Five-Year Rule (Roth)
Roth accounts carry waiting periods before earnings, or converted money, come out penalty-free.
There is more than one five-year rule, which is the main reason this trips people up. They answer different questions and run on different clocks.
The first governs earnings. Your Roth IRA must have been open five tax years before investment growth can be withdrawn tax-free, even after 59 and a half. The clock starts with your first contribution to any Roth IRA, not per account, and it starts on January 1 of that tax year, so a contribution made in April for the prior year backdates the clock. Your own direct contributions are never subject to it and can be withdrawn at any time.
The second governs conversions, and it is the one that matters for early retirement. Each Roth conversion starts its own separate five-year clock. Wait out that clock and the converted principal can be withdrawn with no 10% penalty regardless of your age, which is the mechanism a Roth conversion ladder relies on. Convert and withdraw sooner and the penalty applies to the converted amount.
A third applies to inherited Roth IRAs, where the account must generally have been open five years before the beneficiary's withdrawals of earnings are tax-free. Because the clocks are independent and the consequences differ, it is worth checking which rule a given dollar falls under rather than assuming one five-year wait covers everything.
This definition is general information to help you understand a term, not financial, tax, or legal advice. Figures that change year to year (limits, thresholds, rates) should be confirmed against current official sources. For guidance on your situation, a licensed fee-only fiduciary is the right next step.