For many children, a love of reading develops at different ages. A preschooler who is just learning about reading may be only interested in listening to someone read to him or her while looking at the pictures in the book. Or, some more advanced readers may start to decode words in simple stories and be able to actually begin reading.
If your 5 year old is already read well, it is probably more important to continue to foster this love of reading rather than to determine her actual reading level. However, if you are very interested in determining your child's reading level and if you are able to wait until she begins kindergarten, your child’s teacher will likely be able to better asses where she is from a reading level standpoint.
Schools often offer several different types of assessments which may be administered to help determine your child’s reading level. In addition, your child’s teacher may be able to tell you what you need to do to continue developing and cultivating her reading skills.
The most important thing is to continue to encourage your child's reading. This love of reading will continue to benefit her throughout her school years and beyond.