The 5-year rule for Roth contributions is used to determine whether a withdrawal of growth (the amount over and above your contributions) will be tax-free as a “qualified distribution” from a Roth IRA. In order to be a qualified distribution, two requirements must be satisfied. First, the distribution must be made either: on/after the date the IRA owner turns 59 1/2; after death of the IRA owner (i.e., to the estate or a beneficiary); after becoming totally disabled (under the Social Security definition of “total disability”); or for qualified first-time homebuyer expenses (up to a $10,000 limit and subject to other limitations). The second requirement, in addition to meeting one of the preceding tests, is that the distribution must meet the Roth contribution 5-year rule.
The 5-year rule essentially states that five tax years must pass from when the first contribution is made to (any) Roth IRA, until a qualified distribution can be made. Because the measurement is based on tax years, this means that a contribution to a Roth IRA as late as April 15 of 2017 will still count as a contribution for the 2016 tax year (in essence, it counts as though the contribution was made January 1st of 2016), which means the first year of a potential qualified distribution would be 2021 (because the five years that passed would have been 2016, 2017, 2018, 2019, and 2020. Notably, this means that a “5-year” qualified distribution could actually be made after less than 3 years and 8 months, as a contribution on April 14 of 2017 (made in 2017 but for 2016) would allow for tax-free distributions as early as January 1st of 2021.
For the purposes of this 5-year rule the cont starts the first time any money is funded into any Roth IRA, by contribution or conversion. There is not a new 5-year clock for each Roth contribution, nor for each Roth account that is held. All Roth IRAs (but not Roth 401(k)s) are aggregated together to determine whether the 5-year rule is met for any and all of them
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