Financial expert Suze Orman is advising Americans to open a Roth IRA now to avoid future tax issues, even with just $1. The “five-year rule” determines when Roth IRA money can be withdrawn tax-free, applying to earnings growth. Contributions can be withdrawn penalty-free at any time, but earnings require being 59½ and the account opened for five years to avoid taxes.

Orman clarifies that the five-year rule doesn’t apply to original contributions, allowing penalty-free withdrawals for the amount contributed. However, earnings growth must meet conditions of being 59½ and the account open for five years to avoid taxes. Roth conversions from traditional IRAs have their own five-year rule, with each conversion starting a new clock.

Opening a Roth IRA early is crucial, as the clock starts for tax-free withdrawals. Even starting with $1 can kickstart the process of tax-free growth for retirement savings. Orman emphasizes the importance of starting the account early to benefit from the tax advantages in the future.

Read more at Yahoo Finance.: Suze Orman Explains Why The 5-Year Clock Matters So Much