You don't pay taxes on money you withdraw from a Roth IRA in retirement, but the rules depend on how long you've held the account and whether you're taking out contributions or earnings

A Roth IRA is designed so that you pay taxes on the money going in, not on the money coming out. Once you turn 59½ and have owned the account for at least five years, you can withdraw your earnings tax-free. Before that age, or if you haven't met the five-year rule, withdrawals of earnings are taxed as ordinary income and may include a 10 percent penalty. Contributions (the money you put in) can always be withdrawn tax-free, at any age, without penalty.

The five-year rule is per account type, not per account. If you opened your first Roth IRA in 2019, all your Roth IRAs count toward that five-year clock, even if you've opened new ones since. The clock starts January 1 of the year you made your first contribution.

Key Takeaways

  • Contributions to a Roth IRA can be withdrawn at any time, tax-free and penalty-free, regardless of your age.
  • Earnings (investment growth) are tax-free only if you are 59½ or older and have held a Roth IRA for at least five tax years.
  • The five-year rule applies to all your Roth IRAs together, not to each account separately, and the clock starts on January 1 of the year you first contributed.
  • If you withdraw earnings before 59½ or before five years have passed, you owe income tax on those earnings plus a 10 percent early withdrawal penalty in most cases.
  • Roth conversions (moving money from a traditional IRA to a Roth) have their own five-year rule for the converted amount.

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 put in $6,500 a year for three years, you have $19,500 in contributions. You can withdraw that $19,500 at age 25, age 50, or age 80 without owing any tax or penalty. The IRS knows how much you contributed because you report it on your tax return each year.

Earnings are the gains your investments made. If your $19,500 in contributions grew to $25,000, the $5,500 in growth is earnings. Those earnings are what the five-year rule protects. Before you turn 59½, or before five years have passed, withdrawing earnings costs you income tax on that amount plus a 10 percent penalty.

How the Five-Year Rule Works

The five-year rule is not about your age—it is about how long you have owned a Roth IRA. The clock starts on January 1 of the first year you contributed to any Roth IRA. If you opened a Roth in March 2020 and contributed $6,500, your five-year period began January 1, 2020. On January 1, 2025, the five years are up, and you can withdraw earnings tax-free (assuming you are also 59½).

If you have multiple Roth IRAs, they all count toward the same five-year clock. You do not get a separate five-year period for each account. However, if you convert money from a traditional IRA to a Roth (called a Roth conversion), that converted money has its own five-year rule. Converted amounts must sit for five years before you can withdraw them without penalty, even if your original Roth IRA has already passed the five-year mark.

The five-year rule applies to the calendar year, not the anniversary of your contribution. If you contributed on December 31, 2020, and again on January 2, 2021, both contributions count toward the same five-year period that ends on January 1, 2025.

Withdrawals Before Age 59½

If you withdraw earnings before you turn 59½, you owe income tax on those earnings at your ordinary tax rate, plus a 10 percent early withdrawal penalty. For example, if you withdraw $5,000 in earnings at age 45 and you are in the 22 percent tax bracket, you owe $1,100 in income tax plus $500 in penalty, for a total of $1,600.

There are a few exceptions to the 10 percent penalty (though not to the income tax). You can withdraw earnings penalty-free before 59½ if you are a first-time homebuyer (up to $10,000 lifetime), if you have a permanent disability, if you are a beneficiary withdrawing after the account holder's death, or if you are taking substantially equal periodic payments under a specific IRS formula. Contributions, again, have no penalty at any age.

Roth Conversions and Their Own Five-Year Rule

If you move money from a traditional IRA or 401(k) to a Roth IRA, that is a conversion. You pay income tax on the converted amount in the year you convert it. The converted money then has its own five-year holding period before you can withdraw it without penalty.

This is separate from the five-year rule for your original Roth contributions. If you converted $50,000 in 2023, that $50,000 must stay in the Roth until 2028 (five years) before you can withdraw it penalty-free if you are under 59½. Your original contributions, meanwhile, can come out anytime. The earnings on the converted money follow the same rules as earnings on regular contributions—tax-free after 59½ and five years.

What Happens at Age 59½ and Beyond

Once you reach 59½ and have owned a Roth IRA for at least five years, all withdrawals are tax-free. You can withdraw contributions, earnings, and everything in between without owing federal income tax or penalty. This is the main advantage of a Roth IRA: tax-free growth and tax-free withdrawals in retirement.

Unlike a traditional IRA, a Roth IRA has no required minimum distributions (RMDs). You do not have to withdraw anything at any age. Your money can keep growing tax-free for as long as you live, and you can pass it to heirs tax-free as well (though heirs will owe taxes on the earnings they withdraw, depending on when they withdraw).

State and Local Taxes

Federal income tax is what the five-year rule and age 59½ rule control. State and local taxes vary by where you live. Most states do not tax retirement income, including Roth IRA withdrawals, but some do. Check your state's tax rules or speak with a tax professional in your state to understand what you owe locally.

If you move to a different state after you retire, your Roth IRA withdrawals may be treated differently. Some states tax retirement income only if you were a resident when you earned it; others tax it no matter where you live now. This is a detail worth confirming before you retire, especially if you are planning to relocate.

Frequently Asked Questions

Can I withdraw my contributions without paying taxes?

Yes. Contributions to a Roth IRA can be withdrawn at any time, at any age, without owing taxes or penalties. The IRS tracks how much you contributed each year on your tax return, so the money you put in is always yours to take out. Only earnings are subject to the five-year rule and age 59½ requirement.

What if I need money before age 59½ but after five years?

If five years have passed but you are under 59½, you can withdraw contributions penalty-free. Earnings still owe income tax and the 10 percent penalty. If you have a may have access to exception (first-time homebuyer, disability, death), you may withdraw earnings penalty-free but still owe income tax on them.

Do I have to pay taxes on Roth IRA earnings if I wait until I'm 70?

No. Once you are 59½ and have held the account for five years, all withdrawals—contributions and earnings—are tax-free, no matter how old you are. The five-year rule and age requirement are the only gates; after you pass both, everything comes out tax-free.

What is the difference between a Roth IRA and a traditional IRA for taxes?

With a traditional IRA, you may deduct contributions from your taxes now, but you pay income tax on withdrawals in retirement. With a Roth IRA, you pay taxes on contributions now, but withdrawals in retirement are tax-free. Choose based on whether you expect to be in a higher or lower tax bracket in retirement.

If I convert a traditional IRA to a Roth, do I pay taxes?

Yes. You owe income tax on the amount you convert in the year you convert it, as if you had withdrawn the money. The converted amount then has its own five-year holding period. This is one reason conversions are often done in years when your income is lower.