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

The short answer: you pay no federal income tax on money you withdraw from a Roth IRA after age 59½, as long as the account has been open for at least five years. The contributions you put in were already taxed before they went into the account, and the earnings grow tax-free. That tax-free growth and withdrawal is why people open Roths in the first place.

The catch is that there are specific rules about when you can withdraw without penalty, and what counts as earnings versus contributions. Break those rules and you'll owe taxes plus a 10% early withdrawal penalty on the earnings portion. Understanding the difference between contributions and earnings, and knowing the five-year rule, keeps you out of trouble.

Key Takeaways

  • Contributions to a Roth IRA are made with after-tax money, so you never pay income tax on them when you withdraw them, at any age.
  • Earnings (investment gains) inside a Roth are tax-free only if you withdraw them after age 59½ and the account has been open for five tax years.
  • Withdrawing earnings before age 59½ triggers both income tax and a 10% penalty on the earnings portion, though contributions come out penalty-free.
  • The five-year rule resets for each Roth IRA you open, so opening a new account doesn't restart the clock on an older one.
  • Roth conversions (moving money from a traditional IRA to a Roth) are taxed in the year you convert, not when you withdraw later.

The difference between contributions and earnings—and why it matters

The IRS treats contributions and earnings completely differently. Your contributions are the dollars you put in yourself—that money was already taxed when you earned it, so the IRS doesn't tax it again when you take it out. You can withdraw your contributions at any time, at any age, with no tax and no penalty.

Your earnings are the investment gains—the interest, dividends, and capital gains your money made while sitting in the account. Those earnings have never been taxed. If you withdraw them before age 59½, you owe income tax on them plus a 10% early withdrawal penalty. If you wait until after 59½ and the account is five years old, you owe nothing.

The IRS uses a specific order when you withdraw: contributions come out first, then earnings. So if you have $50,000 in contributions and $15,000 in earnings, and you withdraw $30,000 before age 59½, the first $30,000 counts as contributions and comes out tax-free. Only when you start pulling out money beyond your total contributions does the earnings portion come into play.

The five-year rule and when it starts

The five-year rule is about the account, not your age. Your Roth IRA must be open for five tax years before you can withdraw earnings tax-free, regardless of how old you are. The clock starts on January 1 of the year you open the account, not on the day you fund it.

If you open a Roth on December 31, 2024, and fund it on January 1, 2025, the five-year period runs from January 1, 2024 (the tax year of opening) through December 31, 2028. You can withdraw earnings tax-free starting January 1, 2029—assuming you're also 59½ by then.

If you open a second Roth IRA later, that account has its own separate five-year clock. You don't get to combine them or use the older account's five-year history to cover the newer one. Each Roth starts fresh.

What happens if you withdraw earnings early

Withdrawing earnings before age 59½ costs you in two ways. First, you owe ordinary income tax on the earnings at your regular tax rate. Second, you owe a 10% penalty on just the earnings portion. So if you withdraw $10,000 in earnings early and you're in the 22% tax bracket, you'd owe $2,200 in income tax plus $1,000 in penalty—$3,200 total.

There are a handful of exceptions to the 10% penalty, though not to the income tax. You can withdraw earnings penalty-free (but still taxed) if you're using the money for a first home purchase (up to $10,000 lifetime), certain medical expenses, health insurance premiums while unemployed, or a may have access to disability or medical condition. You still owe income tax on those earnings, but you skip the penalty.

Contributions, remember, always come out penalty-free and tax-free, no matter your age or how long the account has been open. The penalty and tax only apply to the earnings portion.

Roth conversions and the tax bill in the year you convert

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 taxed as ordinary income in the year you do the conversion. You don't pay the tax from the IRA itself—you pay it from your regular income or savings when you file your tax return.

If you convert $50,000 from a traditional IRA to a Roth in 2024, that $50,000 is added to your taxable income for 2024. If you're in the 24% bracket, you'd owe roughly $12,000 in federal tax on the conversion. That tax is due when you file your 2024 return in 2025.

Once the money is in the Roth, it follows the normal Roth rules: contributions (the amount you converted) can come out anytime tax-free, and earnings grow tax-free if you wait until 59½ and the account is five years old. The conversion itself doesn't trigger any tax on withdrawal later—you already paid the tax upfront.

State taxes on Roth IRAs

Most states don't tax retirement account withdrawals, including Roth IRAs, but a few do. States like New York, Vermont, and a handful of others tax IRA withdrawals as ordinary income. If you live in one of these states, you'll owe state income tax on Roth earnings withdrawn before age 59½, in addition to any federal tax and penalty.

Contributions are still tax-free at the state level in these states, just as they are federally. The tax applies only to earnings. If you're planning a conversion or a large withdrawal, check your state's rules or talk to a tax preparer who knows your state's treatment of retirement accounts.

Reporting Roth withdrawals on your tax return

You report Roth IRA withdrawals on Form 8606, which is part of your annual tax return. This form tracks how much you've contributed over time and calculates how much of any withdrawal is contributions versus earnings. The IRS uses this to make sure you're not underreporting taxable earnings.

If you withdraw only contributions, you may not owe any tax, but you still need to file Form 8606 to document that. If you withdraw earnings, the taxable portion goes on your Form 1040 as ordinary income. If you owe the 10% penalty, that gets reported separately on Form 5329.

Your Roth IRA custodian (the bank or brokerage holding the account) will send you a Form 1099-R showing the total amount withdrawn. This form doesn't break down contributions versus earnings—that's your job to track and report on Form 8606.

Frequently Asked Questions

Do I have to pay taxes on Roth IRA contributions?

No. Roth contributions are made with after-tax dollars, meaning you already paid income tax on that money before putting it in the account. You never pay income tax on contributions when you withdraw them, at any age.

Can I withdraw my contributions without penalty before age 59½?

Yes. Contributions always come out penalty-free and tax-free, regardless of your age or how long the account has been open. Only earnings are subject to the 10% early withdrawal penalty and income tax if withdrawn before 59½.

What if I don't know how much I've contributed versus earned?

Your custodian can provide a statement showing your contribution history. You can also track it yourself by keeping records of every deposit you made. Form 8606 asks you to calculate this, so having documentation makes filing easier and reduces the chance of an audit.

Do I owe taxes on a Roth conversion in the year I convert?

Yes. The amount you convert is added to your taxable income for that year, and you owe income tax at your regular rate. You pay this tax from your regular income when you file your return, not from the IRA itself. Once the money is in the Roth, future withdrawals follow normal Roth rules.

What states tax Roth IRA withdrawals?

Most states don't tax retirement withdrawals, but a few including New York and Vermont do. Check your state's rules or consult a tax preparer familiar with your state's treatment of IRAs to know whether you'll owe state tax on earnings withdrawn before 59½.