms it for you

For your own numbers, a CPA or enrolled agent. This page explains how the rule works for people in general; it does not know your situation and does not tell you what to do.

The official source

IRS Publication 590-B, Distributions from Individual Retirement Arrangements. Every figure that changes by year comes from the site's rules table, which the watcher checks against the official page on a schedule; where a figure is not yet verified, this page says so instead of printing a number.