Roth IRA ‘Five-Year Rule’ Can Trigger an Unexpected Tax Bill: Here’s What You Need to Know

A $1 contribution today to a new Roth individual retirement account may not sound like much. But that seemingly small sum might save you a bundle in taxes down the road due to an under-the-radar timing requirement.

Your initial Roth IRA contribution starts the clock on something called the “five-year rule,″ said Ed Slott, a certified public accountant and IRA expert based in Rockville Centre, New York. In basic terms, that rule requires Roth IRA owners have their account for five or more years to avoid paying income tax on any withdrawn investment earnings.