The Roth IRA
Five-Year Rules

Section IThe Core Distinction

The Roth IRA "5-year rule" is not one rule but two. Conflating them is the single most common source of error in practitioner advice and client guidance.

The Code imposes two independent five-year holding periods on Roth IRAs, governing two different questions:

Section IIThe Two Clocks in Operation

Detailed mechanics of when each clock starts, what it does, and how the start-date is determined in edge cases.

Clock 1 — The Qualified-Distribution 5-Year Period

Under §408A(d)(2)(A), a distribution from a Roth IRA is a qualified distribution — meaning both principal and earnings come out free of federal income tax and free of the 10% additional tax — only if it satisfies two conjunctive requirements:

1. The 5-year aging test of §408A(d)(2)(B): the distribution must be made after the five-taxable-year period beginning with the first taxable year for which the individual made a contribution to a Roth IRA established for the individual's benefit (or a qualified rollover contribution, including a conversion).
2. A qualifying event under §408A(d)(2)(A)(i)–(iv): (i) the owner is age 59½; (ii) the distribution is made to a beneficiary on or after the owner's death; (iii) the owner is disabled within the meaning of §72(m)(7); or (iv) the distribution is a qualified first-time homebuyer distribution under §72(t)(2)(F), capped at $10,000 lifetime.

Clock 2 — The Conversion 5-Year Period

Under §408A(d)(3)(F), where converted amounts are distributed within five tax years of the conversion, the 10% additional tax of §72(t) applies to the converted amount as though the distribution were includible in gross income for §72(t) purposes — even though, as a matter of income tax, the converted principal has already been taxed in the conversion year and comes out without further income tax.

Critically, the regulation at §1.408A-6, Q&A-5(b) confirms each conversion gets its own clock. Conversions are not aggregated.

Section IIIThe Ordering Rules

Any non-qualified distribution from a Roth IRA is deemed to come out in a fixed, statutorily-mandated order — and the order is taxpayer-favorable.

Under §408A(d)(4)(B) and Regulation §1.408A-6, Q&A-8, all of an individual's Roth IRAs are aggregated and a distribution is deemed to consist of the following categories in this order:

Aggregation Rule

All Roth IRAs of one individual are aggregated for ordering purposes under §1.408A-6, Q&A-9. The taxpayer cannot "earmark" a withdrawal as coming from a particular account. But Roth IRAs and designated Roth 401(k) accounts are never aggregated — see Section X.

Section IVAge & Source Matrix

The bottom-line tax and penalty result for every combination of withdrawal source, owner age, and 5-year clock status.

Section VRegular Contributions

Direct annual contributions — what most taxpayers think of when they say "I put money in my Roth."

Withdrawal Treatment

Regular contributions (a/k/a "annual contributions" or "direct contributions") are after-tax money. Because they sit at the front of the ordering stack and were never excluded from gross income, they may be withdrawn at any time, at any age, for any reason, with zero tax and zero penalty. Authority: §408A(d)(1); §408A(d)(4)(B)(ii)(I).

This is true for the principal of regular contributions only. It does not extend to the earnings those contributions generate — which sit in stack-position 3 and are subject to Clock 1.

2026 Contribution Limits

Per Notice 2025-67:

• Regular limit: $7,500
• Catch-up (age 50+): additional $1,100 → $8,600 total
• MAGI phase-out (single): $153,000 – $168,000
• MAGI phase-out (MFJ): $242,000 – $252,000
• MAGI phase-out (MFS, lived w/ spouse): $0 – $10,000

Section VIConversions, Rollovers & Transfers

A "conversion" is the taxable movement of pre-tax retirement money (Traditional IRA, SEP, SIMPLE, or qualified plan) into a Roth IRA. The income-tax cost is paid up front; the Clock-2 cost is the trade.

What Counts as a Conversion

Under §408A(e), a qualified rollover contribution includes:

• A trustee-to-trustee transfer from a Traditional, SEP, or SIMPLE IRA to a Roth IRA
• A 60-day rollover from a Traditional, SEP, or SIMPLE IRA to a Roth IRA
• A direct rollover from a §401(a) qualified plan, §403(b) plan, or §457(b) governmental plan to a Roth IRA (excluding the designated Roth account portion — see §X)

Each is treated as a conversion and starts its own Clock 2.

