You do not pay taxes on money you withdraw from a Roth IRA, but only if you follow the withdrawal rules

The core tax benefit of a Roth IRA is that withdrawals are tax-free — but that applies only to earnings (the money your investments made), and only if you meet two conditions: you must be at least 59½ years old, and the account must have been open for at least five years. If you withdraw earnings before meeting both conditions, you owe income tax on those earnings plus a 10 percent penalty.

Contributions — the money you put in yourself — can always be withdrawn tax-free and penalty-free, at any age and any time. The IRS treats your contributions as money you already paid taxes on, so it does not tax them again. Earnings are different. Until you meet the age and time requirements, earnings are taxed as ordinary income if you take them out.

The five-year rule is per account, not per person. If you open a Roth IRA in 2024, the five-year clock starts then. If you convert a traditional IRA to a Roth, a separate five-year clock starts for that conversion. This matters because conversions have their own withdrawal rules.

Key Takeaways

  • You never pay taxes on contributions you withdraw from a Roth IRA, no matter your age or how long the account has been open.
  • Earnings are tax-free only if you are 59½ or older and the account has been open for at least five years; otherwise you owe income tax plus a 10 percent penalty on the earnings portion.
  • The five-year rule applies to each Roth account separately, and conversions from traditional IRAs start their own five-year clock.
  • You do not file taxes on the money inside the account while it grows — taxes apply only when you withdraw.

How the IRS tells contributions apart from earnings

When you withdraw from a Roth IRA, the IRS assumes you take out contributions first, then earnings. This is called the "ordering rule." If you have put in $50,000 in contributions over time and your account is now worth $70,000, the first $50,000 you withdraw is treated as contributions and comes out tax-free. Only money above that $50,000 is treated as earnings.

This rule protects you if you need to access your own money early. You can withdraw your contributions without penalty or tax, even at age 30, even if the account opened last year. The penalty and tax apply only to the earnings portion.

The ordering rule applies across all your Roth IRAs combined. If you have two Roth accounts, the IRS treats them as one pool for withdrawal purposes. Total contributions across both accounts are calculated first, then earnings.

Conversions and the pro-rata rule

If you convert money from a traditional IRA or 401(k) to a Roth, the tax treatment is more complex. The conversion itself is a taxable event in the year it happens — you owe income tax on the converted amount. But the five-year rule still applies to the earnings that grow inside the converted Roth account.

There is also a "pro-rata rule" that applies if you have both traditional and Roth IRAs. When you convert, the IRS calculates what portion of your total IRA balance is pre-tax money (from traditional IRAs) and what portion is after-tax money (contributions you already paid taxes on). You cannot convert only the after-tax portion and avoid taxes on the pre-tax portion. The conversion is taxed proportionally.

Example: You have a traditional IRA with $90,000 in pre-tax money and a Roth IRA with $10,000 in contributions. If you convert $50,000 from the traditional IRA, the IRS treats 90 percent of that conversion ($45,000) as taxable pre-tax money and 10 percent ($5,000) as after-tax money. You owe income tax on the $45,000.

What happens if you withdraw before age 59½

If you take out earnings before you turn 59½, you owe income tax on those earnings at your regular tax rate, plus a 10 percent early withdrawal penalty. The penalty is calculated on the earnings amount only, not on contributions.

There are a few exceptions to the 10 percent penalty, though not to the income tax. You can withdraw earnings penalty-free (but not tax-free) if you are disabled, if you use the money for may have access to higher education expenses, if you are a first-time homebuyer (up to $10,000 lifetime), or if you have significant medical expenses. The income tax still applies in all these cases — only the penalty is waived.

Contributions have no age restriction and no penalty, ever. You can withdraw all your contributions at age 25 if you want, with no tax and no penalty.

Roth conversions and the five-year rule for each conversion

When you convert a traditional IRA to a Roth, the money you convert is treated as a contribution for five-year purposes. But the five-year clock is separate from your original Roth account's five-year clock. If you opened a Roth IRA in 2020 and converted money in 2024, the conversion has its own five-year period that runs until 2029.

This means you can withdraw the contribution portion of your 2020 Roth account tax-free and penalty-free at any time, but the earnings from that 2020 account are locked until 2025 (five years from opening). The converted money from 2024 is locked until 2029 for its earnings portion.

The ordering rule applies here too. When you withdraw, you take out contributions first (including converted amounts), then earnings. Converted amounts are treated as contributions for withdrawal purposes.

Taxes while the money is in the account

You do not file taxes on the growth inside a Roth IRA while the money sits there. If your Roth account earns $5,000 in dividends or capital gains in a year, you do not report that on your tax return. The account grows tax-free. Taxes apply only when you withdraw money.

This is different from a regular taxable investment account, where you owe taxes each year on dividends and capital gains, even if you do not withdraw anything. A Roth IRA defers all tax reporting until withdrawal.

You also do not have to take money out at any age. Unlike traditional IRAs, Roth IRAs have no required minimum distributions during your lifetime. The account can keep growing tax-free for as long as you live.

State taxes and Roth IRAs

Federal income tax does not apply to Roth IRA withdrawals (if you meet the rules), but state income tax varies. Most states follow federal law and do not tax Roth IRA withdrawals. A few states — including Pennsylvania, Illinois, and Mississippi — do not tax retirement income at all, so Roth withdrawals are not taxed there either.

Some states tax all retirement income the same way, regardless of the account type. If you live in a state with income tax and you are unsure how it treats Roth IRAs, contact your state tax authority or a tax preparer in your state. The rules vary enough that it is worth checking.

Frequently Asked Questions

Do I have to report my Roth IRA contributions on my tax return?

No. Roth IRA contributions are made with after-tax money, so you do not deduct them or report them. You simply contribute and the money grows. You only report withdrawals if they include earnings and you have not met the age and five-year requirements.

What if I withdraw earnings before five years and I am over 59½?

You still owe income tax on the earnings, but not the 10 percent penalty. The five-year rule is separate from the age rule. You must meet both conditions for earnings to be completely tax-free.

Can I withdraw my conversion contributions without waiting five years?

Yes. Converted amounts are treated as contributions, so you can withdraw them anytime tax-free and penalty-free. The five-year rule applies only to the earnings that grow on top of the conversion, not the conversion itself.

What if I take out more than my contributions in one year?

The IRS uses the ordering rule: contributions come out first, then earnings. If you withdraw $60,000 and you have $50,000 in contributions, the first $50,000 is tax-free and the remaining $10,000 (earnings) is taxed as ordinary income if you have not met the age and five-year requirements.

Do I owe taxes if my Roth IRA loses money?

No. If your account balance drops below what you contributed, there are no earnings to tax. You can withdraw your contributions anytime tax-free. Taxes apply only to gains, not losses.