There's no other retirement savings vehicle quite like the Roth IRA. The Roth IRA rewards those willing to accept deferred gratification, as it doesn't give you an upfront tax break but gives you tax-free treatment of your income and gains as long as you keep your investments inside the account. Roth IRAs are also flexible, giving you greater access to your money than traditional retirement accounts.

However, there are a couple of important rules that govern Roth IRAs. Follow them, and you'll get all the benefits that Roth IRAs offer. Break them, and you could suffer the consequences. Below, we'll look at the two five-year rules for Roth IRAs that get so many retirement savers confused.

Interstate-style road sign that says Roth, with a nearly clear sky behind.

Image source: Getty Images.

The 5-year rule for your first Roth contribution

One of the five-year rules governing Roth IRAs applies when you first make a contribution. The rule determines whether a portion of any withdrawals you take from the account is potentially subject to tax.

The general idea of the rule is that you get full tax-free treatment of any withdrawals from a Roth IRA once you've held the account for five years. The five-year period starts on the first day of the tax year for which you made the Roth contribution. So if you contributed to a Roth for the first time in early 2020 but the contribution was for the 2019 tax year, then the five years will end on Jan. 1, 2024.

If you don't meet the five-year rule, then it doesn't mean all of your withdrawals will be taxed. You still get to withdraw the amounts you contributed on a tax-free basis, because the money you put in was an after-tax contribution. Only the growth of the account is potentially subject to income tax.

However, this rule comes as a shock to some people because it supersedes the well-known rule that you have to wait until age 59 1/2 to take retirement account withdrawals without taxes and penalties. The five-year rule can cause some of your withdrawal to get included in taxable income even if you're over 59 1/2 when you do it. You won't owe the 10% penalty in that case, but you'll still owe tax on any withdrawals above the amount contributed.

The 5-year rule for Roth conversions

There's a totally different five-year rule that applies only to those who convert other types of retirement accounts into Roth IRAs. Here, the idea of the rule is to prevent people from using Roth conversions to get penalty-free access to their traditional retirement accounts.

If you withdraw money from a converted Roth IRA within the first five years after you do the conversion, then you'll have to pay the 10% penalty on any withdrawals. That includes withdrawals of the amount you initially converted -- even though you've already paid taxes on that amount.

This five-year rule also starts the clock on Jan. 1 of the year in which you do the conversion. As a result, those who convert late in the year only have to wait a bit longer than four years before taking withdrawals.

However, this five-year rule is different in that it applies separately to each Roth conversion you do. Each new conversion starts its own five-year clock, and you'll need to account for multiple conversions to make sure you don't take out too much money too soon.

You're still allowed to use other exceptions to the 10% penalty rules in a Roth conversion situation. In particular, if you're over age 59 1/2, then the age exception applies, and you can immediately take withdrawals without worrying about the penalty.

Don't let the Roth rules bite you

Even with these two rules, Roth IRAs are a great way to save for retirement. All it takes is a little awareness of the pitfalls of running afoul of the five-year rules, and you'll be able to avoid any adverse consequences for your retirement savings strategy.