If a Roth IRA is opened on January 1, 2021, when does the 5-year period start?

The 5-year period for a Roth IRA begins on January 1 of the year in which the account is opened. Since the account in this scenario was opened on January 1, 2021, the 5-year period starts on that same date. This means that contributions made to a Roth IRA after that date and any earnings on those contributions can be withdrawn tax-free after the 5-year period, which would conclude on December 31, 2025.

Understanding the start date of the 5-year period is crucial for participants who wish to take tax-free withdrawals of their earnings, emphasizes the importance of timing when making retirement contributions.