Does transferring a roth ira reset the 5-year rule?

The 5-year rule for qualified distributions of Roth earnings begins with the first Roth IRA contribution or conversion. It doesn't restart when funds are transferred to another Roth IRA. Any subsequent Roth IRA is considered to be held for five years. Reinvestments from one Roth IRA to another do not reset the five-year time frame.

The five-year clock starts with your first contribution to any Roth IRA, not necessarily the one you're withdrawing funds from. The clock rule also applies to conversions from a traditional IRA to a Roth IRA. The second five-year rule determines whether the distribution of capital from the conversion of a traditional IRA or from a traditional 401 (k) to a Roth IRA is exempt from penalties. For most investors, it's important to know that there is a five-year waiting period for withdrawing earnings tax-free and that it applies differently, depending on whether they made contributions to the Roth IRA, converted a traditional IRA into a Roth IRA, transferred assets from the Roth 401 (k), or inherited the Roth account.

Previously, anyone who inherited a Roth IRA could choose to create something called an expanded IRA and receive distributions from it based on their own life expectancy rate. For regular account owners, the five-year rule only applies to earnings from a Roth IRA and to funds converted from a traditional IRA. The five-year Roth IRA rule states that you can't withdraw your earnings tax-free until at least five years have passed since you first contributed to a Roth IRA. The five-year rule of the first Roth IRA is used to determine if the earnings (interest) of your Roth IRA are tax-free.