You do not pay taxes on money you withdraw from a Roth IRA in retirement, but you do pay taxes on the money you earn before you put it in

The tax advantage of a Roth IRA is backwards from a traditional IRA. With a Roth, you contribute money that has already been taxed as income. That money then grows tax-free inside the account. When you withdraw it in retirement — both the original contribution and all the growth — you owe no federal income tax on any of it.

The trade-off is that you get no tax deduction in the year you contribute. If you earn $60,000 and put $7,000 into a Roth IRA, you still report the full $60,000 as taxable income on your tax return. A traditional IRA would let you deduct that $7,000, lowering your reported income to $53,000.

This matters most if you expect to be in a higher tax bracket in retirement than you are now, or if you think tax rates will rise. You pay tax at today's rate instead of tomorrow's rate.

Key Takeaways

  • Roth IRA contributions are made with after-tax dollars, so you receive no tax deduction when you contribute.
  • All earnings and growth inside a Roth IRA are never taxed, and you owe no tax when you withdraw them in retirement.
  • You can withdraw your contributions (not earnings) at any time without tax or penalty, but withdrawing earnings before age 59½ usually triggers a 10% penalty plus income tax.
  • Roth conversions — moving money from a traditional IRA to a Roth — are taxable in the year you convert, but the converted amount grows tax-free afterward.
  • High earners may face income limits that prevent direct Roth contributions but can use a backdoor Roth strategy to work around the limit.

When you withdraw contributions versus earnings

The IRS treats contributions and earnings differently. A contribution is money you put in yourself. Earnings are the gains, dividends, and interest the money made while sitting in the account.

You can withdraw your contributions at any age without owing tax or penalty. If you put in $7,000 and it grew to $9,000, you can pull out the $7,000 contribution anytime. The $2,000 in earnings stays in the account and grows tax-free.

If you withdraw earnings before age 59½, you owe income tax on that amount plus a 10% early withdrawal penalty — unless you meet a narrow exception (first-time home purchase up to $10,000 lifetime, disability, or a few others). After age 59½, you can withdraw earnings tax-free as long as the account has been open for at least five tax years.

How Roth conversions change your tax bill

A Roth conversion means moving money from a traditional IRA (or a 401(k) in some cases) into a Roth IRA. The money you convert is taxable income in the year you do it. If you convert $50,000, you add $50,000 to your taxable income for that year and owe tax on it at your ordinary income tax rate.

After the conversion, that money grows tax-free in the Roth, and you never pay tax on it again. Conversions make sense when you expect to be in a higher tax bracket later, or when you have a low-income year and can convert at a lower rate than usual.

You do not have to convert all at once. Some people convert a portion each year to spread the tax bill across multiple years and avoid jumping into a higher bracket in a single year.

Income limits and the backdoor Roth strategy

The IRS sets income limits on who can contribute directly to a Roth IRA. For 2024, the limit phases out between $146,000 and $161,000 for single filers, and between $230,000 and $240,000 for married couples filing jointly. These numbers change each year.

If your income exceeds the limit, you cannot make a direct Roth contribution. However, you can use a backdoor Roth: contribute to a traditional IRA (which has no income limit), then immediately convert it to a Roth. You pay tax on any earnings that accumulated during those few days, but the strategy itself is legal and widely used by high earners.

The backdoor Roth only works cleanly if you have no other traditional IRAs, SEP IRAs, or SIMPLE IRAs with pre-tax money in them. If you do, the IRS pro-rata rule requires you to pay tax on a portion of the conversion based on the ratio of pre-tax to after-tax money across all your IRAs.

State taxes and Roth IRAs

Federal tax is only part of the picture. A handful of states tax retirement account withdrawals, though most do not. New Jersey, Vermont, and a few others tax distributions from IRAs and retirement plans, including Roths.

If you live in a state that taxes retirement income, you will owe state tax on Roth withdrawals in retirement — but only if your state taxes that income. Check your state's tax agency website or speak with a tax preparer familiar with your state's rules.

Roth conversions are also subject to state tax in states that tax retirement income, in the year you convert. This is another reason to think through the timing and amount of a conversion before you execute it.

Required minimum distributions and Roth IRAs

Traditional IRAs require you to start taking required minimum distributions (RMDs) at age 73 (as of 2023; this age has been rising). Roth IRAs do not require you to take distributions during your lifetime — you can leave the money in the account to grow tax-free for as long as you live.

This is a major tax advantage of Roths. If you do not need the money, you can let it compound untouched. Your beneficiaries will inherit the Roth and can withdraw it tax-free (though they must follow distribution rules that depend on their relationship to you and when you died).

Frequently Asked Questions

Do I have to report my Roth IRA on my tax return?

You do not report Roth contributions or withdrawals on your federal tax return in most cases. However, if you do a Roth conversion, you must report the conversion amount on Form 8606 in the year you convert. Your financial institution will send you a Form 5498 showing contributions and conversions for record-keeping.

What if I withdraw money from my Roth before age 59½?

You can withdraw contributions anytime tax-free. If you withdraw earnings before 59½, you owe income tax plus a 10% penalty on the earnings — unless you meet an exception like disability, first-time home purchase (up to $10,000 lifetime), or a may have access to education expense. The account must also be open for at least five tax years.

Can I deduct my Roth IRA contribution on my taxes?

No. Roth contributions are made with after-tax dollars, so you receive no tax deduction. This is the opposite of a traditional IRA, where contributions may be deductible depending on your income and whether you have a workplace retirement plan.

Do I owe taxes on Roth IRA growth?

No. All growth, earnings, and investment gains inside a Roth IRA are never taxed. You do not owe tax on dividends, interest, or capital gains while the money is in the account, and you owe no tax when you withdraw it in retirement.

What happens to my Roth IRA when I die?

Your beneficiaries inherit the Roth and can withdraw it tax-free. However, they must follow distribution rules: spouses can treat it as their own, while non-spouse beneficiaries must generally empty the account within ten years (as of 2024). The tax-free status of the withdrawals remains intact.