Roth IRA 5-Year Rule Explained
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One of the retirement accounts that can be fantastic for future retirees who can contribute often and follow the rules, including the five-year rule on distributions, is the Roth Individual Retirement Account (IRA).
This type of retirement account can offer future retirees the prospect of tax-free income after they reach retirement age, according to Bankrate.
Like with any type of retirement account, there are rules that you need to follow including who can contribute, how much money can be sheltered from taxes, and when those tax-free distributions can begin.
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What has become known as the five-year rule is a stipulation where five years must have passed since the tax year of your first Roth IRA contribution before you can withdraw the earnings in the account tax-free.
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For calculation purposes, the five-year clock begins ticking on January 1st of the year you made your first contribution into that account.
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