Retirement Retirement Planning

The Key 401(k) Rule To Follow 5 Years Before You Retire

Not knowing this could lead to unexpected taxes and penalties.

By Catherine Collins , Edited by Laura Hohenstein

Updated Nov. 6, 2026

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One retirement plan rule that might catch retirees off guard is the 5-year Roth rule. This rule says that before you're allowed to withdraw your earnings tax-free from your Roth 401(k), you have to have the plan for at least five years.

So, if you're planning on making Roth contributions before retirement, it's important to consider what your overall withdrawal strategy will be once you stop working. Here's more information about the Roth 5-year rule, why it matters, and other retirement plan changes you may need to know about.

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What workers need to know about the Roth 5-year rule

Workers should keep track of the first date they make a contribution to their Roth 401(k). Once workers have made it five years past that date and are at least 59 and a half years old, they can make tax-free withdrawals. If you're not sure when you started contributing to your Roth 401(k), you can always contact your retirement plan provider or ask your employer.

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The consequences of withdrawing before the five-year Roth rule

If workers withdraw money before they're 59 and a half or before they've invested in their Roth account for at least five years, they could get taxed on their Roth earnings. Additionally, withdrawing before age 59 and a half would count as an early withdrawal and come with a 10% penalty in most situations. Most people invest in Roth accounts to enjoy the tax-free benefits later, so not being aware of this rule could come with an unexpected tax surprise.

What happens if you make Roth contributions right before retirement

If you start contributing to a Roth account right before retirement, you still need to meet the five-year requirement, even if you're over age 59 and a half. For example, if someone starts investing in a Roth 401(k) at age 58 while they're still working, and they retire at age 62, they'll still need to wait until age 63 to withdraw money from their Roth account tax-free.

This is especially significant for people who are relying primarily on Social Security to fund their retirement and only recently started contributing to Roth retirement accounts. Taking Social Security early at age 62 can result in a significant drop in the amount of your checks. However, if it hasn't been five years since you first started contributing to your Roth, you may not be able to rely on that as your retirement income either, unless you want to pay a penalty. That's why early planning and understanding the restrictions and rules of each type of retirement account are important.

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The new Roth 401(k) rule for 2026

Another significant change to retirement plans started in 2026. Due to the SECURE 2.0 Act, workers who are 50 or older and earn above $150,000 must make catch-up contributions as Roth contributions. This is an important change for workers to know, especially high-income workers who previously relied on catch-up contributions to lower their present-day taxable income. Roth contributions don't lower workers' taxable income, but as mentioned, they can offer tax-free withdrawals in retirement once you meet the requirements.

How much workers can contribute to retirement accounts in 2026

The IRS set new contribution limits for 2026 for both 401(k) and IRA retirement accounts. Because of these higher amounts, workers have an opportunity to invest considerably in their future, especially if they take advantage of catch-up contributions. Workers can now contribute up to $24,500 to their 401(k) accounts annually. If you're 50 or older, you can contribute an additional $8,000, and if you're between 60 and 63 years old, you can make a $11,250 catch-up contribution.

Workers can contribute $7,500 annually to IRAs, and once they turn 50, they can contribute an extra $1,100.

What to do if your employer doesn't offer Roth accounts

Not all employers offer Roth 401(k) accounts. If that's the case and you're over 50 earning over $150,000 a year, you won't be able to make catch-up contributions. You can still make regular 401(k) contributions and open a separate IRA and make contributions there.

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Where to get help if you have retirement questions

If you're not sure whether you've satisfied the requirements to withdraw from your Roth 401(k) or Roth IRA tax-free in retirement, consult with a financial planner. A planner can look at your records, confirm when you made your first contributions, and ensure you're following all retirement account rules. They can also make suggestions on the best withdrawal strategy for you.

Bottom line

The Roth five-year rule is especially important for retirees to know about. Withdrawing money too early from a Roth account is a financial mistake that could lead to penalties and extra taxes that you weren't expecting to pay. If you're not sure whether you meet specific requirements, you can always check with a professional before withdrawing.

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