Quick Read

• Inheriting a Roth IRA opened less than 5 years before death means that earnings are taxable until the clock runs out, while contributions are not.
• Beneficiaries should withdraw only original contributions first, leaving earnings untouched until the 5-year mark to preserve their tax-free status.
• The IRS aggregates all Roth IRAs as one account, so rolling an inherited Roth into an older existing Roth may satisfy the 5-year rule immediately.

A widower inherits his late wife’s Roth IRA. The balance reads $250,000, and he assumes every dollar is his to use tax-free. Then his accountant flags a problem. The Roth was only opened three years before his wife passed away. The earnings portion of that account has not yet cleared the five-year holding period, so withdrawing those earnings now would trigger a taxable event. The contributions are available immediately. The earnings are not.

This situation catches more beneficiaries off guard than most people expect. The average Baby Boomer’s IRA balance now sits at $286,700, according to Fidelity’s analysis of 19.6 million IRA accounts through Q1 2026, putting many inherited accounts squarely in the range of the headline figure. With Roth conversions accelerating across that generation, plenty of those accounts are newer than the people inheriting them realize.

What the Five-Year Rule Actually Does

The Roth IRA five-year rule has two distinct functions that get confused constantly. One version determines whether earnings in a Roth are distributed tax-free. The other governs Roth conversions. For an inherited account, the relevant version is the first one: the Roth must have been open for five tax years before the owner’s death for the earnings to come out tax-free.

Contributions follow a separate path. Because those dollars were already taxed on the way in, a Roth owner can always withdraw original contributions without taxes or penalties, and that treatment carries over to beneficiaries. As Suze Orman has explained on her podcast, “you can take out your contributions, the original contributions that were paid tax on by your parents at any time without taxes or penalties. It’s the earnings on the inherited IRA that has to be in there for at least five years.”

Why the Spouse Rule Does Not Save Him

Spouses get options that non-spouse beneficiaries do not. A sole-beneficiary spouse can treat the inherited Roth as their own, which sidesteps the required-distribution problem and lets the account keep compounding. Rolling the account into his own name is powerful for one specific reason: if he already owns a seasoned Roth, he can apply his own older five-year clock to the inherited balance. If he does not have an existing Roth, he is still tied to the deceased’s original opening date. Tapping the earnings now means those dollars become ordinary income. Waiting two more tax years before touching the growth makes the whole account tax-free. Either way, the contributions remain available at all times.

The Broader Inherited IRA Landscape

The five-year question is only one layer of complexity for inherited retirement accounts. The IRS finalized long-awaited regulations on inherited IRAs in July 2024, with those rules taking effect in January 2025. Non-spouse beneficiaries who inherited from someone who had already begun taking required minimum distributions (RMDs) must now take annual RMDs themselves and fully distribute the account within 10 years of the owner’s death. Missing those RMDs can trigger a penalty of up to 25%. Inherited Roth IRAs are also subject to the 10-year distribution rule for non-spouse beneficiaries, even though qualified withdrawals from a seasoned Roth remain tax-free. A surviving spouse, by contrast, is exempt from the 10-year rule and can roll the account into their own IRA with no distribution deadline imposed.

Splitting the $250,000 Into Two Buckets

The practical first step is to establish the cost basis. That means identifying how much of the $250,000 came from original contributions or conversions and how much is investment growth. Brokerage statements and old tax returns are the source documents. Once that split is clear, the beneficiary can withdraw up to the contribution amount with no tax consequences and leave the earnings untouched until the five-year mark is reached.

Suze Orman framed the order of operations directly: “know how much is contributions and only withdraw contributions. Then, when the account has met the five-year rule, you take out your earnings.” That sequence protects the tax-free status of the growth without forcing the beneficiary to leave money locked up that they may actually need.

The Aggregation Wrinkle

One detail worth checking before assuming the five-year clock has not run out. The IRS treats all of a person’s Roth IRAs as a single account for five-year rule purposes. If the surviving spouse already holds a Roth of his own that he opened more than five years ago, the inherited balance, once rolled into his name, adopts that older vintage. The entire $250,000 may effectively be fully seasoned as a result. The IRS guidance on this point is clear, and documentation of the rollover matters if the question ever arises in an audit.

What to Do With an Inherited Roth

1. Pull the original account opening date and confirm when the five-year clock started. That single date determines whether earnings come out tax-free today or whether part of the balance is still on the clock.
2. Separate contributions from earnings before taking any distribution. Contributions are always available without tax. Earnings inside the holding period are not.
3. For a spouse, decide whether to treat the account as your own or keep it as an inherited Roth. The choice affects required distributions, future contributions, and how the five-year rule interacts with any existing Roth you already hold.

Editor’s note: The Baby Boomer average IRA balance has been updated to $286,700, reflecting Fidelity’s Q1 2026 analysis of 19.6 million accounts, up from the $257,002 Q3 2025 figure used in the original article. A new section was also added to address the IRS’s July 2024 final regulations on inherited IRAs, which took effect in January 2025 and introduced annual RMD requirements and a 25% penalty for non-spouse beneficiaries who miss distributions.