Your Roth IRA and Roth 401k: The 5-Year Rule

The Roth IRA or 401k retirement plan provides for qualified distributions according to varying degree of circumstances. Even if you meet normal distribution qualifications, if you have not been contributing to an account long enough, you will not be able to receive any funds.

Qualified Distribution

You have to contribute to a Roth IRA or 401k for at least five taxable years before you are qualified to receive distributed funds. There are four ways to qualify for a distribution:

  • Reach the age of 59 1/2
  • Death of account holder leads to distribution among beneficiaries
  • Qualify based on a disability
  • Qualify for first-time home buyer benefits

Five-Year Rule

A tax year is not the same as a calendar year, so you may be eligible before or after you expect based on the IRS tax calendar. The tax year begins on January 1, but you have until April 15 of the following year to post your contribution. This means, if you post your funds in February of 2001, they actually qualify for funds contributed in 2000.

The clock starts the moment you make your first deposit and it does not reset when you make any additional deposits. Ensure to check with your plan administrator prior to expecting funds based on your qualifying event.

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