What Is the Roth IRA 5 Year Rule?

The Roth IRA 5 year rule is a rule that is designed to keep the money in a Roth IRA account for at least five years. This rule penalizes you if money out of your Roth IRA before five years. For most people, this is not an issue because they start the account earlier in life and they have to wait until the age of 59 1/2 before they can access the account. However, if you are getting close to retirement and you start up a Roth IRA, this rule could affect you.

If you are 58 when you start the account, you would have to wait until the age of 63 to have access to the money, because you are required to wait five years. Usually, retirement accounts have a 59 1/2 age cutoff, but if you open an IRA later in life, the age cutoff does not apply.

Keep in mind that the rule only applies to the amount of money that you earn from investment returns. With a Roth IRA, you can always take out the principle that you have put into the account at anytime. The money that you put into the Roth IRA was already deducted, so you do not have to pay a tax penalty.

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