The 5 year rule on a Roth IRA always trips people up. In reality you can take any of your contributions out at anytime without penalty. If you plan to take out growth early then you are subject to the penalty. The 5 year rul
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When it comes to retirement planning, the Roth IRA is a popular choice for many individuals. It offers tax-deferred growth and tax-free withdrawals in retirement, which can be a great way to save for the future. However, there are some important rules to be aware of when it comes to Roth IRAs, including the 5 year rule.
The 5 year rule states that individuals must hold their Roth IRA for at least 5 years before they can withdraw their contributions without incurring a penalty. This means that if you are planning to withdraw money from your Roth IRA before the 5 year period is up, you will be subject to a 10% early withdrawal penalty.
It’s important to note that the 5 year rule only applies to contributions, not earnings. This means that if you have been investing in a Roth IRA for more than 5 years, you can withdraw any earnings without penalty.
It’s also important to note that the 5 year rule applies to Roth conversions as well. If you convert a traditional IRA to a Roth IRA, the 5 year rule will apply to the converted amount. This means that if you convert a traditional IRA to a Roth IRA and then withdraw the converted amount within 5 years, you will be subject to the 10% early withdrawal penalty.
Finally, it’s important to remember that the 5 year rule does not apply to Roth IRA distributions taken for qualified education expenses or up to $10,000 for a first-time home purchase. These distributions are penalty-free, regardless of how long the Roth IRA has been held.
In conclusion, the 5 year rule is an important rule to be aware of when it comes to Roth IRAs. It is important to understand the implications of this rule, as it can have a significant impact on your retirement planning. By understanding the 5 year rule and planning accordingly, you can ensure that your Roth IRA is working for you in the most effective way possible.
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Hey I hope someone sees this, I’m 29 and have been wanting to invest in mainly dividend paying stocks. What’s the best strategy if I potentially want to use payouts before 59? I have 2 rental properties that will be payed off at age 52 meaning I can potentially retire at or before 52. Could I invest in a regular brokerage like Robinhood from age 29-52 then sell to dump that money in a Roth, I’ll be 7 years in a Roth in this case by age 59 qualifying for the full tax free withdrawals of dividends and principle if needed?
3:00 if I open a Roth IRA in Nov 2013 and my first contribution is in Feb 2014, then the 5 year starts from Jan 2013?
This surely is a way to keep the poor just where they are.
Let's say i'm 40. I put in 5k in roth IRA. I'm now 45 and that 5k has turned into 20k. 5k contributions plus 15k growth. Can I access all of that 20k now without having to pay tax or penalty?
Hi, does this vary by state?
So the 5 year rule is a concern only for earnings since you can take the contributions out anytime?
How does this work when I make routine contributions to my Roth? Every year I contribute to it…does that restart the 5 year clock?
If I have an existing Roth IRA that is over 5 years old and I convert IRA funds into the same account. Is there a new 5 year clock for these funds since it is going into an existing Roth instead of a new separate account?
Thank you.
Suppose I was making yearly conversions from a traditional (I have a TSP) to a ROTH account, can you use one ROTH account to hold all conversion amounts, OR is it better to have multiple ROTH accounts? Assuming one conversion per year, there will be a 5-year clock for each conversion. If all ROTH conversions go into one account, there will be a mix of conversion buckets each with their 5 year clock. If I choose this approach, how are withdraws qualified given the mix of conversion dollars and earnings. If this is not ideal is it better to set up multiple/separate ROTH accounts for each conversion so ROTH monies are not mixed I a single account. If using this approach is it possible to have/open multiple ROTH accounts with the same Fund. Say I want a Jazz fund XYZ,can I have/open multiple ROTH accounts with this fund to keep yearly ROTH conversions separate. I've seen many youtube discussions on the benefits of ROTH conversions, but could not find anything that discuses strategy for managing multiple conversions over time and to ultimately make qualified withdraws given the 5-year rule applied to each conversion. I'm looking to doing ROTH conversions to avoid substantial RMDs in the future. Appreciate any feedback. Hope the questions make sense.
Tip: Just don’t touch it at all. Leave it alone and let it grow so you’re not suffering when you get older.
Your explanation didn’t address penalties. If you withdraw earnings before the 5 year period, regardless of age, the earnings are taxable and subject to a 10% penalty. Even if you start the Roth at 57 and withdraw at 60, if you withdraw earnings: tax and penalty. If you wait until 62 then no issue. All withdrawals are tax free.
But what if I don't want to withdraw it at 5 years? Then what
Incase by mistake if I contributed to custodian X in Roth IRA $500 in the year 2018 and opened another Roth IRA with custodian Y with $5000 in same year 2018. Can I withdraw $500 from custodian X and contribute $500 to custodian Y in same year if the yearly limit is 5500$ ?
Can you have more than one Roth IRA? Like one through work and one that I control?
Would love to hear about your thoughts on 403b's.
Hi my wife is 68 and has a Roth only 5k in it. She has had it for over 5yrs. She doesn’t work. I have a Roth also 5k in it over 5 years. I am 65. I also have a 401k. I still work. I want to move some money from my 401k to my Roth. Can I move any of my 401k money into my wife’s Roth. Thanks
Each contribution in the account has to age 5 years before withdraw, or the account itself must age 5 years? I think it's the former, just want to be sure
I've been converting my SEP IRA's into Roth's called ROTH conversions. For federal tax purposes, ROTH investments are not taxable, and not even reportable on the Fed. 1040. But does owning ROTH and the income derived from it play any role in having to report more taxable social security benefits? If ROTH IRA'sand inceome earned are not reportable on Fed. 1040's I don't see how receiving interest income would impact paying more taxes for receiving social security. Hopefully some readers already know this answer and could reveal it to us readers.
What if you’re over 59 1-2 when you start the ROTH IRA. Does the 5yr rule still apply to you?
Kind of an unrelated question…but if i were to withdraw from my contributions of a ROTH, even though theres no penalty, my credit score would still likely take a hit right?
What does not count as a contribution? If you convert funds from a traditional IRA to a Roth IRA is that still a contribution? If you transfer after-tax contributions from a 401k to a Roth IRA is that transfer still considered a contribution?
Very helpful.. thx Dustin!
Love your quick tips videos. You take a confusing mess and simplify the crap out of it. I can't thank you enough for this one. I've been thinking about starting a Roth IRA and had never even HEARD of a 5 year rule.
Ya learn something new every day. Thanks again!
What happens if you invest now in your Roth and the economy takes a fall? Or Should I wait to fall and then start a aggressive invest plan?
Hi Dustin I really love following your excellent program and advice! Question: How does the 5 year rule apply here: I had 401k with Roth funds. About half contribution and 1/2 growth. I then quit my job and rolled it over to a Roth IRA with another company in 2018. How does the 5 year rule or withdraw rule apply here? Thank you so much
I think this video just cleared something up.
When FI/RE types talk about the backdoor Roth ladder & waiting 5 years to withdraw "without penalty," what they are actually doing is letting the conversion grow for 5 years, then withdrawing the original conversion amount.
The way they talk about it, you'd think it was some near-magical loophole.
What happens if you transfer a Roth IRA? Does that affect the 5 years? (Restart the timer)