There's a couple different five year rules surrounding Roth accounts, with some unfortunate use of terminology that is confusing.
Five Years After Establishing Your Roth IRA, Your Distributions Can Be Qualified
From IRS Publication 590-B:
Are Distributions Taxable?
You don't include in your gross income qualified distributions or distributions that are a return of your regular contributions from your Roth IRA(s). You also don't include distributions from your Roth IRA that you roll over tax free into another Roth IRA. You may have to include part of other distributions in your income. See Ordering Rules for Distributions , later.
So what are qualified distributions? Again from IRS Publication 590-B
What Are Qualified Distributions?
A qualified distribution is any payment or distribution from your Roth IRA that meets the following requirements.
- It is made after the 5-year period beginning with the first taxable year for which a contribution was made to a Roth IRA set up for your benefit, and
- The payment or distribution is:
a. Made on or after the date you reach age 59½,
b. Made because you are disabled (defined earlier),
c. Made to a beneficiary or to your estate after your death, or
d. One that meets the requirements listed under First home under Exceptions in chapter 1 (up to a $10,000 lifetime limit).
Do not get this confused: a distribution does not have to be qualified to be not subject to the 10% early withdrawal penalty. Distributions that are a return of regular contributions, Roth IRA rollovers, or qualified plan rollovers after 5 tax years (see next section) aren't subject to penalty.
There is NO five year rule for withdrawing your previous contributions from your Roth IRA without penalty. Furthermore, because of the ordering rules, whenever you withdraw money from your Roth IRA, your contributions are withdrawn first (IRS Publication 590-B):
Ordering Rules for Distributions
If you receive a distribution from your Roth IRA that isn't a qualified distribution, part of it may be taxable. There is a set order in which contributions (including conversion contributions and rollover contributions from qualified retirement plans) and earnings are considered to be distributed from your Roth IRA. For these purposes, disregard the withdrawal of excess contributions and the earnings on them (discussed under What if You Contribute Too Much? in chapter 2 of Pub. 590-A). Order the distributions as follows.
- Regular contributions.
- Conversion and rollover contributions, on a first-in, first-out basis (generally, total conversions and rollovers from the earliest year first). See Aggregation (grouping and adding) rules, later. Take these conversion and rollover contributions into account as follows:
a. Taxable portion (the amount required to be included in gross income because of the conversion or rollover) first, and then the
b. Nontaxable portion.
- Earnings on contributions.
Disregard rollover contributions from other Roth IRAs for this purpose.
Five Tax Years After an IRA or Qualified Plan Rollover, Distributions Can Be Not Penalized
From IRS Publication 590-B
Distributions of conversion and certain rollover contributions within 5-year period.
If, within the 5-year period starting with the first day of your tax year in which you convert an amount from a traditional IRA or rollover an amount from a qualified retirement plan to a Roth IRA, you take a distribution from a Roth IRA, you may have to pay the 10% additional tax on early distributions. You generally must pay the 10% additional tax on any amount attributable to the part of the amount converted or rolled over (the conversion or rollover contribution) that you had to include in income (recapture amount). A separate 5-year period applies to each conversion and rollover. See Ordering Rules for Distributions , later, to determine the recapture amount, if any.
The 5-year period used for determining whether the 10% early distribution tax applies to a distribution from a conversion or rollover contribution is separately determined for each conversion and rollover, and isn't necessarily the same as the 5-year period used for determining whether a distribution is a qualified distribution. See What Are Qualified Distributions? , earlier.
For example, if a calendar-year taxpayer makes a conversion contribution on February 25, 2017, and makes a regular contribution for 2016 on the same date, the 5-year period for the conversion begins January 1, 2017, while the 5-year period for the regular contribution begins on January 1, 2016.
A qualified plan is a workplace retirement plan like a 401(k), 403(b), or 457(b).
The same rules governing the often discussed Roth conversion pipeline apply to rollovers from (Roth or traditional) workplace retirement accounts to Roth IRAs. That is, rolling over a Roth 401(k) to a Roth IRA means you have to wait 5 tax years before you can withdraw the conversion amount penalty free. This is not a qualified distribution.
Five Year Rule for Withdrawing "Contributions" to the Backdoor Roth IRA
For background on the backdoor Roth: Bogleheads wiki
In short: if you're ineligible to contribute directly to a Roth IRA because of the income limits, then you can make non deductible contributions to a traditional IRA, and then convert that money into a Roth IRA. If there are any earnings in the traditional IRA between when you make the non deductible contributions and converting to a Roth IRA, you are responsible for the taxes on those earnings.
To be clear: "contributions" to the backdoor Roth IRA aren't legally contributions; they're conversions from a traditional IRA.
So is there a five year rule? Well from the previous quote:
If, within the 5-year period starting with the first day of your tax year in which you convert an amount from a traditional IRA or rollover an amount from a qualified retirement plan to a Roth IRA, you take a distribution from a Roth IRA, you may have to pay the 10% additional tax on early distributions.
Because a "contribution" to the backdoor Roth is really a conversion, it would seem so. However, we have to carefully read the next sentence:
You generally must pay the 10% additional tax on any amount attributable to the part of the amount converted or rolled over (the conversion or rollover contribution) that you had to include in income (recapture amount).
Assuming you convert the non deductible traditional IRA contributions to a Roth on the same day, meaning there's no gains in the traditional IRA before the conversion, and you weren't subject to the pro-rata rule (see the background link above if you don't know what that means), the conversion amount isn't subject to recapture. Because that conversion isn't included in income, you don't pay the additional 10% tax (penalty).
If, on the other hand, you did have some gains in the traditional IRA before the conversion, and under the ordering rules of contributions you end up withdrawing these gains, the portion of the distribution (withdrawal) attributable to these gains would be subject to the 10% penalty if you did so without waiting five tax years.
Furthermore, if any of the conversion amount was subject to the pro rata rule, and under the ordering rules of contributions you end up withdrawing amounts that were previously subject to the pro rata rule, then the amount that you had to previously include in income for the conversion because of the pro rata rule is also subject to the 10% penalty if you don't wait five tax years.
So to summarize:
- If you don't have any gains in your tIRA before converting to a Roth IRA, and you're not subject to the pro-rata rule, you're not subject to a 5 year rule for avoiding the 10% penalty for withdrawing "contributions" to the backdoor Roth.
- If you were subject to the pro-rata rule, and/or you had some gains in your tIRA before converting to a Roth IRA, only these amounts are subject to the 10% penalty when withdrawing "contributions" to your backdoor Roth.
Five Year Rule for Inheritance
From IRS Publication 590-B
If a Roth IRA owner dies, the minimum distribution rules that apply to traditional IRAs apply to Roth IRAs as though the Roth IRA owner died before his or her required beginning date. See When Can You Withdraw or Use Assets? in chapter 1.
Distributions that aren't qualified distributions.
If a distribution to a beneficiary isn't a qualified distribution, it is generally includible in the beneficiary's gross income in the same manner as it would have been included in the owner's income had it been distributed to the IRA owner when he or she was alive.
If the owner of a Roth IRA dies before the end of:
- The 5-year period beginning with the first taxable year for which a contribution was made to a Roth IRA set up for the owner's benefit, or
- The 5-year period starting with the year of a conversion contribution from a traditional IRA or a rollover from a qualified retirement plan to a Roth IRA,
each type of contribution is divided among multiple beneficiaries according to the pro-rata share of each. See Ordering Rules for Distributions , earlier in this chapter under Are Distributions Taxable?
I don't expect this comes up too often, but I include it for completeness.