Tax at Conversion vs. Clock 2 Recapture

The conversion is fully taxable in the conversion year to the extent of pre-tax money moved — taxed at ordinary rates under §408A(d)(3)(A). The pro-rata rule of §408(d)(2) requires aggregation of all Traditional/SEP/SIMPLE IRAs to compute basis recovery — this is the cream-in-coffee problem that defeats most "backdoor Roth" attempts where the taxpayer has unrelated pre-tax IRA balances.

Recharacterization of a conversion has been prohibited since 2018 under TCJA §13611; conversions are now permanent on the date executed.

Transfers Between Roth IRAs

A Roth-to-Roth direct transfer or 60-day rollover does not start a new Clock 1 or Clock 2. Holding-period tacking applies: the receiving Roth IRA inherits the source Roth IRA's history. This is confirmed by §1.408A-10, Q&A-5.

Section VIIEarnings & Growth

Everything that is not a regular contribution or a conversion contribution — interest, dividends, capital gains, K-1 income flowing through a self-directed IRA, etc.

Earnings sit at the bottom of the ordering stack. To extract them tax-free, the distribution must satisfy both:

1. The 5-year aging test of Clock 1 (any Roth IRA opened for ≥ 5 tax years), and
2. A qualifying event under §408A(d)(2)(A) — 59½, death, disability, or first-time homebuyer (≤ $10,000 lifetime).

If either condition fails, earnings are includible in gross income under §408A(d)(1). The 10% additional tax under §72(t) then applies separately unless a §72(t) exception is met (see §XII).

Section VIIIMinors & Custodial Roth IRAs

A child may own a Roth IRA. The 5-year rules apply identically. The Code provides no juvenile exception to the §72(t) age-59½ threshold.

A minor with earned income (compensation includible in gross income within the meaning of §219(f)) may contribute to a Roth IRA up to the lesser of the §408A limit or earned income for the year. Where the minor lacks contractual capacity under state law, the account is established as a custodial Roth IRA under UTMA/UGMA, with the parent or guardian as custodian until the minor reaches the state-law age of majority.

Strategic Use

A child who earns $2,000 from W-2 wages at age 14 and contributes the full amount to a custodial Roth IRA starts Clock 1 running at age 14. By the time the child turns 19, Clock 1 is satisfied for life. Even with no further contributions, the child has a Roth IRA bucket whose earnings will come out tax-free at 59½ — a planning artifact with multi-decade compounding value.

The §72(t) Question

The 10% additional tax of §72(t) applies in full to minors. There is no age-of-majority carve-out. If a 17-year-old withdraws earnings from a Roth IRA he funded at 14, the 10% applies absent a §72(t) exception — even though Clock 1 has been satisfied. (Clock 1 governs income tax; §72(t) is a freestanding excise tax governed by the qualifying-event list and the statutory exceptions.)

Section IXSelf-Directed Roth IRAs

The 5-year rules for a self-directed Roth IRA are identical to the rules for a custodial/brokerage Roth IRA. The Code makes no distinction.

A self-directed Roth IRA is simply a Roth IRA held with a custodian that permits investment in non-publicly-traded assets — private LLC interests, real estate, promissory notes, precious metals, crypto, etc. The label is a marketing convention, not a separate statutory category.

Parity Points

• Clock 1: identical mechanics under §408A(d)(2)(B). The clock for an SDIRA aggregates with the clock for any other Roth IRA the taxpayer owns.
• Clock 2: each conversion into the SDIRA starts its own clock identically.
• Ordering rules: §408A(d)(4)(B) treats SDIRA distributions identically.

Where SDIRAs Are Different (not 5-year-related)

The genuine differences in the SDIRA universe are not about the 5-year rules; they are about:

• Prohibited transactions under §4975 — self-dealing with disqualified persons, which can disqualify the entire account retroactively to January 1 of the year of the transaction under §408(e)(2)(A), triggering a deemed distribution of the full FMV. A retroactive disqualification can collapse Clock 1 because there is no longer a Roth IRA.
• UBTI / UDFI under §511–§514 — unrelated business taxable income and unrelated debt-financed income generated inside the SDIRA. These taxes are paid by the IRA itself (Form 990-T), not by the owner, and they reduce the account's growth — but they do not affect the 5-year clocks.

