The Basic Rule: Contributions Come Out Tax-Free, Earnings Don't

You do not pay taxes on withdrawals of money you put into a Roth IRA yourself — those are called contributions, and they come out tax-free at any age. You pay taxes only on the earnings (the investment gains) if you withdraw them before age 59½ and before the account has been open for five years. If both conditions are met — you are 59½ or older, and the account is five years old — you withdraw everything tax-free and penalty-free.

The confusion happens because Roth accounts mix two types of money. Your contributions sit in one bucket. The interest, dividends, and capital gains your money earned sit in another. The IRS lets you pull from the contribution bucket anytime without tax or penalty. The earnings bucket has rules.

This is different from a traditional IRA, where you pay taxes on almost everything you withdraw because the money went in before taxes were taken out. With a Roth, the tax was already paid when you earned the money, so the IRS does not tax contributions again.

Key Takeaways

  • Contributions to a Roth IRA withdraw tax-free and penalty-free at any time, regardless of your age.
  • Earnings withdraw tax-free only if you are 59½ or older and the account has been open for at least five years.
  • Withdrawing earnings before age 59½ triggers both income tax and a 10 percent early withdrawal penalty, unless an exception applies.
  • The five-year rule is tied to when you first opened any Roth IRA, not when you made each deposit.
  • Conversions from traditional IRAs to Roth IRAs have their own five-year waiting period before earnings can be withdrawn tax-free.

How the IRS Tracks Which Money Is Which

The IRS uses a calculation called the pro-rata rule to decide how much of your withdrawal counts as contributions (tax-free) versus earnings (taxable). You cannot straightforward withdraw your contributions first and leave the earnings alone — the IRS treats all your Roth accounts as one pool and assumes you are withdrawing a proportional mix of both.

For example, if you have three Roth IRAs with a combined balance of $10,000, and $7,000 of that is contributions and $3,000 is earnings, then 70 percent of any withdrawal is treated as contributions and 30 percent as earnings. If you withdraw $5,000, the IRS counts $3,500 as contributions (tax-free) and $1,500 as earnings (taxable if you do not meet the age and five-year rules).

This rule applies across all Roth accounts you own. If you have a Roth IRA at one bank and a Roth IRA at another, the IRS combines them for this calculation. You cannot avoid the rule by keeping accounts separate.

The Five-Year Rule and When It Starts

The five-year clock begins the year you open your first Roth IRA, not the year you make your first deposit. If you opened a Roth in 2019, the five-year period ends on January 1, 2024, even if you did not put money in until 2020. Once that date passes, you can withdraw earnings tax-free as long as you are 59½ or older.

Conversions have a separate five-year rule. If you convert money from a traditional IRA to a Roth, that converted amount has its own five-year waiting period before the earnings on that conversion can be withdrawn tax-free. This is different from the account-opening five-year rule. You can have both running at the same time.

The five-year rule applies even if you are already 59½. Age alone does not unlock tax-free earnings withdrawals — you need both conditions: age 59½ and five years since opening the account.

Penalties for Early Withdrawal of Earnings

If you withdraw earnings before age 59½ and before the five-year period ends, you owe income tax on those earnings plus a 10 percent early withdrawal penalty. The penalty is calculated on the earnings amount only, not on your contributions.

Using the earlier example: if you withdrew $5,000 from an account where $1,500 counts as earnings, and you are under 59½, you pay income tax on that $1,500 at your regular tax rate, plus $150 in penalty (10 percent of $1,500). Your contributions come out free and clear.

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, a series of equal payments under a specific IRS formula, and a few others. You still owe income tax on the earnings, but the penalty is waived. The rules are narrow, and the IRS enforces them strictly.

Roth Conversions and Their Own Tax Rules

If you convert money from a traditional IRA or 401(k) to a Roth, that conversion counts as income in the year it happens — you owe taxes on the amount converted. But once the money is in the Roth, the five-year rule applies to the earnings on that converted amount.

The converted principal (the amount you moved over) can be withdrawn anytime without penalty. The earnings on that conversion must wait five years and until age 59½ to come out tax-free. This creates a situation where you might owe tax on a conversion, then wait five years before you can touch the gains without another tax bill.

Conversions are useful for people who expect to be in a lower tax bracket in the year of conversion than they will be in retirement, or for those who want to move money into a tax-free account before required minimum distributions begin at age 73.

What Happens at Age 59½ and Beyond

Once you reach 59½ and your Roth account has been open for five years, all withdrawals — contributions and earnings — come out tax-free and penalty-free. You can withdraw as much as you want, whenever you want, with no tax consequences. This is the main advantage of a Roth over a traditional IRA, where withdrawals are taxed as ordinary income.

Roth IRAs also have no required minimum distributions during your lifetime. A traditional IRA forces you to start withdrawing at age 73, whether you need the money or not. With a Roth, you can leave the money untouched for as long as you live, and your heirs inherit it tax-free (though they have their own withdrawal rules).

Reporting Roth Withdrawals on Your Tax Return

You do not report contributions or tax-free earnings withdrawals on your federal income tax return — they do not affect your taxable income. If you withdraw earnings that are taxable, you report them on Form 1040 as part of your income for that year. Your Roth custodian (the bank or brokerage holding the account) will send you a Form 5498-R showing the withdrawal amount, but you are responsible for calculating how much of it is taxable.

If you have a traditional IRA and a Roth IRA, the pro-rata rule applies to both when you withdraw from either one. This can create an unexpected tax bill if you have a large traditional IRA balance and withdraw from a Roth. The IRS treats all your IRAs as one account for this purpose, even though they are separate accounts at different institutions.

Frequently Asked Questions

Can I withdraw my contributions without paying taxes or penalties?

Yes. Contributions to a Roth IRA come out tax-free and penalty-free at any age. You do not need to be 59½, and the account does not need to be five years old. The five-year rule applies only to earnings, not to the money you deposited yourself.

What if I cannot tell how much is contributions versus earnings?

Your Roth custodian can tell you. Call the bank or brokerage and ask for a breakdown of your account balance into contributions and earnings. They track this for tax purposes and can provide the numbers in writing. Keep this documentation when you file your tax return.

Do I owe taxes if I withdraw earnings after age 59½ but before five years?

Yes. Both conditions must be met: you must be 59½ or older, and the account must be five years old. If only one is true, earnings withdrawals are taxable and subject to the 10 percent penalty (unless an exception applies). Age alone is not enough.

What counts as a contribution for the five-year rule?

The five-year rule starts when you open your first Roth IRA, regardless of whether you deposit money that year. If you opened a Roth in 2020 but made your first deposit in 2021, the five years still began in 2020. Conversions from traditional IRAs have a separate five-year clock.

If I have multiple Roth IRAs, do I count them separately for the five-year rule?

No. The five-year rule is based on when you opened your first Roth IRA, and it applies to all your Roth accounts. However, conversions have their own five-year period. If you converted money in 2023, that conversion's earnings must wait until 2028 to be withdrawn tax-free, even if your original Roth account is older.