Roth IRA withdrawals are taxed differently depending on whether you're taking out contributions or earnings
The short answer: you do not pay federal income tax on money you withdraw from a Roth IRA if you follow the rules. The IRS lets you pull out your contributions (the money you put in) anytime, tax-free. Earnings (the investment gains) are also tax-free when you withdraw them — but only if you're at least 59½ years old and have held the account for at least five tax years. If you withdraw earnings before meeting both conditions, you owe federal income tax on those earnings plus a 10% early withdrawal penalty.
The five-year rule applies to your entire Roth IRA history, not to each deposit. Once you've held any Roth IRA for five tax years, all your Roth accounts meet the requirement. The five-year clock starts on January 1 of the year you made your first Roth contribution, regardless of which Roth account it went into.
Key Takeaways
- Contributions you deposit into a Roth IRA come out tax-free at any age, with no penalty.
- Earnings come out tax-free only if you are at least 59½ years old and have held a Roth IRA for at least five tax years.
- Withdrawing earnings before age 59½ triggers both income tax and a 10% penalty on the earnings portion.
- The five-year holding period is measured from January 1 of the year you opened your first Roth IRA, not from when you made each deposit.
- Roth conversions have their own separate five-year rule that can delay access to converted funds without penalty.
How contributions and earnings are treated differently
A Roth IRA holds two types of money: what you put in (contributions) and what your investments earned (earnings). The IRS treats them separately for tax purposes. You can always withdraw your contributions without tax or penalty, no matter your age or how long you've owned the account. This is because you already paid income tax on that money before you deposited it.
Earnings are the gains from stocks, bonds, dividends, and interest inside the account. These have never been taxed. The IRS allows them to grow tax-free, but only lets you take them out tax-free if you meet the age and holding-period requirements. If you withdraw earnings before age 59½ or before five tax years have passed, the earnings portion is treated as taxable income, and you also owe a 10% early withdrawal penalty on that earnings portion.
When you withdraw money, the IRS assumes you take contributions out first. Once contributions are exhausted, any additional withdrawal is treated as earnings. For example, if you contributed $10,000 and your account grew to $15,000, a $12,000 withdrawal counts as $10,000 contribution (tax-free) and $2,000 earnings (taxable if you don't meet the requirements).
The five-year rule and when it starts
The five-year holding period is a calendar rule, not a rolling anniversary. It begins on January 1 of the tax year in which you made your first Roth IRA contribution — to any Roth IRA, not just the one you're withdrawing from. If you opened a Roth IRA on December 15, 2024, your five-year period started on January 1, 2024. By January 1, 2029, you've satisfied the five-year requirement.
This rule applies across all your Roth IRAs combined. If you have three separate Roth IRA accounts and contributed to one in 2024, all three accounts meet the five-year requirement on January 1, 2029. You do not restart the clock when you open a new Roth account or make a new contribution.
The five-year rule is separate from the age requirement. You must satisfy both conditions to withdraw earnings tax-free. If you're 58 years old and your five-year period just ended, you still cannot withdraw earnings tax-free — you must wait until age 59½. If you're 62 but opened your Roth IRA only three years ago, you still cannot withdraw earnings tax-free until the five-year period ends.
Early withdrawal penalties and exceptions
If you withdraw earnings before age 59½ and before five tax years have passed, you owe income tax on the earnings plus a 10% penalty. The penalty applies only to the earnings portion, not to your contributions. Using the earlier example, if you withdrew $12,000 from a $15,000 account at age 45 after three years, you'd owe income tax and a 10% penalty on the $2,000 earnings, but nothing on the $10,000 contribution.
The IRS does allow some exceptions to the 10% penalty (though not to the income tax on earnings). You can withdraw earnings penalty-free before age 59½ if you use the money for a first-time home purchase (up to $10,000 lifetime), to pay for may have access to education expenses, for a disability, or for medical expenses that exceed 7.5% of your adjusted gross income. You still owe income tax on the earnings in these cases — the penalty is waived, but the tax is not.
Contributions, by contrast, have no exceptions. You can always pull them out without tax or penalty, regardless of age or reason. This makes Roth IRAs more flexible than traditional IRAs for accessing your own money early.
Roth conversions and their 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 anytime, but converted funds are subject to a separate five-year rule. If you convert $20,000 in 2024 and withdraw it in 2026, you owe a 10% penalty on the withdrawal (though not income tax, since you already paid tax when you converted).
This five-year rule for conversions is different from the one for regular contributions. A conversion's five-year period starts on January 1 of the year you converted, and it applies to that specific conversion. If you convert again in 2025, that second conversion has its own five-year clock. However, once you've held any Roth IRA for five tax years from your first regular contribution, you can withdraw converted funds penalty-free after age 59½.
State and local taxes on Roth withdrawals
The federal government does not tax may have access to Roth withdrawals, but some states do tax retirement account withdrawals. Most states exempt Roth IRA withdrawals from state income tax, but a few do not. Pennsylvania, for example, taxes all IRA withdrawals regardless of type. New Jersey taxes Roth conversions in some cases. Check your state's tax rules or speak with a tax preparer familiar with your state's law.
Local taxes on retirement accounts are rare but do exist in a handful of cities. If you live in a state or city with local income tax, confirm whether Roth withdrawals are taxed there. Your state's revenue or taxation department website usually lists which retirement accounts are exempt.
Frequently Asked Questions
Can I withdraw my contributions without paying tax?
Yes. You can withdraw contributions at any age, for any reason, with no tax or penalty. The IRS considers contributions to be your own after-tax money. Keep records of how much you contributed each year so you can prove the amount to the IRS if needed.
What happens if I withdraw earnings before age 59½?
You owe federal income tax on the earnings at your regular tax rate, plus a 10% early withdrawal penalty on the earnings portion. Contributions come out first and are not taxed. Some exceptions to the penalty exist (first-time home purchase, education, disability), but income tax still applies.
Do I have to be 59½ to withdraw contributions?
No. Contributions can be withdrawn at any age without tax or penalty. Only earnings are restricted by the age requirement. This is one major advantage of Roth IRAs over traditional IRAs.
What if I convert a traditional IRA to a Roth?
Converted funds are subject to a separate five-year rule. You can withdraw original contributions anytime, but converted money cannot be withdrawn penalty-free until five tax years have passed (even if you're over 59½). Income tax on the conversion is paid when you convert, not when you withdraw.
Does my state tax Roth IRA withdrawals?
Most states do not tax Roth withdrawals, but a few do. Pennsylvania taxes all IRA withdrawals. New Jersey taxes some conversions. Check your state's revenue department website or ask a tax preparer about your specific state's rules.