The five-year waiting period for taking qualified (i.e., the gains can be taken tax and penalty free) Roth IRA distributions begins January 1 of the first year a contribution was made to any of the individual’s Roth IRAs. If you make a contribution to the Roth IRA for the prior year in the current year by April 15, the five year clock starts in the prior year. This means that if an individual opens a Roth IRA for the first time in 2020 and makes the 2019 annual contribution by April 15, 2020 the five year clock will commence as of January 1, 2019.
Just One 5 (Five) Year Clock
The five year clock does not apply separately to each Roth IRA, so if the individual has multiple Roth IRAs the clock for the oldest Roth IRA applies to all of her Roth IRAs. Another interesting fact is the five year clock never resets. This means that even if the individual fully distributes one or all of her Roth IRAs and later opens a new one, the original five year clock applies to the new Roth IRA.
Roth IRA Distributions Always Allowed
The individual can always take distributions from her Roth IRA even if considered non-qualified distributions–the earnings were distributed prior to meeting the five year clock and prior to reaching age 59 1/2. Lastly, Roth IRA contributions can always be distributed tax free, but the 10% early distribution penalty still applies if made prior to reaching age 59 1/2.