In this video, Colin Exelby, CFP® explains the Roth IRA Five Year Rules for both contributions and conversions. You will learn what they both mean, how they affect you and see specific examples.

We’ll also cover exceptions that allow penalty-free withdrawals for specific life events, ensuring you can make the most of your Roth IRA without financial setbacks. Join us to master these critical rules and secure a tax-efficient future.

00:00: Introduction
0:45 The Contribution Rule
2:25 Exceptions to the Rule
3:50 Inheriting a Roth IRA Rules
5:19 The Conversion Rule
6:23 Example of Conversion Rule Penalties
8:06 Roth 401k Rollover Distribution Rules
9:06 Consolidation of Roth IRAs

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[About] Colin Exelby is a Certified Financial Planner Professional™ or CFP®. He owns the virtual financial advisory practice Celestial Wealth Management.

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When it comes to retirement saving, Roth IRAs have become increasingly popular for their tax-free growth and withdrawals. However, there are two important 5-year rules that every Roth IRA holder should be aware of to avoid potential penalties and losing their hard-earned money.

The first 5-year rule applies to the earnings in your Roth IRA. In order to withdraw the earnings tax-free, you must meet two conditions: you must be at least 59 ½ years old and your Roth IRA must have been open for at least five years. Failure to meet both conditions could result in a 10% penalty on the earnings portion of your withdrawal.

The second 5-year rule pertains to conversions and rollovers into a Roth IRA. If you converted or rolled over funds from a traditional IRA, 401(k), or another retirement account into a Roth IRA, you must wait five years before you can withdraw the converted amount tax-free. This rule applies to each conversion or rollover and is calculated separately for each transaction.

It is crucial to keep track of the timing of your Roth IRA contributions, conversions, and earnings withdrawals to ensure compliance with these 5-year rules. Failure to do so could lead to costly penalties and taxes that may erode your retirement savings.

To make sure you don’t lose your money, it is recommended to keep detailed records of all your Roth IRA transactions and consult with a financial advisor if you have any questions about the rules and regulations surrounding Roth IRAs. By staying informed and proactive, you can maximize the benefits of your Roth IRA and secure a comfortable retirement.