Roth IRA contributions and growth are tax-free under specific conditions

A Roth IRA is not entirely tax-free, but the parts that matter most usually are. Money you put in (your contributions) comes out tax-free anytime. The earnings your money makes—interest, dividends, capital gains—also come out tax-free, but only if you follow two rules: you must be at least 59½ years old, and your account must have been open for at least five tax years. Break either rule and the earnings get taxed as ordinary income, plus a 10 percent penalty in most cases.

The reason Roth accounts work this way is that you already paid income tax on the money before you put it in. The government lets the growth happen tax-free as a trade-off. Traditional IRAs work the opposite way: contributions may be tax-deductible now, but withdrawals are taxed later.

Key Takeaways

  • Contributions (the money you deposit) can always be withdrawn tax-free and penalty-free, regardless of your age or how long the account has been open.
  • Earnings (investment gains) are tax-free only if you are at least 59½ and the account has been open for five tax years; otherwise you owe income tax plus a 10 percent penalty on the earnings portion.
  • The five-year rule applies per account, so opening a new Roth IRA restarts the clock, but conversions from other accounts have their own five-year tracking.
  • You never pay taxes on Roth IRA money while it sits in the account, and you are never required to take withdrawals at any age.

When you can withdraw contributions without tax or penalty

Your contributions—the actual dollars you deposit each year—are always yours to take out. You paid income tax on that money before it went into the Roth, so the IRS does not tax it again. This is true no matter how old you are or how long the money has been in the account. You can withdraw $5,000 in contributions at age 25 or age 85 with no tax bill and no penalty.

The catch is that the IRS tracks contributions separately from earnings. When you withdraw money, the IRS assumes you are taking out contributions first. Once contributions are exhausted, any additional withdrawal is treated as earnings and subject to the age and five-year rules. If you have $10,000 in contributions and $3,000 in earnings, you can withdraw up to $10,000 with no tax or penalty. Withdrawing $12,000 means $2,000 of the earnings comes out, and that $2,000 gets taxed and penalized if you do not meet the conditions.

The five-year rule for tax-free earnings

To withdraw earnings tax-free, your Roth IRA must have been open for at least five tax years. The clock starts on January 1 of the year you open the account, not the day you fund it. If you open a Roth on December 31, 2024, the five-year period ends on January 1, 2029. If you open one on January 1, 2024, it also ends on January 1, 2029—the calendar year matters, not the exact date.

The five-year rule is per account. If you open a second Roth IRA in 2026, that second account has its own five-year clock. However, if you convert money from a traditional IRA or SEP IRA to a Roth, that conversion has its own separate five-year rule for the converted amount. You can withdraw your original contributions from the first Roth tax-free while the conversion money is still locked in.

Age 59½ and the earnings withdrawal rule

Even if your account has been open five years, you cannot withdraw earnings tax-free before age 59½ unless you meet a narrow exception. The exceptions are disability, death (your beneficiary can withdraw), a first-time home purchase (up to $10,000 lifetime), or certain medical expenses. If you withdraw earnings before 59½ for any other reason, you owe income tax on the earnings plus a 10 percent penalty.

Age 59½ is a specific threshold set by the IRS. Turning 59 does not may have access to; you must reach 59½. Once you hit that age and your account has been open five years, all future earnings withdrawals are tax-free and penalty-free. You can also leave the money in the account indefinitely—there is no age at which you must start taking withdrawals, unlike traditional IRAs.

Conversions from traditional IRAs have separate rules

If you convert money from a traditional IRA, SEP IRA, or SIMPLE IRA to a Roth, that converted amount is subject to a five-year rule of its own. You cannot withdraw the converted funds tax-free until five years have passed, even if your original Roth contributions have been in the account longer. The five-year period for a conversion starts on January 1 of the year you convert, separate from any other Roth account you own.

This matters because conversions often involve a large lump sum. If you convert $50,000 from a traditional IRA to a Roth in 2024, that $50,000 is locked in until 2029 (five tax years). Your original Roth contributions, if any, remain accessible anytime. The IRS tracks conversions by year, so a 2024 conversion and a 2025 conversion each have their own five-year clock.

No taxes while money sits in the account

One of the largest tax advantages of a Roth IRA is that you never pay taxes on the growth while the money is invested. If you buy a stock that doubles, you owe no capital gains tax. If you hold bonds that pay interest, you owe no income tax on that interest. This is true every single year the money remains in the account. A traditional IRA or taxable brokerage account would tax you annually on interest and dividends.

This tax-free compounding is why Roth accounts are often recommended for younger people with decades until retirement. The longer money sits untouched, the more it grows tax-free. You can also move money between investments within the Roth (buying and selling stocks, switching funds) without triggering any tax bill, as long as the money stays in the Roth account.

Required Minimum Distributions do not apply to Roth IRAs

Traditional IRAs force you to start taking withdrawals at age 73 (as of 2023; this age has been rising). Roth IRAs have no such requirement. You can leave your money in the account for your entire life and never take a withdrawal. This makes Roths useful for people who do not need the money in retirement or who want to leave the account to heirs.

Your beneficiaries will eventually have to withdraw the money after you die, but during your lifetime, you control the pace entirely. This flexibility is another reason the tax-free growth compounds so powerfully over time.

Frequently Asked Questions

Can I withdraw my contributions anytime without penalty?

Yes. Contributions are always yours to withdraw, tax-free and penalty-free, at any age. The IRS assumes withdrawals come from contributions first, so you can access that money immediately. Earnings are a different story and subject to the age and five-year rules.

What happens if I withdraw earnings before age 59½?

You owe income tax on the earnings at your regular tax rate, plus a 10 percent penalty. Exceptions exist for disability, death, first-time home purchase (up to $10,000 lifetime), and certain medical expenses. Otherwise, early withdrawal of earnings is taxed and penalized.

Does the five-year rule reset if I open a new Roth IRA?

Yes, each Roth account has its own five-year clock starting January 1 of the year you open it. However, conversions from traditional IRAs have a separate five-year rule. Your original contributions remain accessible anytime, regardless of which account they are in.

Do I have to pay taxes on money I earn inside my Roth IRA?

No. Interest, dividends, and capital gains are never taxed while the money is in the account. You can buy and sell investments within the Roth without triggering any tax bill. Taxes only apply if you withdraw earnings before meeting the age and five-year conditions.

What if I convert a traditional IRA to a Roth—is that conversion tax-free?

The conversion itself is not tax-free; you owe income tax on the amount converted in the year you convert it. However, once the money is in the Roth, it grows tax-free. The converted amount is subject to a five-year rule before you can withdraw it penalty-free, separate from your original Roth contributions.