Roth 5 Year Rule

When a person rolls “after tax” 401k contributions to a Roth IRA when does the five year rule start? Thank You!



The 5 year rule for Roth distributions to be qualified starts with the first legal contribuiton to the Roth IRA. If no prior contributions, then this rollover would start that 5 year holding period. There is also a 5 year holding period for the purposes of eliminating the 10% penalty if a taxable rollover or conversion is distributed before 5 years and the Roth owner is under 59.5. This rollover would normally be non taxable, but it may also include some earnings, so a distribution of the earnings would trigger the 10% penalty only on the amount of earnings (the taxable portion of the Roth rollover).

Thank you for your reply, that is what I thought but it is so nice to get confirmation.

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