You don't pay taxes on Roth IRA contributions or growth, but you may pay taxes when you withdraw

The basic rule is simple: money you put into a Roth IRA is already taxed, so the IRS doesn't tax it again when it sits in the account or when it grows. You also don't pay taxes on the investment gains — the interest, dividends, or appreciation that happens inside the account. Taxes only become a question when you take money out, and even then, only under specific conditions.

The catch is that the IRS has rules about when you can withdraw without owing taxes. If you pull money out before you meet those conditions, you may owe income tax on the earnings portion, plus a 10% penalty. Understanding the difference between withdrawing your contributions versus withdrawing your earnings is the key to knowing what you'll owe.

Key Takeaways

  • You never pay income tax on the money you contribute to a Roth IRA, no matter when you withdraw it.
  • You don't pay tax on investment earnings inside the account, but you do pay tax on those earnings if you withdraw them before age 59½ and before the account has been open for five years.
  • Withdrawals of contributions are always tax-free and penalty-free, even if you take them out the day after you deposit them.
  • The five-year rule applies to each Roth IRA separately, so opening a new account restarts the clock.
  • Conversions from traditional IRAs to Roth IRAs have their own five-year rule that is separate from your regular contributions.

Contributions are never taxed when you withdraw them

Your contributions — the actual dollars you deposit into the Roth IRA — are always yours to withdraw tax-free and penalty-free, at any age, at any time. This is true whether you withdraw them next month or thirty years from now. The IRS already let you put after-tax money in, so it doesn't tax you again when you take it back out.

The IRS tracks this through your basis, which is the total amount of contributions you've made to all your Roth IRAs combined. When you withdraw money, the IRS assumes you're taking out contributions first, up to your basis, before any earnings. This is called the "pro-rata rule" in reverse — it works in your favor on withdrawal.

Keep records of every contribution you make. The brokerage or bank holding your Roth IRA will send you a Form 5498 each year showing contributions, but you should also keep your own records of deposit dates and amounts. If you ever need to prove how much you contributed, this documentation matters.

Earnings are tax-free only if you meet the age and time requirements

The earnings — the investment gains your money made inside the account — are treated differently. You don't pay tax on them while they're in the account, but you do pay tax on them if you withdraw them before meeting two conditions: you must be at least 59½ years old, and your Roth IRA must have been open for at least five tax years.

Both conditions must be true. If you're 60 years old but opened your Roth IRA only two years ago, you cannot withdraw earnings tax-free. If your Roth IRA has been open for ten years but you're only 50 years old, you also cannot withdraw earnings tax-free. Only when both are satisfied can you take out earnings without owing income tax.

The five-year rule is measured from January 1 of the year you opened the account. If you opened a Roth IRA on December 15, 2024, the five-year period ends on January 1, 2029. After that date, assuming you're also 59½, you can withdraw earnings tax-free.

Early withdrawal of earnings triggers income tax and a 10% penalty

If you withdraw earnings before age 59½ or before the five-year period ends, you owe income tax on those earnings at your ordinary tax rate. You also owe a 10% early withdrawal penalty on the earnings portion only — not on your contributions.

The tax and penalty are calculated only on the earnings you withdraw, not on the contributions. If your Roth IRA has $50,000 in contributions and $15,000 in earnings, and you withdraw $30,000 before meeting the conditions, the IRS treats the first $30,000 as contributions (tax-free and penalty-free). You only owe tax and penalty if you withdraw more than $50,000.

There are a few exceptions to the 10% penalty, though not to the income tax. You can withdraw earnings penalty-free (but not tax-free) if you're a first-time homebuyer taking up to $10,000 lifetime, if you're disabled, if you're a beneficiary receiving a distribution after the account holder's death, or if you're paying for may have access to education expenses. The income tax still applies in these cases — only the penalty is waived.

Conversions from traditional IRAs have a separate five-year rule

If you convert money from a traditional IRA to a Roth IRA, that converted amount has its own five-year holding period. You can withdraw your original contributions to the Roth anytime tax-free, but converted amounts are treated as earnings for the first five years after the conversion.

This means if you convert $50,000 from a traditional IRA to a Roth in 2024, you cannot withdraw that $50,000 penalty-free until 2029, even though you're over 59½. The five-year clock for conversions is separate from the five-year clock for the Roth IRA itself. If you opened the Roth in 2020 and converted in 2024, the Roth's five-year period already passed, but the conversion's five-year period is brand new.

The income tax on a conversion is paid in the year of conversion, not when you withdraw. If you convert $50,000 and owe tax on $10,000 of it (because part was pre-tax money in the traditional IRA), you pay that tax on your 2024 return. The five-year rule only applies to the penalty, not to the tax.

Roth IRAs opened through inheritance follow different rules

If you inherit a Roth IRA from someone other than a spouse, you can withdraw contributions anytime tax-free, but earnings are subject to tax and penalty unless the original account holder was already 59½ and the account had been open for five years. The five-year clock does not restart for you as the beneficiary — it's based on when the original owner opened the account.

If you inherit a Roth from a spouse, you have the option to treat it as your own Roth IRA. If you do, the five-year rule and age requirement apply to you going forward. If you keep it as an inherited Roth, you must begin taking distributions, but those distributions are tax-free as long as the original owner met the conditions.

State taxes and special situations

Roth IRA withdrawals are not subject to state income tax in any state, because the federal tax treatment determines the state treatment. However, some states do not recognize Roth IRAs for other purposes — for example, creditor protection — so check your state's rules if you're concerned about asset protection.

If you live abroad and are a U.S. citizen, you still owe federal tax on early Roth IRA earnings withdrawals, but you may be able to use the Foreign Earned Income Exclusion or Foreign Tax Credit to reduce your overall tax burden. This is a complex situation that requires tax advice specific to your country of residence.

Frequently Asked Questions

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

You do not have to report withdrawals of contributions. If you withdraw earnings, you report them on Form 8606 if you took them early and owe tax. The financial institution holding your Roth will send you a Form 1099-R showing the distribution, and you use that to complete your return.

What happens if I withdraw earnings by mistake before I'm 59½?

You owe income tax and the 10% penalty on the earnings portion. You can avoid the penalty if you put the money back within 60 days (a rollover), but you still owe the income tax on any gains. If you put it back after 60 days, you owe both the tax and the penalty.

Can I withdraw contributions from a Roth IRA I just opened?

Yes. You can withdraw contributions immediately, tax-free and penalty-free. There is no waiting period for contributions. Only earnings are subject to the five-year rule and age requirement.

If I have multiple Roth IRAs, do I have separate five-year rules for each one?

No. The five-year rule applies to all your Roth IRAs combined, based on when you opened your first Roth IRA. However, conversions have their own separate five-year rule for each conversion year. If you converted in 2024 and again in 2025, each conversion has its own five-year period.

What if I'm over 59½ but my Roth IRA hasn't been open for five years yet?

You still cannot withdraw earnings tax-free. Both conditions must be met. You can withdraw contributions anytime, but earnings are taxable until the five-year period ends, even though you're past the age requirement.