Roth 401(k) Five-Year Rule: What Rolling to a Roth IRA Does to the Clock

Why there are two clocks and not one

A Roth withdrawal is either qualified or it is not. Qualified means the growth comes out with no tax on it, which is the entire reason anybody uses a Roth account in the first place. Not qualified means the growth is taxed as ordinary income, and if you are under 59 and a half there is usually a 10% penalty on top.

Two conditions have to be met at the same moment for a withdrawal to be qualified. You have to be 59 and a half, or dead, or disabled. And a five-year clock has to have run.

The age is easy. Everybody knows it, nobody misreads it, and it arrives on a date you can predict from birth. The clock is where the money goes, and the reason is that there is more than one of them.

Your Roth 401(k) clock belongs to the plan. It starts on 1 January of the year you made your first designated Roth contribution to that particular plan. Not to Roth accounts in general, and not to an employer you left. Change jobs and the new plan starts a new clock from zero, even if you have been paying into Roth 401(k)s for fifteen years.

Your Roth IRA clock belongs to you. It starts on 1 January of the year you first put money into any Roth IRA, at any provider, and it never restarts. Open six more accounts over the next twenty years and they all inherit that same original clock. Close the first account entirely and the clock still stands.

Those two rules are not variations on a theme. One is attached to an employer's plan document and the other is attached to you as a taxpayer, and the moment they collide is when you move money from the first into the second.

What the rollover does, which is not what most pages say

Search this subject and you will find two confident and contradictory answers. One says your years in the plan carry over. The other says the clock always restarts and your decade of Roth 401(k) contributions counts for nothing. Neither is right, and the difference between them is worth years.

When you roll a Roth 401(k) into a Roth IRA, what matters is whether the distribution coming out of the plan was itself qualified.

If it was qualified, meaning your plan clock had run and you were already 59 and a half, then the entire amount that lands in the Roth IRA is treated as basis. Basis is money you have already paid tax on, and it comes out of a Roth IRA tax free and penalty free at any time, in any amount, regardless of how old the receiving account is. You could open the Roth IRA on a Monday, receive a qualified $400,000 rollover on the Tuesday, and withdraw the whole $400,000 on the Wednesday with no tax. The new account's five-year clock is irrelevant to that money.

If it was not qualified, only the contribution portion becomes basis. The growth stays growth, and it lands under the receiving account's clock rather than the plan's. This is the case where years are genuinely lost.

So the question is never "does the clock restart". The question is whether the distribution was qualified on its way out. And that has an uncomfortable answer for one specific group of people.

Work out which of these you are

Put in the year you first paid into your current employer's Roth 401(k), the year you first put anything into a Roth IRA, and the year you were born. The two panels show when growth becomes tax free if you leave the money alone, and what rolling it into a Roth IRA does to that date.

What the receiving account's age is worth, in years

Four people who are all 63, all past 59 and a half, all with a Roth 401(k) they first paid into in 2022, all rolling it out this year. Left in the plan, their growth would be tax free from 2027. The only difference between them is when they first put anything into a Roth IRA.

The top two rows are the same as never having a problem. The bottom row is a wait bought for nothing by somebody who did everything else right and opened the receiving account at the one moment that could hurt them.

Who this actually catches

Three people, one rule, three different answers. This is worth walking through, because which one you are decides whether any of this costs you a penny.

Too young for it to bite. Somebody who is 46 rolls into a Roth IRA opened this year, so the new clock ends in 2031. They reach 59 and a half in 2040, which is 9 years later. The age is what they are waiting for, not the clock, so the rollover costs them nothing. Almost everybody rolling a 401(k) is in this position, which is why the rule has a reputation for being a technicality.

Old enough, and the plan clock has run. Somebody who is 63 and first paid into their Roth 401(k) in 2015. Their plan clock finished in 2020 and they passed 59 and a half in 2023, so the distribution is qualified. The entire balance lands in the Roth IRA as basis and every dollar of it is reachable tax free the same day, even though the account was opened that morning. The rollover costs them nothing either. This is the case that pages warning you the clock always restarts get wrong.

