Most Roth IRA withdrawals are tax-free, but not all of them

The short answer: withdrawals of money you contributed yourself are never taxed. Withdrawals of earnings (the investment gains your money made) are tax-free only if you meet two conditions — your account has been open for at least five years, and you are at least 59½ years old, disabled, dead, or buying your first home (up to $10,000 lifetime). If you take out earnings before meeting both conditions, you pay income tax on those earnings plus a 10 percent penalty.

The reason this matters is that many people assume all Roth money is tax-free all the time. It is not. The tax-free part is the main selling point of a Roth, but it only applies to earnings under specific circumstances. Contributions are always yours to take out without tax or penalty. Earnings are the tricky part.

Key Takeaways

  • Contributions you made to your Roth IRA can be withdrawn at any time, at any age, with no tax or penalty.
  • Earnings are tax-free only if your account is at least five years old and you are 59½, disabled, deceased, or withdrawing up to $10,000 for a first home purchase.
  • If you withdraw earnings before meeting both the five-year and age/circumstance requirement, you owe income tax plus a 10 percent early withdrawal penalty on the earnings only.
  • The IRS uses a specific order to determine which money you are withdrawing: contributions first, then conversions, then earnings.

How the IRS decides what you are withdrawing

When you take money out of a Roth IRA, the IRS assumes you are withdrawing in this order: your contributions first, then converted money, then earnings. This matters because it determines whether you owe tax.

If your account balance is $50,000 and you contributed $30,000 of your own money over the years, you can withdraw up to $30,000 with no tax or penalty, no matter your age or how long the account has been open. The IRS treats that $30,000 as your contributions coming out first. The remaining $20,000 is earnings and conversions, which are subject to the five-year rule and age requirement.

This ordering rule is why people sometimes say "you can always withdraw your contributions" from a Roth. It is technically true, but only because the IRS counts your contributions as coming out first. If you have made conversions (moving money from a traditional IRA to a Roth), those come out second, and they have their own five-year rule for each conversion year.

The five-year rule and what it actually means

The five-year rule is not about your age or when you opened the account. It is about whether your Roth IRA account as a whole has existed for five tax years. The clock starts on January 1 of the year you open your first Roth IRA, regardless of when in that year you open it.

If you opened a Roth IRA on December 15, 2023, the five-year period runs from January 1, 2023, through December 31, 2027. You can withdraw earnings tax-free starting January 1, 2028 — as long as you also meet the age or circumstance requirement (59½, disabled, deceased, or first-time home buyer).

If you have multiple Roth IRAs, they all share the same five-year clock. Opening a second Roth IRA does not restart the timer. The five-year rule applies separately to conversions: if you convert money from a traditional IRA to a Roth in 2024, that converted money has its own five-year period for the purpose of the 10 percent penalty, even if your original Roth IRA is older.

Withdrawals before 59½ without penalty

You can withdraw earnings tax-free and penalty-free before age 59½ in only three situations: if you are disabled, if you are the beneficiary of a deceased account holder, or if you are a first-time home buyer withdrawing up to $10,000 lifetime.

For disability, the IRS has a specific definition: you must be unable to engage in any substantial gainful activity because of a physical or mental condition that is expected to last at least 12 months or result in death. You will need medical documentation, and the IRS can request it. This is not the same as Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI), though receiving either of those does satisfy the IRS definition.

For first-time home buyer, you can withdraw up to $10,000 total across your lifetime, and you must use it within 120 days of withdrawal to buy, build, or rebuild a home. "First-time" means you have not owned a home in the past two years. Married couples can each withdraw $10,000, for $20,000 total, if both meet the first-time buyer definition.

What happens if you withdraw earnings early

If you withdraw earnings before your account is five years old, or before you meet an age or circumstance exception, you owe two things: income tax at your regular tax rate, plus a 10 percent early withdrawal penalty on the earnings amount.

The penalty is calculated only on the earnings, not on your contributions. If you withdraw $15,000 from an account where $10,000 is contributions and $5,000 is earnings, and you do not meet the requirements, you owe income tax and a 10 percent penalty only on the $5,000 in earnings. The $10,000 in contributions comes out tax-free and penalty-free.

You report this on Form 8606 when you file your taxes. The form calculates how much of your withdrawal is contributions versus earnings, and the IRS uses that to determine your tax bill. If you do not file Form 8606, the IRS may assume your entire withdrawal is earnings and tax you accordingly, which is why keeping records of your contributions is important.

Conversions and the pro-rata rule

If you have converted money from a traditional IRA to a Roth, the tax situation becomes more complex. Conversions are treated as a separate category from contributions, and they have their own five-year rule for the 10 percent penalty.

Additionally, if you have any money in a traditional IRA, SEP IRA, or SIMPLE IRA, the pro-rata rule applies to your conversions and withdrawals. This rule says the IRS will treat all your IRAs as one pool for tax purposes. If you convert $10,000 from a traditional IRA that contains $90,000 total, the IRS treats the conversion as 10 percent pre-tax money and 90 percent after-tax money, and you owe tax on the pre-tax portion. This applies even if you have multiple IRAs at different institutions.

The pro-rata rule is one of the most misunderstood parts of Roth conversions. Many people convert money thinking they will avoid tax, but if they have a large traditional IRA balance, the pro-rata rule creates a tax bill. Consulting a tax professional before a conversion is usually worth the cost.

Frequently Asked Questions

Can I withdraw my contributions without paying tax or penalty?

Yes. Contributions you made to your Roth IRA can be withdrawn at any time, at any age, with no tax or penalty. The IRS counts your contributions as coming out first when you make a withdrawal. Keep records of how much you have contributed so you can prove it to the IRS if needed.

What if I need the money before I turn 59½?

You can withdraw your contributions anytime. If you need earnings before 59½, you can do so tax-free and penalty-free only if your account is at least five years old and you are disabled, deceased, or withdrawing up to $10,000 for a first home purchase. Otherwise, you owe income tax and a 10 percent penalty on the earnings.

Do I have to take distributions from my Roth IRA at a certain age?

No. Unlike traditional IRAs, Roth IRAs have no required minimum distributions during your lifetime. You can leave the money in the account as long as you live. Your beneficiaries will have different rules after you die, but you do not have to withdraw anything while you are alive.

What if I converted money from a traditional IRA to a Roth?

Converted money has its own five-year rule for the 10 percent penalty. If you convert in 2024, you can withdraw that converted amount tax-free and penalty-free starting in 2029, provided you also meet an age or circumstance exception. If you have other traditional IRAs, the pro-rata rule may create a tax bill on the conversion itself.

How do I report Roth withdrawals on my taxes?

If you withdraw only contributions, you typically do not report anything. If you withdraw conversions or earnings, you file Form 8606 with your tax return. The form calculates the taxable portion. Your Roth IRA custodian will send you a Form 5498-R showing the withdrawal amount, but you are responsible for determining how much is taxable.