Roth IRA Five-Year Rules, IRA Rollovers
& Key Tax Updates for September 2026

Roth IRAs remain one of the most powerful tools in a long-term tax plan — but their rules are more nuanced than many account holders realise. Two separate five-year clocks govern when earnings can come out tax-free, and a separate set of rules determines whether IRA rollovers are done correctly. Add in a new break for natural disaster victims, a significant ruling on beneficial ownership reporting, and an updated picture of IRS enforcement, and September 2026 brings a full slate of developments worth reviewing with your adviser.

1. The Two Roth IRA Five-Year Rules — Explained

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Most Roth IRA owners are aware of one five-year rule. In fact there are two, and they operate independently. Getting them confused — or missing them entirely — can mean an unexpected tax bill or penalty on a distribution you assumed would be clean.

Rule One: Tax-Free Earnings After Age 59½

This rule affects the vast majority of Roth IRA owners. For earnings distributions after age 59½ to be fully tax-free, at least five tax years must have passed since the owner first funded any Roth IRA — whether through a contribution, rollover, or conversion. The clock starts on January 1 of the year you first funded a Roth IRA, regardless of how many Roth accounts you have opened since or how many additional contributions or conversions you have made. It does not restart.

Three scenarios illustrate how this plays out in practice:

Rule Two: The Anti-Abuse Rule for Early Converters

This rule is far less commonly encountered. It applies only to Roth conversions made by someone under age 59½, and it exists to prevent a specific loophole: because Roth conversions themselves are not subject to the 10% early withdrawal penalty, someone could theoretically convert traditional IRA funds to a Roth and then immediately withdraw the converted principal penalty-free.

To close that gap, if you are under 59½ when you do a Roth conversion and you then withdraw the converted principal within five years of that conversion — and you are still under 59½ at the time — the 10% early distribution penalty applies to the amount withdrawn. Unlike Rule One, each conversion carries its own separate five-year period. Once you reach 59½, this rule no longer applies regardless of when the conversion was made.

2. Three IRA Rollover Rules You Cannot Afford to Miss

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An IRA rollover done incorrectly becomes a taxable distribution — potentially with a 10% penalty on top. Three rules govern the process:

• 1 60-day recontribution deadline. Once you take a distribution from an IRA, you have 60 days to redeposit the funds into an IRA or the distribution becomes fully taxable. IRS does offer self-certification relief for late rollovers in certain qualifying situations — but the late rollover must still be completed within 30 days of the reason for the delay ceasing. If self-certification is not available, you must request a private letter ruling from IRS and pay the associated user fee.
• 2 Same property must be rolled over. You must recontribute the same property you received. If the distribution was cash, cash must go back in. If it was 75 shares of a specific stock, those same shares must be returned.
• 3 One rollover per 12 months — across all your IRAs. This limit applies in aggregate to all IRAs you own, not per account. However, direct trustee-to-trustee transfers between IRAs are unlimited and do not count as rollovers. The same applies when an IRA owner receives a check made payable to the new IRA rather than to themselves.

In a notable recent private letter ruling, IRS granted a fraud victim additional time to complete her rollover after scammers posing as government officials convinced her to transfer IRA funds to a foreign bank account. Once she identified the fraud and reported it to authorities, IRS allowed her to return the funds to her IRA beyond the 60-day window. Separately, IRS Notice 2026-49 provides new rollover procedures and sample forms for 401(k) plan sponsors handling rollovers to an IRA or to a new employer's plan.

3. Natural Disaster Loss Deductions: New Relief for 2025 & 2026

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Legislation expected to be signed into law provides expanded disaster loss deductions for victims of natural disasters that occurred after July 4, 2025. The relief mirrors provisions previously available to victims of disasters occurring between 2018 and July 4, 2025. Key points:

• Qualified disaster losses are deductible in excess of a $500 threshold — without needing to clear the standard 10%-of-AGI offset that normally applies to personal casualty losses.
• The relief covers losses incurred before January 1, 2027.
• Both standard deduction filers and itemisers on Schedule A can claim the deduction.
• If you suffered a disaster loss in 2025 after July 4 and filed your return under the old rules, you can amend your 2025 return using Form 1040-X to claim the enhanced deduction.
• If you suffer a 2026 disaster loss, you can elect to claim it on your 2025 or 2026 return — whichever produces the greater tax benefit — again using Form 1040-X to amend 2025 if you choose that year.

4. BOI Reporting: U.S. Companies Are Now Exempt

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The Corporate Transparency Act of 2021 originally required small corporations, LLCs, and similar entities to report beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN). Following litigation and a change in administration, FinCEN proposed exempting U.S. companies from the requirement in early 2025. Final regulations have now been published, confirming that position:

• U.S. companies are fully exempt from filing BOI reports with FinCEN.
• Foreign companies that are still required to file do not need to include the BOI of any U.S. company applicants in their reports.

If your business spent time and resources preparing for BOI compliance, no further action is required under the final rules. Foreign-owned or foreign-registered entities operating in the U.S. should review their specific filing obligations with counsel.

5. Conservation Easements, Tax Court Deadlines & Preparer Rules

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Conservation easement settlement program closed. IRS has ended its settlement program for pass-through entities involved in abusive conservation easement transactions. In its place, the agency is establishing a new Office of Conservation Easements to centralise policy, enforcement, and case-resolution strategy across IRS divisions, Treasury, and practitioner groups. Entities still in dispute should expect a more coordinated — and likely more aggressive — enforcement posture.

Tax Court petition deadline — circuit split persists. The 90-day deadline for filing a Tax Court petition after a notice of deficiency remains contested. Four circuit courts (the 2nd, 3rd, 6th, and now the 8th) have ruled the deadline is not jurisdictional and can be extended on equitable grounds. The 1st Circuit disagrees, holding the deadline mandatory even if not jurisdictional. Until the Supreme Court resolves the split, whether a late petition can survive depends on which circuit's law applies to your case.

Preparer e-filing rules — a reminder. Any paid preparer who expects to file more than 10 Forms 1040, 1040-SR, 1040-NR, or 1041 (in any combination) during the year must e-file those returns. Three exceptions exist: the client opts out in writing (Form 8948 must be attached to the paper return); the preparer obtains a hardship waiver on Form 8944 by February 15 of the relevant year; or a narrow administrative exemption applies. Data security plans (WISPs) are mandatory for all paid preparers — IRS Publication 5708 provides a template.

Questions on any of these developments? Contact our CPAs for personalised guidance.