Question: When does the five-year Roth clock stop ticking, after which time the Roth IRA owner can take distributions income tax-free?

Answer: A qualified distribution from a Roth individual retirement account is excludable from income. A qualified distribution from a Roth IRA is a distribution that is made after the five-taxable-year period.

This period begins with the year in which the first contribution was made to a Roth IRA and that is made after age 59 1/2 or death, attributable to disability, or made for a first-time home purchase ($10,000 lifetime limit).

It may be advisable to make a contribution to a Roth IRA in the first year possible in order to start the running of the five-year period.

Example: Mary makes her first contribution to any Roth IRA (for 2004) on April 15, 2005. She makes additional contributions in some later years (sometimes to other Roth IRAs). Starting in 2009 (the 5th year after 2004), Mary can begin taking qualified distributions (assuming one of the other requirements–post age 59 1/2 , death, disability, or first-time home purchase–is met) from any of her Roth IRAs.

Note: IRAs cannot invest in life insurance contracts. But IRAs can be in the form of an individual retirement annuity. An individual retirement annuity is an annuity contract or endowment contract issued by an insurance company meeting certain requirements.

William J. Wagner, J.D, LL.M, CLU
Senior Associate Editor–Tax & Financial Planning
The National Underwriter Company
Erlanger, KY.
bwagner@nuco.com