The Five-Year Rules for Roth IRA and Roth 401k Withdrawals

Roth IRA, Roth Conversions, Withdrawals, The Five-year Rule, Roth 401k, Backdoor Roth, Mega Backdoor.

When it comes to Roth IRAs and Roth 401ks, understanding the “five-year rules” is crucial for making tax-efficient withdrawals. Below, I break down the key points:

Roth IRA Withdrawals

Direct Contributions: You can withdraw your direct contributions to a Roth IRA at any time, tax-free and penalty-free.

Qualified Withdrawals of Gains: To withdraw earnings tax-free (qualified withdrawals), two conditions must be met:

• You must be at least 59.5 years old.
• The account must satisfy the five-year rule, meaning five years have passed since your first contribution to any Roth IRA.

The Five-Year Rule: The clock starts with your first contribution to any Roth IRA or Roth Conversion. Once five years have passed since this first contribution, the five-year rule is satisfied for that account.

Roth IRA Conversions

Separate Five-Year Clocks: Each Roth conversion triggers its own five-year clock. After five years, the converted amount can be withdrawn without penalties. Once you turn 59.5, any converted amounts can be withdrawn…