This is called the five-year rule. Many Roth 401 (k) account holders are confused about this because they assume they can start withdrawals without penalty after 59 1/2, as with a traditional 401 (k). However, the five-year rule supersedes that rule.
What is the 5 year 401(k) rule?
So, what have we learned: The 5-year rule means that 5 taxable years must pass on any Roth IRA or Roth 401 (k) plan before an approved distribution of funds can be withdrawn from the retirement account. You learned the difference between a traditional 401 (k) and a Roth 401 (k).
What is the 5 year rule for a Roth IRA?
The 5-year rule for Roth IRAs means that at least 5 years must elapse between the beginning of the tax year of your first contribution to a Roth account and withdrawal of earnings.
