Roth IRA withdrawals are taxed differently depending on your age, how long you've held the account, and what type of money you're taking out

A Roth IRA is taxed in reverse compared to a traditional IRA. You pay taxes on the money before it goes in, so the growth and withdrawals are usually tax-free later. But there are specific rules about when you can withdraw without owing taxes, and penalties explore if you break them. The key distinction is between withdrawing your contributions (the money you put in) and withdrawing earnings (the growth on that money).

Your contributions can come out tax-free and penalty-free at any time, regardless of your age. Earnings, however, are only tax-free if you meet two conditions: you must be at least 59½ years old, and the account must have been open 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 early withdrawal penalty.

Key Takeaways

  • Contributions to a Roth IRA can be withdrawn tax-free and penalty-free at any time, even before age 59½.
  • Earnings in a Roth IRA are tax-free only if you are at least 59½ years old and the account has been open for at least five tax years.
  • Withdrawing earnings before age 59½ triggers income tax on those earnings plus a 10 percent early withdrawal penalty.
  • The five-year rule applies per account, so opening a new Roth IRA restarts the clock on that specific account.
  • Certain exceptions allow penalty-free early withdrawal of earnings, including first-time home purchase, disability, and medical expenses.

How contributions and earnings are treated differently

The IRS treats money in your Roth IRA in layers. Your contributions—the actual dollars you deposited—come out first and are never taxed because you already paid tax on them before depositing. You can pull out your contributions whenever you want without any tax bill or penalty, even if you're 25 years old and the account is brand new.

Earnings are the investment gains: interest, dividends, and capital appreciation. These are what make the Roth powerful, because they grow tax-free. But you can only take them out tax-free if you satisfy both the age requirement (59½) and the five-year holding period. If you withdraw earnings before meeting both conditions, the IRS taxes those earnings as ordinary income and adds a 10 percent penalty on top.

The five-year rule is tied to the account itself, not to you. If you open a Roth IRA in 2024, that account's five-year period runs from January 1, 2024, through December 31, 2028. If you open a second Roth IRA in 2025, that second account has its own separate five-year clock starting January 1, 2025. You cannot combine the holding periods across multiple accounts.

The five-year rule and when it starts

The five-year holding period begins on January 1 of the tax year in which you first contribute to any Roth IRA. This means if you open your first Roth IRA and contribute in 2024, your five-year period started on January 1, 2024, regardless of when in 2024 you actually opened the account or made the deposit. If you don't contribute until December 2024, the clock still started January 1, 2024.

The five-year rule applies to the account, not to individual contributions. If you make contributions in 2024, 2025, and 2026, they all share the same five-year holding period that began in 2024. Once that five-year period ends on December 31, 2028, all earnings in that account become tax-free for withdrawal (assuming you're also 59½ or meet an exception).

If you convert a traditional IRA to a Roth IRA, a separate five-year rule applies to the converted amount. Conversions have their own five-year holding period, which can be important if you plan to withdraw the converted portion before age 59½. The earnings on a conversion follow the same rules as earnings on regular contributions.

Exceptions that allow penalty-free early withdrawal of earnings

The IRS allows you to withdraw earnings penalty-free (though not tax-free) before age 59½ in specific situations. These exceptions waive the 10 percent penalty but do not waive the income tax on those earnings. The five-year rule still applies—if your account hasn't been open five years, you still owe tax on the earnings even if you may have access to for an exception.

Common exceptions include first-time home purchase (up to $10,000 lifetime), disability, medical expenses exceeding 7.5 percent of adjusted gross income, and health insurance premiums paid while unemployed. You can also withdraw earnings penalty-free if you've had a may have access to life event such as becoming disabled or facing a medical hardship. Each exception has specific documentation requirements, so you'll need to verify with your IRA custodian which documents they need before processing the withdrawal.

Even with an exception, if your account is less than five years old, you still owe income tax on the earnings portion. For example, if you withdraw $5,000 in earnings at age 45 for a first-time home purchase and your account is three years old, you avoid the 10 percent penalty but still owe income tax on that $5,000.

What happens if you withdraw before age 59½ without an exception

If you withdraw earnings before age 59½ and do not may have access to for an exception, you face a two-part tax bill. First, the earnings are taxed as ordinary income at your regular tax rate. Second, the IRS adds a 10 percent early withdrawal penalty on top of that income tax. This penalty is calculated on the earnings amount, not on your entire withdrawal.

