In this episode, Troy Sharpe, CFP®, talks about the 5 year rule for Roth IRA’s and what you need to know so that you don’t get penalized when you take a withdrawal. To contribute to an IRA you need to meet some basic requirements. To withdraw money from an IRA without penalty, you also need to meet certain requirements.
The 5 year rule applies a bit differently to Roth IRA’s that have contributions, Conversion Roth IRA’s and Rollover Roth IRA’s.
Opening an IRA and contributing to it should be part of an overall Retirement Plan. At Oak Harvest Financial Group we create a customized solution aimed squarely at your retirement needs.
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Instead of trying to fit you into a box, Oak Harvest builds the box around you.
It starts with a discussion about your retirement vision. A retirement vision is the most critical element of a Oak Harvest Retirement 360 because it allows us to clearly identify specific goals, allowing our team to get to the root of what is important to you.
Once those goals are identified, we explore and educate you on the strategies that can make your vision your reality.
When the appropriate strategies are agreed upon, it’s time to discuss which tools are appropriate to complete the plan. Stocks, bonds, CDs, annuities and mutual funds are nothing more than financial tools that can be used inside your Oak Harvest Retirement Plan to accomplish your vision and goals.
As independent fiduciaries, we don’t care which tools are used. We care only that the best tools to accomplish the job are implemented.
When your Oak Harvest Retirement 360 Plan is complete, you have a clear financial path that can help provide peace of mind. We will build each component that you may need for your specific circumstance:
You will have in front of you a simple, easy-to-understand Retirement Income Plan.
You will have an investment strategy appropriately fitting your investment objectives and risk profile.
You will have a Social Security strategy that’s designed to maximize your life savings, not just your Social Security benefits.
You will have a long-term care strategy that’s designed to maximize and protect your retirement against future medical costs.
Your legacy desires will be addressed by a CERTIFIED FINANCIAL PLANNER™ professional who coordinates and works with attorneys who draft the appropriate legal tools, if needed.
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When it comes to retirement planning, one of the most important things to consider is the 5-year rule for Roth IRAs. This rule is important for anyone who is considering opening a Roth IRA, as it will determine when you can access the funds in your account.
The 5-year rule for Roth IRAs states that you must wait at least 5 years from the date you first opened the account before you can access the funds without incurring any penalties. This rule applies to both contributions and earnings, so you must make sure you wait 5 years before you can withdraw funds from your account.
In addition to the 5-year rule, there are also other requirements you must meet in order to access the funds in your Roth IRA. For example, you must be at least 59 ½ years old, have a qualifying disability, or have reached the age of retirement in order to access the funds without incurring a penalty.
When it comes to when you should open a Roth IRA, it is important to consider your current and future financial situation. If you are just starting out and don’t have much money to invest, it may not be the best time to open a Roth IRA. However, if you have a steady income and the ability to save for retirement, it may be a good idea to open a Roth IRA and take advantage of the tax benefits associated with it.
Overall, the 5-year rule for Roth IRAs is an important concept to understand when it comes to retirement planning. It is important to remember that you must wait 5 years before you can access the funds in your account without incurring any penalties. Additionally, you must also meet other requirements in order to access the funds without penalty. Ultimately, when deciding when to open a Roth IRA, it is important to consider your current and future financial situation.
I’m a fan, but this one is too confusing.
I beg to differ on 1 point. There’s never a penalty on the withdrawal of principal. Roth contributions are made with after tax dollars. You’re only penalized on an early withdrawal of gains, which would also subject them to the appropriate taxes.
Couple things: you should open up by better explaining that what you are talking about is “earnings/interest” on the Roth. This is all true. However, when you talk about the “principle/contributions” this was incorrect. As long as the account is open for over 5 years I can access my “contributions” tax and penalty free. I know this because I have done it. This is one major advantage to Roth’s. The contributions can be used whenever and for however I like. If I decide I want to go buy a boat because I’m having a mid life crisis, I can use my contributions from my Roth to do this as long as I don’t take out more than I have put in. That means, I don’t touch the interest/earnings. Hope that clarifies.
