Roth IRA distributions are usually tax-free, but only if you follow the rules
Most money you take out of a Roth IRA comes out tax-free — that is the whole point of the account. But the IRS has two conditions: you must be at least 59½ years old, and the account must have been open for at least five tax years. If you break either rule, you pay income tax on the earnings portion of what you withdraw, though your contributions always come out free.
The five-year rule is the one that catches people. It is not five years from when you opened the account — it is five tax years from January 1 of the year you made your first Roth contribution, whether to that specific account or any Roth account you own. If you opened a Roth IRA in October 2024, your five-year clock started January 1, 2024, and you can take tax-free withdrawals starting January 1, 2029.
Key Takeaways
- Contributions to a Roth IRA always come out tax-free, no matter your age or how long the account has been open.
- Earnings come out tax-free only if you are at least 59½ and the account has been open for five tax years from your first Roth contribution.
- If you withdraw earnings before 59½ or before five years have passed, you owe income tax on those earnings plus a 10 percent early withdrawal penalty in most cases.
- The five-year rule applies to all your Roth accounts together — opening a second Roth IRA does not restart the clock.
How contributions and earnings are treated differently
A Roth IRA withdrawal is treated in a specific order: contributions come out first, then earnings. Your contributions — the money you put in yourself — are always tax-free and penalty-free, at any age, for any reason. This is true even if you withdraw them the day after you deposit them.
The earnings — the investment gains your money made inside the account — are what the IRS watches. If you withdraw earnings and you do not meet both conditions (age 59½ and five-year rule), you owe ordinary income tax on those earnings. You also owe a 10 percent early withdrawal penalty on the earnings portion, with some exceptions.
Example: You opened a Roth IRA in 2022 and contributed $7,000. By 2024, it has grown to $8,500. If you withdraw $5,000 in 2024, the first $5,000 comes from your contributions and is tax-free. If you withdraw $8,500, the first $7,000 is tax-free, and the $1,500 in earnings is taxable (plus the 10 percent penalty, unless an exception applies).
What happens if you withdraw before age 59½
Withdrawing earnings before you turn 59½ triggers both income tax and a 10 percent penalty on the earnings portion, unless a specific exception applies. The exceptions are narrow: disability, medical expenses above 7.5 percent of your adjusted gross income, health insurance premiums while unemployed, a first-time home purchase (up to $10,000 lifetime), and a few others.
The penalty is calculated only on the earnings you withdraw, not on your contributions. So if you withdraw $8,500 from an account with $7,000 in contributions and $1,500 in earnings, you owe tax and penalty only on the $1,500.
You do not owe the penalty if you have a may have access to exception, but you still owe the income tax on the earnings unless the exception also waives that. For example, if you withdraw $10,000 for a first-time home purchase, the penalty is waived, but you still owe income tax on any earnings portion of that withdrawal.
The five-year rule and when it starts
The five-year rule is a calendar rule, not an anniversary rule. It runs from January 1 of the tax year you make your first Roth contribution to any Roth account. If you made your first Roth contribution in December 2023, your five-year period began January 1, 2023. If you made your first contribution in January 2024, it began January 1, 2024.
The rule applies to all Roth accounts you own as a group, not to each account separately. If you have a Roth IRA and a Roth 401(k), they share the same five-year clock. Opening a second Roth IRA does not restart the timer.
If you converted a traditional IRA to a Roth IRA, that conversion starts its own five-year rule for the converted amount. Contributions and conversions are tracked separately. This means you might be able to withdraw contributions tax-free while the five-year rule is still running on a conversion.
Roth conversions and the five-year rule for conversions
When you convert money from a traditional IRA to a Roth IRA, that converted amount is subject to its own five-year rule. You cannot withdraw the converted amount tax-free until five tax years have passed from the year of the conversion, even if your original Roth contributions have been in the account for longer.
However, the five-year rule for conversions does not apply if you are already 59½. If you are 59½ or older, you can withdraw converted amounts immediately without penalty, though you still owe income tax on any pre-tax money that was converted.
This creates a planning consideration: if you convert a traditional IRA to a Roth and you are under 59½, you need to keep that converted money in the account for five years if you want to avoid the penalty. Your original contributions are not subject to this restriction.
What the IRS requires you to report
When you withdraw from a Roth IRA, the financial institution holding the account sends you a Form 1099-R showing the total amount withdrawn. The form does not automatically separate contributions from earnings — you have to track that yourself using IRS Form 8606.
If you withdraw earnings before 59½ and before five years have passed, you report the taxable portion on your tax return and pay both income tax and the 10 percent penalty. The penalty is reported on Form 5329. If you have a may have access to exception, you file Form 5329 to claim the exception and avoid the penalty.
Keep records of all your Roth contributions and conversions. The IRS does not maintain a central record of what you put in versus what you earned. If you cannot document your contributions, the IRS will treat more of your withdrawal as earnings, which means more tax and penalty.
Inherited Roth IRAs and distribution rules
If you inherit a Roth IRA from someone other than a spouse, the five-year rule still applies to the earnings, but it is based on when the original owner opened their first Roth account, not when you inherited it. You can withdraw contributions immediately, but earnings are subject to tax and penalty if the five-year rule has not been satisfied.
If you inherit a Roth IRA from your spouse, you can treat it as your own and use your own five-year clock. If you inherit from a non-spouse beneficiary, you are required to take distributions over your life expectancy or within ten years, depending on when the original owner died. The rules changed in 2023, so the timing of the death matters.
Frequently Asked Questions
Can I withdraw my contributions without paying tax or penalty?
Yes. Contributions to a Roth IRA always come out tax-free and penalty-free, regardless of your age or how long the account has been open. The IRS treats contributions as your own money that you already paid tax on. Only earnings are subject to tax and penalty rules.
What if I am 59½ but the account has not been open five years?
You can withdraw contributions tax-free and penalty-free. Earnings are taxable and subject to the 10 percent penalty because the five-year rule has not been met. You must satisfy both conditions — age 59½ AND five years — for earnings to come out tax-free.
Do I owe the 10 percent penalty if I have a medical expense exception?
The penalty is waived for certain exceptions like disability, medical expenses above 7.5 percent of your adjusted gross income, and a few others. However, you still owe income tax on the earnings portion. The exception removes the penalty, not the tax.
If I convert a traditional IRA to a Roth, do I restart the five-year rule?
Conversions have their own five-year rule separate from your original contributions. If you convert at age 50, you cannot withdraw the converted amount penalty-free until five years have passed, even if you are over 59½. Contributions and conversions are tracked separately for this purpose.
What happens if I cannot prove how much I contributed?
The IRS will treat more of your withdrawal as earnings, which means more tax and penalty. Keep records of all contributions and conversions. If you filed Form 8606 in prior years, that creates a paper trail. Without documentation, you bear the burden of proof.