Old enough, and the plan clock has not run. The same 63-year-old, but their plan only started offering a Roth option in 2022. The plan clock does not finish until 2027, so the distribution is not qualified, so their growth arrives as growth and sits behind the new account’s clock until 2031. Leaving it alone would have got them there in 2027. That is the whole trap, and it is 4 years wide.

Notice what the third person did wrong, because it is nothing. They did not withdraw early, pick bad funds or miss a deadline. They opened the receiving account on the day they needed it, which is when a sensible person would.

Why a Roth 401(k) withdrawal costs more than a Roth IRA one

There is a second difference between the two account types that gets even less coverage than the clocks, and it runs the other way. It is a reason to move money into a Roth IRA rather than a reason to keep it out.

If you take a non-qualified withdrawal from a Roth 401(k), you cannot choose to take only your contributions. Every dollar comes out pro rata, split between basis and growth in the same proportion as the account itself.

Say your Roth 401(k) holds $120,000, of which $80,000 is what you put in and $40,000 is growth. That is two thirds basis and one third growth. Take $12,000 out before the withdrawal is qualified, and the IRS treats it as $8,000 of basis and $4,000 of growth. The $4,000 is taxable income. At a 22% marginal rate that is $880, plus a $400 penalty if you are under 59 and a half with no exception available.

Now do the same thing in a Roth IRA. The ordering rules there take contributions out first, all of them, before touching any growth. The same $12,000 comes entirely out of your $80,000 of contributions. Nothing is taxable. Nothing is penalised. You do not even report it as income.

That is a real advantage of the Roth IRA, and it applies to the case where the rollover trap does not: somebody under 59 and a half. If you leave an employer at 45, roll your Roth 401(k) into a Roth IRA, and later need to reach some of that money, the contribution portion is available to you without tax. Leaving it in the plan would have made every withdrawal partly taxable.

Rolling a Roth 401(k) into a Roth IRA is usually the better move. It is cheaper, the investment choice is wider, the ordering rules are kinder, and the trap on this page needs a fairly specific set of circumstances to bite. The point is not to avoid the rollover. It is to open the receiving account early enough that the one circumstance where it costs you cannot arise.

What to do about it

Open a Roth IRA now, whatever your age, and put something in it. The smallest amount the provider accepts is enough. A $50 contribution starts the clock exactly as well as a maximum one, and a clock started in 2026 is satisfied in 2031 whether or not you ever add another dollar. You need earned income for the year to contribute, and the usual income limits apply, but nothing obliges you to use the full allowance.

Do it years before you need it, not on the day you roll over. The clock cannot be backdated and there is no way to buy the years back. Opening the account when the transfer is already in motion is the one version of this that does not work.

Find the year, and write it down. No provider prints “your five-year clock started in 2019” on a statement. What you want is the year of your first contribution to any Roth IRA, at any provider, including accounts you have since closed. Form 5498 for that year records it, and so does a January statement. Put the year somewhere you will still have it at 60, because you will be asked to prove it by nobody and to remember it by yourself.

Check your plan’s clock separately. Your Roth 401(k) clock started with your first designated Roth contribution to that plan, not to any earlier employer. Somebody who paid into a Roth 401(k) for a decade and changed jobs two years ago has a two-year-old clock in the current plan. Payroll or the plan administrator can tell you the year; a rollover from an old plan into the current one does not reset it, but it does not help either unless the receiving plan says otherwise.

Do not assume a conversion did the job. A Roth conversion starts its own five-year clock, and that one is about the 10% early withdrawal penalty on the converted amount, not about whether growth is taxed. A conversion does start the account’s qualification clock if it was your first money in a Roth IRA, so it is not worthless. If you want certainty, make a plain contribution, which is unambiguous.

Leaving it in the plan is a real option. A Roth 401(k) whose clock has already run needs no rescuing, and since 2024 Roth 401(k)s no longer have required minimum distributions, which removed the main reason people used to roll out. Lower fees, wider investment choice and having one account instead of four are all still good reasons. They are just worth weighing before the transfer rather than discovering the wait after it.

Where this fits with everything else

If you are weighing up Roth against traditional in the first place, rather than working out when you can touch money already in a Roth, start with our comparison of 401(k), Roth 401(k), traditional IRA and Roth IRA, which covers who each one suits.

