Roth IRA withdrawals are taxed differently depending on whether you're taking out contributions or earnings, and how long you've held the account
The short answer: your contributions (the money you put in) come out tax-free at any time. Your earnings (investment gains) are tax-free only if you follow two rules — you must be at least 59½ years old and have held the account for at least five tax years. If you withdraw earnings before meeting both conditions, you owe income tax on those earnings plus a 10% early withdrawal penalty.
This is the opposite of a traditional IRA, where you get a tax deduction when you contribute but pay income tax on everything you withdraw. With a Roth, you pay tax upfront (on the money you contribute with after-tax dollars), then never pay tax again on that account if you follow the rules.
Key Takeaways
- Contributions to a Roth IRA always come out tax-free, no matter your age or how long you've held the account.
- Earnings are tax-free only if you are at least 59½ and have owned the Roth for at least five tax years — both conditions must be met.
- Withdrawing earnings before age 59½ or within five years triggers income tax on those earnings plus a 10% penalty, unless an exception applies.
- The IRS tracks contributions and earnings separately, so you cannot choose to withdraw only earnings and avoid the penalty.
- Roth conversions and backdoor Roths have their own five-year rules that can affect when you can withdraw converted amounts without penalty.
How the five-year rule works
The five-year clock starts on January 1 of the tax year you first contribute to any Roth IRA — not when you open the account. If you open a Roth on December 15, 2024 and contribute for the 2024 tax year, your five-year period begins January 1, 2024. If you don't contribute until 2025, it begins January 1, 2025.
You only need one five-year period to satisfy the rule for all your Roth accounts. If you own three separate Roth IRAs, the five-year clock applies to all of them together, not to each one individually. Once five tax years have passed, you never have to worry about this rule again for that Roth — even if you stop contributing.
The five-year rule is separate from the age requirement. You can meet the five-year rule at age 35 and still owe a 10% penalty if you withdraw earnings at age 50. Conversely, you can be 65 years old but still owe the penalty if you opened your Roth only two years ago.
What happens when you withdraw before age 59½
If you withdraw earnings before turning 59½, the IRS treats the withdrawal as a taxable distribution. You owe income tax at your ordinary tax rate (not capital gains rates) on the earnings portion, plus a 10% early withdrawal penalty on top of that. The penalty is calculated on the earnings amount, not the entire withdrawal.
Example: You have a Roth with $10,000 in contributions and $2,000 in earnings. You withdraw $5,000 at age 45. The IRS assumes you withdrew contributions first (up to $5,000), so no tax or penalty applies. But if you withdraw $12,000, the first $10,000 is contributions (tax-free), and the remaining $2,000 is earnings. You owe income tax on that $2,000 plus a 10% penalty ($200).
Several exceptions exist to the 10% penalty, though not to the income tax itself. You can withdraw earnings penalty-free (but still owe income tax) if you are disabled, a first-time homebuyer (up to $10,000 lifetime), or taking distributions after the account holder's death. Medical expenses above 7.5% of your adjusted gross income and health insurance premiums while unemployed also may have access to.
Roth conversions and the pro-rata rule
If you convert money from a traditional IRA to a Roth, the five-year rule applies separately to that converted amount. You can withdraw your original contributions anytime tax-free, but converted amounts are subject to a different five-year rule. You must wait five tax years from the conversion year before withdrawing the converted funds penalty-free, even if you are over 59½.
The pro-rata rule complicates backdoor Roths and conversions. If you have any pre-tax money in traditional IRAs, SEP IRAs, or SIMPLE IRAs, the IRS treats all your IRAs as one pool when you convert. You cannot convert only the after-tax portion and leave the pre-tax portion behind. A portion of your conversion is taxable based on the ratio of pre-tax to after-tax money across all your accounts.
This rule catches many people doing backdoor Roths. If you have a traditional IRA with $50,000 in pre-tax contributions and you try to convert $6,000 of after-tax contributions to a Roth, the IRS treats the conversion as 89% pre-tax and 11% after-tax. You owe income tax on $5,340 of the conversion, even though you only converted after-tax money.
Required minimum distributions do not apply to Roth IRAs
Unlike traditional IRAs, you are never required to withdraw money from a Roth IRA during your lifetime. The account can grow tax-free indefinitely, and you can leave it to heirs. This makes Roths powerful for long-term wealth building and estate planning.
Your beneficiaries will eventually have to withdraw the money, but they inherit the tax-free status. If the original account holder met the five-year rule and was over 59½, all withdrawals by the beneficiary are tax-free. If not, the beneficiary owes income tax on earnings but not on contributions.
State and local taxes on Roth withdrawals
Federal tax rules do not apply to state and local income taxes. Most states do not tax Roth withdrawals because the federal government already exempted them, but a few states have their own rules. Check your state's tax authority website or speak with a tax professional if you live in a state with high income tax.
Some states tax all retirement account withdrawals regardless of federal treatment, while others exempt Roths entirely. The variation is significant enough that it can affect where you choose to retire or when you time large withdrawals.
How to track contributions versus earnings
Your Roth IRA custodian (the bank, brokerage, or investment firm holding the account) sends you a Form 5498 each year showing contributions. Keep these forms or download them from your custodian's website. When you withdraw, you will need to know your total contributions to calculate how much is earnings.
The IRS does not automatically track this for you. If you cannot document your contributions, the agency may treat the entire withdrawal as earnings and assess tax and penalties. This is especially important if you have made contributions over many years or moved accounts between custodians.
Some custodians provide a breakdown of contributions and earnings on your statement, but not all. Ask your custodian directly or use the IRS worksheet in Publication 590-B to calculate your basis (total contributions) yourself.
Frequently Asked Questions
Can I withdraw my contributions without penalty at any age?
Yes. Contributions always come out tax-free and penalty-free, regardless of your age or how long you have held the account. You only need to prove to the IRS that the money you withdrew was contributions, not earnings. Keep your Form 5498s or custodian statements to document this.
What if I withdraw earnings and don't know if I meet the five-year rule?
Count back five tax years from the year you are withdrawing. If you first contributed in 2020, your five-year period ends on December 31, 2024. If you are withdrawing in 2025 or later, you meet the rule. If you are unsure when you first contributed, contact your custodian for account history.
Do I owe taxes on Roth earnings if I leave the money in the account?
No. You owe no tax on earnings as long as they remain in the account, even if you never withdraw them. The tax-free growth is one of the main advantages of a Roth. You only owe tax if you withdraw earnings before meeting the age and five-year requirements.
What happens to my Roth IRA after I die?
Your beneficiary inherits the account and its tax-free status. If you met the five-year rule and were over 59½, all their withdrawals are tax-free. If not, they owe income tax on earnings but not contributions. They must eventually withdraw the money, but the timeline depends on their relationship to you and current IRS rules.
Can I avoid the pro-rata rule by keeping my traditional IRA separate?
No. The IRS counts all your traditional, SEP, and SIMPLE IRAs together, regardless of which custodian holds them or whether they are at different banks. You cannot isolate one account to avoid the pro-rata rule. If you plan to do a backdoor Roth, you must account for all pre-tax IRA balances.