You don't pay taxes on Roth IRA withdrawals in retirement — that's the whole point

A Roth IRA is taxed backwards from a traditional IRA. You contribute money that has already been taxed (you don't get a deduction), and then the money grows tax-free. When you withdraw it in retirement, you owe nothing — no federal income tax, no state income tax in most states, nothing. The IRS has already collected its tax on the dollars you put in.

The catch is that this tax-free withdrawal only applies if you follow two rules: you must be at least 59½ years old, and your account must have been open for at least five tax years. If you break either rule, you'll owe taxes and a 10% penalty on the earnings portion of what you withdraw — though not on your contributions themselves, which you can always pull out tax-free.

Because contributions are already taxed, the IRS doesn't care when you withdraw them. You can take out every dollar you put in at any age without penalty or tax. It's only the earnings — the investment gains — that trigger taxes and penalties if you withdraw early.

Key Takeaways

  • Roth IRA contributions are made with after-tax dollars, so you receive no tax deduction when you deposit money.
  • may have access to withdrawals (age 59½ or older, account open five tax years or longer) are completely tax-free, including all investment earnings.
  • You can withdraw your contributions at any time without taxes or penalties, but withdrawing earnings before 59½ triggers a 10% penalty plus income tax on those earnings.
  • The IRS uses a pro-rata rule if you have both traditional and Roth IRAs, which can affect how much of an early withdrawal counts as taxable earnings.

What "five tax years" actually means for your account

The five-year rule is not five calendar years from when you opened the account. It's the tax year you opened it plus four more tax years. If you opened a Roth IRA on December 15, 2024, your five-year period started January 1, 2024 — so you'll satisfy the rule on January 1, 2029.

This matters because it means an account opened late in the year counts the same as one opened on January 1. You're not penalized for timing. However, if you have multiple Roth IRAs, the five-year clock starts with your first Roth IRA ever, not with each individual account. Once one account satisfies the rule, all your Roth accounts do.

If you convert a traditional IRA to a Roth (called a Roth conversion), that conversion has its own separate five-year rule for the converted amount. You can withdraw your original contributions anytime, but the converted dollars are locked until you're 59½ and five tax years have passed since that specific conversion.

The pro-rata rule: why having both traditional and Roth IRAs complicates things

If you own both a traditional IRA and a Roth IRA, and you withdraw money from your Roth before 59½, the IRS uses a formula called the pro-rata rule to decide how much of your withdrawal counts as earnings (taxable) versus contributions (tax-free).

The rule works like this: add up the total balance of all your traditional IRAs, SEP IRAs, and SIMPLE IRAs as of December 31 of the year you withdraw. Add up all your Roth IRA balances. Divide the Roth balance by the combined total of all IRAs. That percentage is how much of your Roth withdrawal is treated as contributions (tax-free); the rest is earnings (taxable and penalized).

Example: You have a traditional IRA with $40,000 and a Roth IRA with $10,000. Total: $50,000. Your Roth is 20% of the total. If you withdraw $5,000 from your Roth at age 45, only $1,000 (20%) is treated as a contribution. The other $4,000 is earnings, subject to income tax plus a 10% penalty.

This rule applies even if you never contributed to the traditional IRA — inherited accounts and rollover balances count. Many people don't realize this until they try an early Roth withdrawal and discover they owe far more tax than expected.

Exceptions that let you withdraw earnings early without penalty

The IRS allows early withdrawal of Roth earnings (not contributions — those are always penalty-free) without the 10% penalty in a few specific situations. You still owe income tax on the earnings, but the penalty is waived.

The main exceptions are: you're disabled or chronically ill; you're withdrawing to pay medical expenses that exceed 7.5% of your adjusted gross income; you're paying health insurance premiums while unemployed; you're a first-time homebuyer taking up to $10,000 lifetime; or you're taking a substantially equal periodic payment (SEPP) based on your life expectancy. There's also an exception for may have access to education expenses, though this is rarely used because 529 plans offer better tax treatment.

