Roth IRA 5 yr. tax Rule

Submitted by Anthony Romano on Sun, 2024-03-03 03:46

I am getting my taxes done by a CPA and I told him I have a Roth IRA that is 5 years old this year, so any distributions are tax free. The CPA is not so sure that is correct. He thinks that it cannot be that once the Roth is 5 years old you can take money out tax free regardless of when you put it in. In his words “it can’t be that you could have put say $10.000 in last year and made a good investment so now you have $20.000, You can take out the whole 20K tax free because the Roth is 5 years old.” I told him that’s the way I understand it.

Can you please confirm that if I opened a Roth in December 2019, I could withdraw funds including any gains anytime this year. Meaning I don’t have to wait until December. And regardless of when the contribution or conversion was made.



Submitted by Alan - IRA critic on Sun, 2024-03-03 15:20

If your first Roth contribution was in 2019 or earlier, the earnings in the Roth IRA will be tax free only if you are also age 59.5 or disabled. Otherwise, only the amount of your regular contributions can be withdrawn tax and penalty free. Conversions can be withdrawn tax free anytime, but those not held 5 years will incur a 10% penalty unless you are over 59.5. 

Submitted by Anthony Romano on Mon, 2024-03-04 19:11

AAlan, I called the IRS. The person I got on the phone told me the Roth has to be open 60 months in order to be tax free. However, this sounds like it contradicts what is in the IRS website. Can you confirm and tell me where to find documentaion that If I opened a Roth in Decemeber 2019 I can now take a distirubution tax free in 2024.

Submitted by Alan - IRA critic on Mon, 2024-03-04 20:05

IRS Reg 1.408A-6 QA #2, link below. Your 5 year holding period for the 12/2019 contribution started 1/1/2019.
26 CFR § 1.408A-6 – Distributions. | Electronic Code of Federal Regulations (e-CFR) | US Law | LII / Legal Information Institute (cornell.edu)

Submitted by Anthony Romano on Wed, 2024-03-06 02:43

Alan.I respect and appreciate your advice. I come to IRAHELP regularly for advice. However, I called the IRS again. This time the gentleman spent some time with me to go over the IRS 5 year rule. After checking with his lead he told me the statment on the IRS website is amgiguous. However, the IRS interprets it meaning that the “first day does not mean  Jan 1 of the year you opened the Roth. It means the first day you opened your Roth IRA and 5 consecutive years after that means 60 months or 5 full consecutive years. 

Submitted by Alan - IRA critic on Wed, 2024-03-06 03:35

Did you read the Reg I posted?  It’s very clear and there never has been any debate regarding it’s interpretation. The first day is January 1st of the year for which the first Roth contribution was made. That said, that first year is the year FOR which your first contribution was made, not the year you opened the IRA if it did not receive a contribution that year.  If you made your first Roth contribution today on 3/5/2024 and it was a 2023 contribution, the 5 year period began on 1/1/2023 because the contribution was for 2023.
In addition, the year of your first contribution starts the clock and it continues to run even if you close your Roth IRA. So if your first contribution was in 2018 and you closed the Roth in 2019, the 5 years is still completed on 1/1/2023, although it does not mean much unless you make later contributions.

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