The 5 Year Retirement Rule The IRS Hopes You Overlook

#retirementplanning #retirementreadiness
Most people treat a Roth as clean the day the money lands. It is not. There is not one five-year rule. There are three different clocks, and a wrong withdrawal can mean income tax on the growth, a 10% extra tax, or both.

This is an educational overview of Roth IRA timing, not a tax return. Your Form 8606 and your conversion years control the real answer. Confirm your clocks, beneficiary type, and death year with a qualified tax professional and IRS Publication 590-B.

What this video covers:
- Why “the” five-year rule is actually three clocks: earnings, each conversion year, and inherited accounts
- Contributions: generally tax- and penalty-free at any time, and they come out first
- Earnings: usually need a qualifying reason (often age 59½, or death, disability, or the first-home limit) and the five-year clock. An exception can drop the 10% extra tax and still leave earnings taxable
- Conversions: a separate five-year clock per conversion year, mainly a 10% issue if you are under 59½. After 59½ that conversion penalty generally ends
- IRS ordering: you do not label the dollars. Contributions, then conversions oldest year first, then earnings
- Inherited Roths: the 10-year empty date is not the earnings five-year test. The heir inherits the owner’s clock. The 10% extra tax generally does not apply to inherited IRAs

Chapters
0:00 Not one clock
0:55 Five rules before you touch a dollar
2:29 Rule 1: the lifetime earnings clock
3:28 Rule 2: each conversion year
4:31 IRS ordering — contributions first
5:33 Inherited: 10-year empty is not the earnings clock
6:40 Inherited Roth: tax vs. the empty date
7:51 What to do before you pull a dollar

Three moves from the close:
1. Fund a Roth IRA, even a small amount, so the lifetime earnings clock starts January 1 of that tax year.
2. Keep a conversion ledger by year and taxable amount on Form 8606.
3. If you need cash before 59½, take contributions first. Name living beneficiaries so the account does not default to the estate.

Read: IRS Publication 590-B
Track: Form 8606
Review: Roth beneficiary designations

Educational only. Not tax, legal, or investment advice. Rules depend on your age, contribution year, conversion years, basis, and beneficiary type.

#RothIRA #Retirement #Taxes


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