The mechanics of actually moving a plan, including direct against indirect rollovers and the 60-day rule, are in our guide to transferring a 401(k) from a previous employer. If what you need is money out rather than money moved, withdrawing from a 401(k) covers loans, hardship withdrawals and the exceptions to the early withdrawal penalty.

And if the reason you are reading this is that you are trying to work out which accounts to fill first, tax advantaged retirement accounts sets out the order most people should use.

How this is calculated

• Five taxable years, not five calendar years. The clock starts on 1 January of the year of the first contribution, whenever in that year it was made. Money paid in during December 2022 has a clock satisfied on 1 January 2027, which is four years and one month later. The calculator works in years for this reason.
• The age test is shown as the year you turn 60. 59 and a half falls in the year you turn 60 for anybody born in the second half of the year, and in the year you turn 59 for everybody else. Rounding to the later of the two means the date shown is one you can rely on rather than one that might be six months early.
• A qualified rollover converts the whole balance to basis. Where the distribution from the plan is qualified in its own right, the entire amount rolled over becomes investment in the contract in the receiving Roth IRA, so none of it is exposed to that account's clock.
• The delay is measured from the rollover. Somebody whose plan clock ran out years ago is not delayed by the gap between then and a new clock, because that date is behind them. A five-year clock cannot cost more than five years and the calculator will never report more.
• Death and disability satisfy the age half at any age. The clock still has to have run. A first home purchase is a Roth IRA exception only, capped at $10,000 over a lifetime, and is not available from a Roth 401(k).
• Conversions run a separate clock. Each conversion has its own five-year period, and that one governs the 10% penalty on the converted amount rather than whether growth is taxed. The calculator does not model conversions.

The rules for designated Roth accounts, including what makes a distribution qualified and how a non-qualified one is prorated, are set out in the IRS FAQs on designated Roth accounts. The treatment of amounts rolled from a designated Roth account into a Roth IRA, and the Roth IRA ordering rules, are covered in IRS Publication 590-B.

Frequently asked questions

Does rolling my Roth 401(k) into a Roth IRA restart the five-year clock?

It depends on whether the distribution out of the plan was qualified. If your plan's clock had run and you were already 59 and a half, the whole balance arrives as basis and is available tax free immediately, so nothing is restarted in any way that costs you. If the distribution was not qualified, your growth moves under the receiving account's clock, which may be younger than the plan's. The plan's own clock never transfers either way.

I have paid into Roth 401(k)s for ten years at three employers. What is my clock?

For your current plan, it started with your first designated Roth contribution to that plan. Ten years across three employers can leave you with a two-year-old clock at the one you are with now. Your Roth IRA clock is the one that would have been running all along, which is why opening a Roth IRA early is the fix for all of this.

What if I have never had a Roth IRA?

Open one and put in whatever the provider's minimum is. The clock starts on 1 January of that year and runs whether or not you ever add to it. You need earned income for the year and the usual Roth IRA income limits apply. If you are already at the point of rolling money over, opening the account now is still worth doing, because it is the only way the clock ever starts.

Are my own contributions at risk?

No. Contributions are money you have already paid tax on and they are never taxed again. In a Roth IRA they come out first and at any time under the ordering rules. In a Roth 401(k) they come out pro rata alongside growth, which is worse but still not taxed. Everything on this page is about growth.

Does a Roth conversion start the clock?

It starts one, and if the conversion was your first money in a Roth IRA it does start that account's qualification clock. But each conversion also runs its own separate five-year period governing the 10% penalty on the converted amount, and the two are easy to confuse. A plain contribution is unambiguous, which is why it is the thing to do if you want certainty.

Do I still have to take RMDs from a Roth 401(k)?

No. Required minimum distributions were removed from designated Roth accounts from 2024 onwards, which took away the main reason people used to roll a Roth 401(k) out at 73. It is still often worth rolling out for lower fees and wider investment choice. It is just no longer forced.

How do I find out when my Roth IRA clock started?

Look for the earliest Form 5498 you have, which reports contributions for the year, or a January statement from the year you opened the account. If the provider is one you have left, their records may still be reachable by asking. Once you have the year, write it down somewhere permanent, because nobody prints it on a statement and you will want it decades from now.