You do not pay federal income tax on money you withdraw from a Roth IRA, as long as the account has been open for at least five years and you are 59½ or older

This is the core advantage of a Roth IRA: withdrawals of your contributions and earnings come out tax-free in retirement. You also do not pay taxes on the money while it sits in the account. The tradeoff is that you fund a Roth with after-tax dollars — you cannot deduct your contributions from your income the way you can with a traditional IRA.

The five-year rule and age requirement both matter. If you withdraw before meeting both conditions, the earnings portion of your withdrawal is taxed as ordinary income, and you may owe a 10 percent early withdrawal penalty on top of that. Your contributions themselves can always come out penalty-free, but the IRS treats earnings differently.

Key Takeaways

  • Roth IRA withdrawals are tax-free only if the account has been open for five tax years and you are at least 59½ years old.
  • You pay no taxes on contributions you withdraw at any time, but earnings withdrawn before age 59½ are taxed as income plus a 10 percent penalty.
  • You do not pay taxes on the money while it grows inside the account, and you are never required to withdraw it during your lifetime.
  • State income tax rules vary; some states do not tax Roth withdrawals, while others treat them like any other income.

How the five-year rule works

The five-year clock starts on January 1 of the first tax year you make a contribution to any Roth IRA. It does not restart if you open a second Roth account or roll money from another retirement plan into a Roth. Once five tax years have passed, all your Roth accounts are treated as meeting the rule.

This means if you open a Roth IRA in March 2024, the five-year period ends on January 1, 2029. You can withdraw earnings tax-free starting that date, as long as you also meet the age requirement. If you withdraw before January 1, 2029, the earnings portion is subject to tax and the 10 percent early withdrawal penalty.

The five-year rule applies separately to conversions. If you convert money from a traditional IRA to a Roth, that conversion has its own five-year clock. Earnings from a conversion cannot be withdrawn tax-free until five years have passed from the conversion date, even if your original Roth account is older.

What happens if you withdraw before age 59½

You can withdraw your contributions at any time without tax or penalty. The IRS knows how much you put in because you report it on Form 5498 each year. Contributions are always yours to take out.

Earnings are different. If you withdraw earnings before age 59½ and the account has not been open five years, you owe federal income tax on the earnings at your ordinary tax rate, plus a 10 percent early withdrawal penalty. For example, if you contributed $5,000 and your account grew to $6,000, you could withdraw the $5,000 contribution penalty-free, but the $1,000 in earnings would be taxed and penalized.

Some exceptions to the 10 percent penalty exist: disability, medical expenses above 7.5 percent of adjusted gross income, health insurance premiums while unemployed, and first-time home purchase (up to $10,000 lifetime). Even with an exception, you still owe income tax on the earnings portion — the penalty is waived, but the tax is not.

State income tax on Roth withdrawals

Federal tax rules do not apply to state income tax. Some states do not tax retirement income at all, including Roth withdrawals. Others tax Roth withdrawals the same way they tax other income. A few states have special rules for retirement accounts.

If you live in a state with income tax, check your state's tax authority website or speak with a tax preparer about how Roth withdrawals are treated. This matters most if you retire in one state but withdraw from a Roth while living in another, or if you move after retirement.

Taxes on contributions and conversions

You fund a Roth IRA with money you have already paid income tax on. You do not get a tax deduction for your contributions. This is why withdrawals are tax-free — you already paid tax on the money going in.

If you convert a traditional IRA or 401(k) to a Roth, you owe federal income tax on the amount converted in the year of conversion. The conversion itself is not a withdrawal — it is a taxable event. You report the conversion on your tax return, and the IRS adds the converted amount to your income for that year. You pay tax on it like ordinary income.

Required minimum distributions and Roth IRAs

You are never required to withdraw money from your own Roth IRA during your lifetime. This is different from traditional IRAs and 401(k)s, which require withdrawals starting at age 73 (as of 2023). You can leave a Roth untouched for decades if you do not need the money.

If you inherit a Roth IRA from someone else, you do have withdrawal requirements. The rules depend on your relationship to the original owner and when they died. A spouse can treat the inherited Roth as their own and avoid withdrawals. Non-spouse beneficiaries must withdraw the entire balance within ten years of the owner's death.

How to report Roth activity on your tax return

If you only withdraw contributions, you may not need to report anything. If you withdraw earnings or convert a traditional account to a Roth, you will report it on Form 8606. This form tracks your basis (the total contributions you have made) and calculates how much of any withdrawal is taxable.

Your Roth custodian — the bank, brokerage, or fund company holding your account — sends you Form 5498 each year showing contributions and conversions. Keep copies of this form and your own records of contributions. The IRS uses Form 5498 to verify your basis, so accuracy matters if you withdraw before age 59½.

Frequently Asked Questions

Do I pay taxes on Roth IRA growth while the money is in the account?

No. Money inside a Roth IRA grows tax-free, whether it is in stocks, bonds, mutual funds, or cash. You do not report the growth on your annual tax return. This tax-free growth is one of the main reasons people use Roth accounts for long-term investing.

What if I withdraw only my contributions before age 59½?

You owe no tax and no penalty on contributions withdrawn at any age. The IRS distinguishes between contributions (money you put in) and earnings (growth). Only earnings are subject to tax and penalty if withdrawn early. Your custodian can tell you how much of your balance is contributions versus earnings.

Can I avoid the early withdrawal penalty if I have a hardship?

Some hardships waive the 10 percent penalty but not the income tax. Disability, medical expenses over 7.5 percent of your adjusted gross income, and first-time home purchase (up to $10,000 lifetime) are common exceptions. You still owe income tax on any earnings withdrawn. Consult a tax preparer about whether your situation qualifies.

Do I have to pay taxes on a Roth conversion?

Yes, in the year you convert. The amount you convert is added to your income and taxed at your ordinary rate. This can push you into a higher tax bracket. You do not pay the tax from the Roth account itself — you pay it from other funds when you file your return.

What if I move to a different state after I retire?

Check the tax rules in your new state. Some states do not tax retirement income, while others do. If you move from a state with no income tax to one with income tax, your Roth withdrawals may become taxable. The opposite is also true — moving to a no-income-tax state can save you money on withdrawals.