The 401(k) Roth Rule You Should Know Before Retirement

One retirement rule that can surprise future retirees is the Roth five-year requirement. Before you can take tax-free withdrawals of earnings from a Roth 401(k), the account must have been open for at least five years.

If you plan to make Roth contributions before you retire, it helps to think ahead about how you will withdraw money once you stop working. Below is a closer look at the five-year rule, why it matters, and other retirement plan changes to keep in mind.

What workers should know about the Roth five-year rule

It is important to keep track of the first date you contributed to your Roth 401(k). After five years have passed from that point, and once you are at least 59 and a half, you can take tax-free withdrawals. If you are unsure when you started contributing, you can contact your retirement plan provider or ask your employer.

What can happen if you withdraw too early

If you take money out before age 59 and a half, or before your Roth account has met the five-year requirement, your earnings may be taxed. In most cases, an early withdrawal before age 59 and a half also brings a 10% penalty. Since many people use Roth accounts for their tax-free retirement benefits, overlooking this rule can create an unexpected tax bill.

If you start Roth contributions close to retirement

Even if you begin contributing to a Roth account near retirement age, the five-year rule still applies. For example, someone who starts investing in a Roth 401(k) at age 58 and retires at 62 would still need to wait until age 63 to withdraw money tax-free.

This can matter a great deal for people who depend mainly on Social Security and only recently began saving in Roth retirement accounts. Claiming Social Security early at age 62 can significantly reduce monthly benefits. But if five years have not passed since the first Roth contribution, that account may not yet be available as a tax-free income source either unless the retiree is willing to pay a penalty. That is why early planning and understanding the rules for each retirement account are so important.

New Roth 401(k) rule taking effect in 2026

Another major retirement plan change begins in 2026. Under the SECURE 2.0 Act, workers age 50 and older who earn more than $150,000 must make catch-up contributions as Roth contributions. This is especially important for higher earners who previously used catch-up contributions to reduce their current taxable income. Roth contributions do not lower taxable income now, but they can provide tax-free withdrawals later if all requirements are met.

How much workers can contribute in 2026

The IRS has set updated contribution limits for 2026 for both 401(k) and IRA accounts. Those higher limits give workers a bigger opportunity to save for the future, especially if they use catch-up contributions. Workers can contribute up to $24,500 a year to a 401(k). If you are 50 or older, you can add another $8,000, and if you are between 60 and 63, you can make a catch-up contribution of $11,250.

For IRAs, workers can contribute $7,500 annually, and those age 50 and older can add an extra $1,100.

What if your employer does not offer Roth accounts?

Not every employer offers a Roth 401(k). If yours does not and you are over 50 earning more than $150,000 a year, you will not be able to make catch-up contributions in Roth form. You can still make standard 401(k) contributions and also open a separate IRA to save more.

Where to get help with retirement questions

If you are unsure whether you meet the requirements to take tax-free withdrawals from a Roth 401(k) or Roth IRA, a financial planner can help. A planner can review your records, confirm when you made your first contribution, and help you follow the rules for each account. They can also suggest the best withdrawal strategy for your situation.

The bottom line

The Roth five-year rule is an important detail for retirees to understand. Taking money out too soon can lead to penalties and taxes you may not have expected. If you are unsure whether you qualify, it is best to check with a professional before making a withdrawal.

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