Section XDesignated Roth 401(k) Accounts

Roth 401(k) accounts — and Roth 403(b) and governmental Roth 457(b) accounts — are governed by §402A, a separate and distinct statutory regime from §408A. The 5-year rule looks similar but operates differently in three critical respects.

The Three Critical Differences

1. Separate, Non-Aggregating 5-Year Clock

Under §402A(d)(2)(B), the 5-taxable-year period of participation begins with the first taxable year for which the employee made a designated Roth contribution to that plan. Each Roth 401(k) plan tracks its own clock. The clocks do not aggregate across plans (with one exception below) and do not aggregate with the taxpayer's Roth IRA Clock 1. This is the express position of the IRS in the final regulations under §402A (T.D. 9324) and is confirmed at §1.402A-1, Q&A-2.

Direct rollover between Roth 401(k) plans: Where a direct rollover is made from one employer's Roth 401(k) to a new employer's Roth 401(k), the receiving plan tacks the earlier of the two start dates under §1.402A-1, Q&A-4(a). A 60-day indirect rollover does not get this tacking treatment.

2. Pro-Rata Distribution Treatment (Not Roth-IRA Ordering)

Where a distribution from a designated Roth 401(k) is not a qualified distribution, §402A(d)(4) applies §72(e) treatment: each dollar withdrawn is treated as part contribution, part earnings, in proportion to the account's basis-to-balance ratio. You cannot withdraw just contributions, the way you can from a Roth IRA.

3. Rollover to a Roth IRA: Clock Resets to the IRA's Clock

When a designated Roth 401(k) is rolled over (in whole or in part) to a Roth IRA, the receiving Roth IRA's Clock 1 controls, not the 401(k)'s clock. The years of participation in the Roth 401(k) do not carry over to the Roth IRA — express IRS position at §1.408A-10, Q&A-4(a) and reaffirmed in the §402A preamble.

In-Plan Roth Rollover Recapture

In-plan Roth rollovers (converting pre-tax 401(k) money to a designated Roth account within the same plan) trigger their own 5-year recapture rule analogous to §408A(d)(3)(F), at §402A(c)(4). Distributions from the rolled-over amount within 5 years are subject to §72(t) on the conversion amount unless an exception applies.

Section XIInherited Roth IRAs

Death tolls all the 10% penalty considerations but does not stop Clock 1. The beneficiary inherits the decedent's holding period.

Clock 1 Carryover

The 5-year aging period for qualified-distribution purposes continues to run after the owner's death, measured from the original owner's first contribution year. The beneficiary does not start a new clock. Authority: §1.408A-6, Q&A-7(a).

Death is itself a qualifying event under §408A(d)(2)(A)(ii), so once Clock 1 is satisfied, a beneficiary's distribution is qualified regardless of the beneficiary's age.

SECURE Act 10-Year Rule

For deaths in 2020 or later, beneficiaries who are not eligible designated beneficiaries (EDBs) are subject to the SECURE Act 10-year distribution rule under §401(a)(9)(H), which now applies to Roth IRAs via §408A(c)(5). The full balance must be distributed by December 31 of the tenth calendar year following the year of death. Final regulations issued in July 2024 confirmed that annual RMDs are required during the 10-year period where the decedent had reached the required beginning date — though Roth IRA owners have no RBD, so no annual RMDs are required during years 1–9, with the full balance due at year 10 for Roth IRAs.

EDBs

An eligible designated beneficiary — surviving spouse, minor child of the decedent, disabled or chronically ill individual, or a beneficiary not more than 10 years younger than the decedent — may use life-expectancy distributions. Surviving spouses may also elect to treat the Roth IRA as the spouse's own under §408A(a), in which case the spouse takes over the account entirely and the inherited-account rules cease to apply.

Section XII§72(t) Exceptions — Penalty Relief

Where Clock 2 would otherwise impose a 10% penalty on a pre-59½ distribution of converted principal or earnings, §72(t)(2) provides an escape list.

None of these exceptions affect the income-tax characterization — they merely defuse the 10% additional tax of §72(t).

Section XIIIAuthority Index

Pinpoint citations for every rule discussed above, organized by primary source.

Internal Revenue Code

Treasury Regulations

IRS Guidance & Publications

SECURE Act & SECURE 2.0 Provisions Affecting Roth IRAs