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Upon turning 59.5, one can withdraw gains from a Roth IRA without penalties and taxes if the account has been held for at least 5 years.

Before the 5 years, can the gains be invested in different funds without any penalties? If so, how does doing so affect the 5-year period? Are the differently invested gains tied to the inception date of their original account, or do they take on the inception date of the new or existing fund into which they are invested?

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Transactions that take place entirely inside the IRA are not taxable events. You can buy and sell as much as you want inside the IRA and pay no taxes.

As far as the 5-year rule, the requirement is that your withdrawal be "made after the 5-year period beginning with the first taxable year for which a contribution was made to a Roth IRA set up for your benefit" (see here). In other words, gains are not "tied" to specific investments; as long as you opened the account at least five years ago (and meet the other requirements, such as age), you can take the money out tax free.

There are separate 5-year rules for rollovers and conversions (also described on the page linked above), but these also take no account of what financial instruments your funds were invested in.

In general, transactions that take place totally within the IRA don't affect how distributions will be taxed. It doesn't matter whether you held one fund for 50 years or bought and sold every day. The IRS doesn't care what you do with the money once it's inside the IRA (except for some provisions about self-dealing and the like); they only care about when you put it in and when you take it out.

  • Is it probably best to have just one Roth IRA account with multiple funds, as opposed to multiple accounts with multiple funds? – BaronFiner Jul 22 '17 at 17:26
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    @BaronFiner: Yes, that makes things simpler. If you have multiple accounts, they won't know about each other, so it's easy to accidentally go over the contribution limits by contributing to each one. Plus it's easier to keep tabs on your investments if they're all in one place. – BrenBarn Jul 22 '17 at 17:51

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