The Roth IRA is a delightfully flexible retirement savings option. You can open one at any time and hold onto it for as long as you want. Unlike the traditional IRA, in which you must stop contributions and start taking distributions at age 70 1/2, you can contribute to a Roth for as long as you live and never take a single distribution.
Age 59 1/2 Rule and Five-Year Rule
You can withdraw your contributions to a Roth IRA at any time under any circumstances. Earnings, however, are another story. You must reach the age of 59 1/2, and your Roth IRA must have been open for five years, before you can take out any earnings with no taxes or penalties. If you withdraw earnings before five years have passed, you will be subject to a 10 percent penalty plus ordinary income tax. You'll also be subject to tax and penalty if you withdraw earnings before age 59 1/2.
Five-Year Rule and Multiple IRAs
You can open as many Roth IRAs as you like at any time. The five-year rule clock starts January 1 of the year you open your first IRA. For example, let's say you open your first Roth on August 2012. Subsequently, you open Roth accounts in October 2013 and December 2015. You can withdraw earnings tax and penalty-free January 1, 2017 if you're at least 59 1/2 that day.
Five-Year Rule on Conversions
If you convert money from another account to a Roth IRA before age 59 1/2, you must wait five years from the date of the conversion to withdraw the converted monies penalty free. If you turn 59 1/2 before five years have passed, you are eligible to take a distribution tax and penalty-free. The five-year clock in this instance is specific to each conversion. For example, at age 45 you roll a traditional IRA into a Roth in March 2012. You make another conversion in November 2014. You can withdraw converted assets without penalty from the first conversion in March 2017. To take out assets penalty-free from the second conversion, you have to wait until November 2019.
Conversions after Age 59 1/2
If you convert funds to a Roth after you reach 59 1/2, you can withdraw them at any time tax and penalty-free. You do not need to wait for five years to pass to take a distribution.