Even with an exception, you still owe income tax on the earnings portion. The penalty is simply waived. And "first-time homebuyer" means you haven't owned a home in the past two years — you don't have to be buying your first home ever.

Roth conversions and the tax bill you owe immediately

When you convert money from a traditional IRA to a Roth, you owe income tax on the amount converted in that same tax year. This is not a future tax — it's due when you file your return for the year of the conversion.

If you convert $50,000 from a traditional IRA and you're in the 24% federal tax bracket, you'll owe roughly $12,000 in federal tax (plus any state tax). You can pay this from the conversion itself, but if you do, you've reduced the amount that actually moved to the Roth. Most people pay the tax from other savings so the full $50,000 ends up in the Roth.

The pro-rata rule applies to conversions too. If you have $100,000 in a traditional IRA and convert $50,000, you can't convert only the after-tax contributions and leave the pre-tax money behind. The IRS treats the conversion as coming proportionally from both pre-tax and after-tax dollars. This is why conversions are complicated if you have a mix of deductible and non-deductible contributions in the same traditional IRA.

State taxes on Roth IRAs

Most states don't tax retirement account withdrawals, including Roth IRAs. However, a handful do: Vermont, New Hampshire, and Tennessee tax interest and dividends inside retirement accounts, though not the principal. A few others have specific rules for certain types of accounts.

If you live in a state with a retirement income tax, check your state's tax authority website or speak with a tax preparer about whether Roth withdrawals are affected. In most cases, even if your state taxes retirement income, Roth withdrawals are exempt because they're not "income" in the traditional sense — they're a return of already-taxed dollars.

Required minimum distributions don't apply to Roth IRAs during your lifetime

Unlike traditional IRAs, you are not required to take money out of a Roth IRA at any age during your lifetime. You can let it grow untouched for decades. This makes Roth accounts powerful wealth-building tools if you don't need the money in retirement.

However, your beneficiaries will have to withdraw the money after you die. The rules for inherited Roth IRAs depend on whether the beneficiary is a spouse, a non-spouse family member, or a non-family member, and they changed significantly under the SECURE Act of 2019. Most non-spouse beneficiaries must empty the account within 10 years, though they don't have to take annual withdrawals — they can take it all at the end of year 10.

Frequently Asked Questions

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

No. Roth contributions are made with after-tax dollars, so there's nothing to deduct. You don't report them to the IRS. Your brokerage will send you a Form 5498 for record-keeping, but you don't attach it to your return. The IRS just wants to know about withdrawals, not contributions.

What happens if I withdraw money from my Roth before five years but I'm over 59½?

You still owe income tax on the earnings portion, even though you're old enough to avoid the 10% penalty. The five-year rule and the age rule are separate. You must satisfy both to withdraw earnings completely tax-free. If you're 60 but your account is only three years old, the earnings are taxable.

Can I avoid the pro-rata rule by closing my traditional IRA?

No. The pro-rata rule looks at your IRA balances on December 31 of the year you withdraw, regardless of whether you closed an account earlier that year. Closing or rolling over a traditional IRA to a 401(k) before the withdrawal can help, but only if the rollover happens before December 31. Timing matters.

If I inherit a Roth IRA from my spouse, do I owe taxes?

Not on the inheritance itself. You can treat the inherited Roth as your own, roll it into your existing Roth, or keep it separate. Withdrawals follow the same rules as your own Roth — tax-free if you're 59½ and the five-year rule is met. If you're younger, earnings are taxable and penalized unless an exception applies.

Do I owe taxes on Roth IRA investment gains while the money is still in the account?

No. All investment gains — dividends, capital gains, interest — grow completely tax-free inside the Roth. You only owe taxes if you withdraw the earnings before you're 59½ and the five-year rule is satisfied. This is the core advantage of a Roth over a taxable brokerage account.