What is the 5-Year Rule related to Roth IRAs?

Roth IRAs adhere to the 5-Year Rule, which starts the initial tax year of contributing to the account. Although contributions to a Roth IRA can be withdrawn without tax implications at any point, the accrued earnings must remain untouched until you reach the age of 59 and 1/2 to qualify for a tax-free distribution.

For example, if you are transferring in a current Roth IRA that you have had with your current custodian for two years, you would only have to hold it for three more years at iTrustCapital AND be 59 and 1/2 years old to take a qualified distribution. In another case, the 5-Year Rule would still be relevant if someone was 57 years old and never established a Roth IRA. This person would have to wait until they were 62 to withdraw their earnings tax-free. Please note that with transfers and rollovers, the account age is grandfathered into the new account.

For more information, feel free to visit the IRS website.

** Disclaimer - This article is for informational purposes only and does not constitute financial advice. Please consult with your tax or financial professional before proceeding with a distribution to assess suitability.