Episode 280: The Two 5-Year Roth Rules Explained

This episode explores the two different five-year rules for Roth IRAs instituted by the IRS to prevent people from abusing them. The first five-year rule applies to earnings on Roth contributions and determines whether those distributions can be taken tax-free. The second rule concerns Roth conversions and lets you know whether conversion principles can be accessed penalty-free. David explains that, for the purposes of the five-year rule, the clock starts the first time any money is contributed to a Roth IRA by either contribution or conversion. Once the five-year rule has been met, it’s been satisfied for good. Remember: any recent contribution to a Roth IRA can count as qualified tax-free distributions, even if they’ve been in the account for less than five years. David shares that Roth 401k plans have their own five-year rule, which is counted separately from a traditional Roth IRA. In case you’re unable to make a Roth contribution due to income limitations, you can make a non-deduc...