This is your most confusing video yet.
By making this lecture directed to people who want to withdraw their money prior to 59.5 you have made it THOROUGHLY CONFUSING
Thanks for the clear explanations.
is a roth 403b the same as a roth 401k in regard to these rules?
You can take principal out without penalty
No one else is talking about Roth 401k to existing Roth IRA conversions as a FIRE strategy to access money early. Thanks for this info. It confirmed what I had figured out by reading MANY articles and I have never seen this highlighted as a primary topic. In my opinion this is the best option for anyone who is able to have both a Roth IRA and a Roth 401k and wants to retire before 59.
Can you clarify something for me? I began contributing to a Roth IRA the first year it was created (1997) and for every year after. I have moved the account from one investment company to another 3 years ago. I was told this reset the clock for me. I didn’t care at the time because I am in my 40’s and had many years until I turned 59.5 years old. Unfortunately, I am possibly looking at disability. It would give me piece of mind to know that I could pull money from my Roth if needed until I am 59.5 and can pull from my 401K. Thank you so much.
Thank you for providing this information. The 5-year rule was the caveat I didn't know about when I opened my ROTH IRA. I'm 70 years old. Don't want to wait until I'm 75 years old to withdraw the money. I'm still employed. Can I roll it into my 403B Tax-Deferred Annuity? Thank you.
What happens if you have ROTH savings in a 401(k) and you make too much money to open a ROTH IRA to roll it in to? How does that work post-59 1/2 years old?
Soooo, as long as I keep my Roth 401k in my company account, I can avoid the 5 year reset, correct? And this might be a good reason to open up an account with another broker to set the new 5 year clock and move monies into that account if needed?
i'm 59 and a half can i move a ira that was from a previous employer into an existing roth 401 that i started with my new employer.
I have a question. I opened a Roth IRA in 2000 with Ameritrade. It is still open.
In April 2019 I opened a second Roth IRA in my 403B. I closed the 403B IRA in April 2021 at age 60 1/2. Thinking I would not be penalized, but I was.
Lincoln Financial penalized me. When I called to ask why I was told because the Roth was not open for at least 5 years.
Was this correct?
Thank you !
You lost me at 2:45. When you say principal, you mean contributions? I've read elsewhere and always understood that Roth contributions can be taken out at any time with no penalty. It sounds like you're saying there is a penalty under the scenario described at 2:45
Question…..why would I need to convert a roth 401k to a regular roth IRA?
Wow, I was never told about the 5 year rule. I have been buying Roth IRA's for last 12 years. I did not know; however, I had to wait a good 5 years before I could tap into it.
Great information! Thanks for clarifying this rule!
I rolled over a Roth IRA from TD Ameritrade into a Roth Schwab account. Does my 5 years start over? Edit: sounds like – yes. What if I’ve had a 401K (approx 30% is a Roth) with my employer which I’ve had for 18 years. Can I roll over my Schwab into my 401k without penalty for withdrawals?
Ok, so I just saw the above video …. nice. Question: You talked about people under 59 1/2 years of age on the Roth IRA. What about those of us that want to pull our $$ out of an annuity but minimize the tax penalty? At 70 years, are we too old for a Roth account?
Thanks for the video! I have a question. I know there's a max amount you can put into your ROTH IRA a year, 6k for me. So if I do trades inside my ROTH IRA let's say for example I buy 1k of a stock and then it goes up and I sell it for 2k (making me a 1k return) does that extra 1k now count towards the amount I've put into my ROTH? like now I can only put 4k more in? (6k total – 1k from my original investment – 1k from my profit) or is it just me depositing the 6k and EVERYTHING I make in profits (dividends, sales, etc) are free game?
And any profit I make in that case I can invest or cash out without any issues?