Roth IRA withdrawals are tax-free, but only if you follow the rules

A Roth IRA lets you withdraw your contributions (the money you put in) tax-free at any time, with no age limit. The earnings your money makes — interest, dividends, capital gains — are also tax-free when you withdraw them, but only after you turn 59½ and have held the account for at least five tax years. If you withdraw earnings before meeting both conditions, you owe income tax on those earnings plus a 10 percent penalty.

The five-year rule applies to your first Roth IRA contribution, not to each contribution separately. If you opened a Roth in 2019 and made your first deposit then, the five-year clock started in 2019. Any Roth you open later has its own separate five-year clock. You do not pay tax on the money going in, and you do not pay tax on it coming out — as long as you wait.

Key Takeaways

  • You can withdraw money you contributed to a Roth IRA at any time, tax-free and penalty-free, regardless of your age.
  • Earnings (growth) come out tax-free only if you are 59½ or older and have held the account for at least five tax years from your first contribution.
  • Withdrawing earnings before 59½ or before five years triggers income tax on those earnings plus a 10 percent early withdrawal penalty.
  • The five-year rule is tied to your first Roth contribution date, not to each individual contribution you make.
  • You never pay tax on money going into a Roth IRA, and you do not report Roth contributions or withdrawals on your tax return.

The difference between contributions and earnings

Your Roth IRA holds two types of money: what you put in (contributions) and what your investments earned (earnings). The IRS treats them differently when you withdraw.

Contributions are always yours to take out. If you contributed $5,000 a year for three years, you have $15,000 in contributions. You can withdraw that $15,000 tomorrow with no tax and no penalty. The IRS does not care how old you are or how long you have held the account.

Earnings are the gains on your investments — the interest your savings account earned, the dividends your stocks paid, the increase in value of your mutual funds. If your $15,000 in contributions grew to $18,000, the $3,000 is earnings. Those earnings stay locked until you turn 59½ and have had the account for five tax years. If you withdraw them before then, you owe tax on them and a 10 percent penalty.

The IRS assumes you withdraw contributions first. If you take out $10,000 and you have $15,000 in contributions and $3,000 in earnings, the IRS treats the first $10,000 as contributions coming out, not earnings.

The five-year rule and when it starts

The five-year rule is a calendar rule, not a rule about how long you have owned money. It starts on January 1 of the year you make your first Roth contribution, regardless of what month you actually contributed.

If you opened a Roth IRA on March 15, 2024, and made your first contribution that day, your five-year period started on January 1, 2024. On January 1, 2029, the five years are complete. You can then withdraw earnings tax-free if you are also 59½ or older.

If you open a second Roth IRA in 2026 and contribute to it, that second account has its own five-year clock starting January 1, 2026. The first account's five-year period does not reset. Each Roth IRA you own is on its own schedule.

Conversions from a traditional IRA to a Roth IRA have their own five-year rule. Money you convert is treated separately from money you contribute directly. This matters if you convert a large amount and then need to withdraw it early.

What happens if you withdraw earnings early

If you withdraw earnings before you turn 59½ or before five tax years have passed since your first contribution, two things happen: you owe income tax on those earnings at your ordinary tax rate, and you owe a 10 percent penalty on top of that.

The penalty is 10 percent of the earnings you withdrew, not of your entire withdrawal. If you withdrew $5,000 in earnings, the penalty is $500. The income tax depends on your tax bracket. If you are in the 22 percent bracket, you owe $1,100 in tax plus $500 in penalty, for a total of $1,600 on that $5,000 withdrawal.

Some situations let you avoid the 10 percent penalty even if you withdraw earnings early. These include disability, medical expenses over 7.5 percent of your adjusted gross income, health insurance premiums while unemployed, and a first-time home purchase (up to $10,000 lifetime). You still owe income tax on the earnings, but not the penalty. You must document the reason and report it correctly on your tax return.

No tax on contributions going in or coming out

You do not get a tax deduction for Roth IRA contributions. You contribute with money you have already paid income tax on. This is the trade-off: no deduction now, no tax later.

Because you do not deduct contributions, you do not report them on your tax return at all. You do not file a form saying "I contributed $7,000 to my Roth." The IRS knows about your Roth only if your bank or brokerage reports it, and even then, they are just tracking that the account exists.

When you withdraw contributions, you do not report that withdrawal either. You take the money out, and there is no tax form involved. This is one reason Roth accounts are simpler than traditional IRAs — traditional IRAs require you to track basis and report withdrawals.

Roth conversions and the pro-rata rule

If you convert money from a traditional IRA to a Roth IRA, the conversion itself is not taxable — you already paid tax on that money when you contributed it to the traditional IRA, or you will pay tax on it when you convert it. But if you have both pre-tax money and after-tax money in traditional IRAs, the conversion gets complicated.

The pro-rata rule says you cannot cherry-pick which dollars to convert. If you have $80,000 in pre-tax traditional IRA money and $20,000 in after-tax money, and you convert $20,000, the IRS treats it as 80 percent pre-tax and 20 percent after-tax. You owe tax on the $16,000 pre-tax portion. This rule applies across all your traditional IRAs, SEP IRAs, and SIMPLE IRAs combined.

Conversions have their own five-year rule separate from direct contributions. Money you convert is locked for five years from the conversion date. If you convert in 2024 and withdraw that converted money in 2025, you owe the 10 percent penalty on the earnings portion (if any), even if your original Roth contribution was five years old.

State taxes and Roth IRAs

Federal tax law makes Roth withdrawals tax-free, but a handful of states tax retirement income differently. Most states do not tax Roth withdrawals. A few states — including Vermont, Minnesota, and the District of Columbia — tax all retirement income, including Roth withdrawals, though they may offer exemptions or deductions.

If you live in a state that taxes retirement income, check your state's rules before you withdraw. Your state tax return may require you to report Roth withdrawals even though your federal return does not. The amount of state tax varies by state and by your income level.

Frequently Asked Questions

Can I withdraw my contributions without paying tax or penalty?

Yes. You can withdraw contributions at any age, at any time, with no tax and no penalty. The IRS assumes you withdraw contributions first, so if you have $20,000 in contributions and $5,000 in earnings, and you withdraw $15,000, all $15,000 is treated as contributions coming out.

What if I need to withdraw earnings before 59½?

You owe income tax on the earnings plus a 10 percent penalty, unless you may have access to for an exception. Exceptions include disability, may have access to medical expenses, health insurance premiums while unemployed, and first-time home purchase (up to $10,000 lifetime). You still owe the income tax; the exception only waives the penalty.

Does the five-year rule apply to each contribution I make?

No. The five-year rule is tied to your first Roth contribution date, not to each contribution separately. If you opened your Roth in 2020, the five-year period ends in 2025 for all contributions you made before that date. Conversions have their own separate five-year clock.

Do I report Roth contributions or withdrawals on my tax return?

No. Roth contributions are not deductible, so you do not report them. Roth withdrawals are not taxable (assuming they are may have access to), so you do not report them either. Your brokerage may send you a form for record-keeping, but you do not file it with the IRS.

What is the pro-rata rule and why does it matter?

If you have both pre-tax and after-tax money in traditional IRAs and you convert some to a Roth, the IRS treats the conversion as a proportional mix of both types. You cannot convert only the after-tax portion to avoid tax. The rule applies across all your traditional IRAs combined, which can make conversions expensive if you have significant pre-tax balances.