One of the main benefits of a Roth 401(k) or Roth IRA is the chance to withdraw your funds completely tax-free. To get the full tax-free benefit, your distribution needs to meet specific rules set by the Internal Revenue Service (IRS). This article covers what makes a distribution qualified, how the five-year waiting period works, how rollovers and life events affect that timeline, and how to tell if your distribution qualifies.
You cannot withdraw earnings tax-free until it has been at least five years since you first contributed to a Roth account. This period begins on the first day of the tax year in which you made your first Roth contribution, no matter what day the contribution was made.
For example, if you began contributing to your Roth account on May 20, 2026, your five-year start date is Jan 1, 2026.
Here is how the five-year waiting period applies to 401(k) plans and IRAs:
Roth 401(k): Each plan you participate in has its own five-year start date. That start date applies to all Roth contributions within that plan and does not transfer to another plan, even if you roll over your Roth 401(k) assets.
Roth IRA: You have a single five-year start date that applies to every Roth IRA you have. This date is set the first time you make a contribution to any Roth IRA.
Moving Roth assets between 401(k) plans and IRAs affects the five-year waiting period in different ways:
Roth IRA to Roth IRA: There is a single five-year start date that applies to all Roth IRAs, so moving money between Roth IRA accounts does not affect the waiting period.
Roth 401(k) to Roth 401(k): Each 401(k) plan has its own five-year start date. When you roll over Roth assets from one 401(k) to another, the rolled-over assets take on the receiving plan's five-year start date. The original start date does not transfer with the assets.
Roth 401(k) to Roth IRA: When you roll over Roth 401(k) assets to a Roth IRA, the assets take on the IRA's five-year start date. If this rollover is your first-ever contribution to a Roth IRA, it starts the five-year waiting period. The five-year start date from the Roth 401(k) does not transfer.
Roth IRA to Roth 401(k): You cannot roll over Roth IRA assets to a Roth 401(k) plan.
According to the IRS, the five-year start date does not reset due to death or divorce. Distributions to beneficiaries or alternate payees use the five-year start date of the original account holder.
However, if a beneficiary or alternate payee chooses to treat the amount as their own by rolling over the assets to an account in their name, the five-year start date for that account will apply to any future distributions.
In addition to meeting the five-year waiting period, the distribution must also meet one of these requirements to be tax-free:
You are at least age 59½.
You are disabled (this uses the same definition as the 10% penalty exemption).
The distribution is made to a beneficiary or your estate upon your death.
You are a first-time homebuyer (Roth IRAs only, with a $10,000 lifetime limit).
If you take a distribution that is less than your full Roth account balance, the earnings portion may be taxed. The portion from your personal contributions is always tax-free. The IRS has specific rules for determining which portion of your distribution is considered earnings.
Distributions from a Roth 401(k) account are always split between contributions and earnings on a pro-rata basis. For example, if your Roth 401(k) is 80% contributions and 20% earnings, your distribution is considered 80% contributions (always tax-free) and 20% earnings (taxed unless it is a qualified distribution).
For Roth IRA distributions, the IRS has specific ordering rules. When applying these rules, you need to add together all Roth IRA accounts you own. The distribution order is:
Actual contributions come out first (including rollovers from Roth 401(k) accounts). These are always tax-free.
Conversions or rollovers from pre-tax retirement plans come out next (taxable assets first).
Earnings come out last, after all other assets have been distributed.
Important: Roth IRA account owners are responsible for tracking contributions, rollovers, and conversions to properly determine the taxable amount being distributed. Consider talking to a tax advisor about your situation.
Ace first contributed to a Roth IRA on Apr 14, 2009. In 2023, she has $9,800 in contributions, with $1,000 of that being earnings, and decides to take a distribution of her full account balance to purchase her first home.
Because Ace meets both the five-year waiting period and the first-time homebuyer qualified distribution event, the distribution is qualified, and the entire amount is tax-free. The full distribution of her Roth IRA balance does not restart the five-year waiting period for any future Roth IRA contributions. Her five-year start date remains Jan 1, 2009.
Polly first contributed Roth deferrals to her 401(k) plan on Jul 1, 2021. In 2023, she retires at age 64 and takes a full distribution from her Roth 401(k) account. At the time of distribution, she has $25,000 in her Roth 401(k) account, of which $6,000 is earnings.
While Polly does have a qualified distribution event (because she is older than 59½), she has not met the five-year waiting period. As a result, the $6,000 in earnings is included as taxable income for 2023.
Use this decision tree to check whether your distribution qualifies for tax-free treatment.
Step 1. Has it been at least five years (from the beginning of the year) since you first contributed to a Roth account?
For a Roth IRA, this means any Roth IRA you own.
For a Roth 401(k), this means this specific 401(k) plan's Roth contributions.
If no — The distribution is not qualified. The earnings portion may be taxed and may owe an additional 10% penalty.
If yes — Continue to Step 2.
Step 2. Were you at least 59½ at the time of the distribution?
If yes — Your distribution is qualified and is not subject to taxes and penalties.
If no — Continue to Step 3.
Step 3. Is the distribution being used to buy or rebuild a first home? (Roth IRA only)
If yes — Your distribution is qualified and is not subject to taxes and penalties.
If no — Continue to Step 4.
Step 4. Was the distribution made after the account owner's death?
If yes — Your distribution is qualified and is not subject to taxes and penalties.
If no — Continue to Step 5.
Step 5. Is the distribution due to a disability?
If yes — Your distribution is qualified and is not subject to taxes and penalties.
If no — The distribution is not qualified. The earnings portion may be taxed and may owe an additional 10% penalty.