The two-part test
Both conditions must be true at the time of distribution. Meeting one without the other results in a non-qualified distribution, which may trigger taxes and penalties on any earnings withdrawn.
The three qualifying circumstances are:
- You are age 59½ or older
- You are permanently disabled
- The distribution is made to a beneficiary after your death
How the five-year rule works
The five-year clock starts on January 1 of the first tax year for which you made any contribution to a Roth IRA in your name. It does not reset when you open a new Roth IRA account. If you opened and contributed to a Roth IRA in a prior year, that clock carries forward to any subsequent Roth IRA you establish.
As a practical example: if you made your first Roth IRA contribution in 2022, your five-year period began January 1, 2022, and was satisfied on January 1, 2027, regardless of when you opened any other Roth IRA accounts.
Important note: Roth conversions are subject to a separate five-year rule that applies independently to each conversion. The mechanics differ from the contribution five-year rule and carry their own penalty implications. If you have converted funds into a Roth IRA, consult a tax professional before taking distributions.
What happens with non-qualified distributions
Not every early withdrawal from a Roth IRA results in a tax bill. The IRS applies a specific ordering rule to Roth IRA distributions:
- Contributions come out first and can always be withdrawn tax-free and penalty-free at any time, regardless of age or the five-year rule.
- Converted amounts come out next; the taxability of those funds depends on whether the applicable conversion five-year period has been met.
- Earnings come out last, and it is only the earnings portion of a non-qualified distribution that is subject to ordinary income tax and the 10% early withdrawal penalty.