For example, if you withdraw $10,000 from your Roth IRA at age 40, and $3,000 of that is earnings while $7,000 is contributions, you owe income tax on the $3,000 at your tax bracket rate plus a $300 penalty (10 percent of $3,000). The $7,000 in contributions comes out completely tax-free and penalty-free. Your actual tax bill depends on your income and tax bracket, so the total cost varies by person.

You report the withdrawal on Form 8606 when you file your tax return. The IRS uses this form to track which portion of your withdrawal is contributions (tax-free) and which portion is earnings (taxable). If you do not file Form 8606, the IRS may assume your entire withdrawal is earnings and tax you accordingly, so accurate reporting is important even if you think you're only withdrawing contributions.

Roth conversions and their separate five-year rule

If you convert money from a traditional IRA, SEP IRA, or straightforward IRA into a Roth IRA, that converted amount has its own five-year holding period. The conversion itself is a taxable event—you owe income tax on the pre-tax money you convert in the year you convert it. But the five-year rule determines when you can withdraw that converted amount penalty-free before age 59½.

The converted amount is treated as a contribution for withdrawal purposes, meaning you can pull it out penalty-free at any time. However, any earnings on the converted amount follow the standard five-year rule and age 59½ requirement. If you convert $50,000 in 2024 and that money grows to $55,000 by 2026, you can withdraw the $50,000converted portion penalty-free, but the $5,000 in earnings is subject to the five-year rule and age requirement.

Each conversion has its own five-year clock. If you convert in 2024 and again in 2025, the 2024 conversion's five-year period ends in 2028, while the 2025 conversion's five-year period ends in 2029. This matters if you plan multiple conversions and want to withdraw specific converted amounts before age 59½.

How to track contributions versus earnings for tax purposes

Your IRA custodian (the bank, brokerage, or investment firm holding your account) tracks contributions and earnings separately on your account statements. When you request a withdrawal, ask the custodian to provide a breakdown showing how much is contributions and how much is earnings. This information is essential for accurate tax reporting.

You should also keep your own records of all contributions you've made, including the year and amount. The IRS Form 5498 that your custodian sends you each year shows contributions for that year, but it does not show your lifetime total or track earnings. If you've had the account for many years, adding up all your Form 5498s gives you your total contributions.

When you withdraw, the IRS assumes you withdraw contributions first, then earnings. This is called the "pro-rata rule." If your account has both contributions and earnings, you cannot choose to withdraw only earnings and leave contributions behind for tax purposes. The withdrawal is treated as a proportional mix of both, based on the ratio of contributions to total account value.

State taxes and Roth IRA withdrawals

Most states do not tax Roth IRA withdrawals, even if they tax other retirement income. However, a few states tax all retirement income regardless of source. Check your state's tax rules or consult a tax professional if you live in a state with a state income tax, because the rules vary.

Federal tax is what applies in all cases, but state tax can add an additional layer depending on where you live. If you're planning a large withdrawal or conversion, understanding both federal and state tax consequences helps you plan the timing and amount.

Frequently Asked Questions

Can I withdraw my contributions without paying taxes or penalties?

Yes. Contributions to a Roth IRA can be withdrawn tax-free and penalty-free at any time, regardless of your age or how long the account has been open. Only earnings are subject to the age and five-year holding period rules.

What is the five-year rule and how does it work?

The five-year rule requires your Roth IRA to be open for at least five tax years before you can withdraw earnings tax-free. The five-year period starts on January 1 of the year you first contribute to any Roth IRA. Once five years have passed, you can withdraw earnings tax-free if you're also at least 59½ years old or may have access to for an exception.

Do I owe taxes if I withdraw earnings before age 59½?

You owe income tax on the earnings at your regular tax rate, plus a 10 percent early withdrawal penalty, unless you may have access to for a specific exception such as first-time home purchase, disability, or medical hardship. Contributions always come out tax-free and penalty-free.

What happens if I convert a traditional IRA to a Roth?

You owe income tax on the converted amount in the year of conversion. The converted amount can be withdrawn penalty-free at any time, but earnings on that converted amount follow the five-year rule and age 59½ requirement. Each conversion has its own separate five-year holding period.

How do I know how much of my withdrawal is contributions versus earnings?

Your IRA custodian can provide a breakdown when you request a withdrawal. Keep records of all contributions you've made using your Form 5498 statements. The IRS assumes you withdraw contributions first, then earnings, based on the ratio of contributions to total account value.