Roth IRAs are not taxed on the money you withdraw in retirement, but the rules depend on how long you've held the account and what you're taking out

A Roth IRA works backwards from a traditional IRA on taxes. You put in money that's already been taxed (you don't get a deduction when you contribute), but then the account grows tax-free. When you withdraw money in retirement, you pay no federal income tax on it—not on your original contributions, and not on the earnings those contributions generated.

The catch is that the tax-free withdrawal only applies to earnings if you meet two conditions: your account must be at least five years old, and you must be at least 59½ years old when you take the money out. If you withdraw earnings before then, you'll owe income tax on those earnings plus a 10% penalty in most cases.

Your contributions, though, are always yours to withdraw tax-free and penalty-free, no matter your age or how long you've had the account. The IRS knows what you put in because you report it on your tax return each year.

Key Takeaways

  • Contributions you make to a Roth IRA come out of money you've already paid taxes on, so you never pay tax on them again when you withdraw.
  • Earnings (the investment growth inside the account) are tax-free in retirement only if your account is at least five years old and you're at least 59½ when you withdraw.
  • Withdrawing earnings before age 59½ triggers income tax on those earnings plus a 10% penalty, unless a narrow exception applies.
  • The five-year rule is tied to when you first opened any Roth IRA, not when you made each individual contribution.

Why contributions are always tax-free to withdraw

When you put money into a Roth IRA, you've already paid income tax on that money. You earned it, the IRS took its cut, and what's left is what you deposit. Because of that, the IRS doesn't tax you again when you take it back out.

The IRS tracks this through the Roth IRA basis—the total amount of contributions you've made over the years. You report your contributions on Form 8606 when you file your taxes, and that record stays with you. When you withdraw, you can pull out your basis anytime, at any age, without tax or penalty.

This is one reason people sometimes use Roth IRAs as an emergency fund: you can access your contributions without the tax hit that would come from a traditional IRA or 401(k). But once you've withdrawn a contribution, you can't put it back in that same year—it counts as a distribution.

How the five-year rule works for earnings

The earnings inside your Roth IRA—the investment gains, dividends, and interest—are only tax-free when you withdraw them if your account has been open for at least five years. This is called the five-year holding period, and it's one of the most misunderstood Roth rules.

The five-year clock starts on January 1 of the year you opened your first Roth IRA, not on the day you made your first contribution. If you opened a Roth in 2024, the five-year period ends on January 1, 2029. After that date, any earnings you withdraw are tax-free (assuming you also meet the age requirement or another exception).

If you have multiple Roth IRAs, the five-year rule applies to all of them together. You don't restart the clock when you open a second account or roll money from one Roth to another. The IRS looks at when you first opened any Roth IRA.

What happens if you withdraw earnings before age 59½

If you take out earnings before you turn 59½ and your account hasn't been open five years, you owe income tax on those earnings at your regular tax rate. On top of that, you pay a 10% early withdrawal penalty on the earnings amount.

Example: You opened a Roth IRA three years ago and contributed $6,000. It's now worth $8,000 because of investment growth. You withdraw the full $8,000. You can take the $6,000 contribution with no tax or penalty. The $2,000 in earnings is subject to income tax plus the 10% penalty, so you'd owe tax on $2,000 plus $200 in penalty.

Several exceptions exist where you can withdraw earnings before 59½ without the 10% penalty: if you're disabled, if you're a first-time homebuyer (up to $10,000 lifetime), if you're paying medical expenses that exceed 7.5% of your adjusted gross income, or if you're paying health insurance premiums while unemployed. You still owe income tax on the earnings in these cases, but the penalty is waived.

Roth conversions and the pro-rata rule

If you convert money from a traditional IRA to a Roth IRA, the five-year rule applies separately to that conversion. You must wait five years from the conversion date before you can withdraw the converted amount tax-free, even if your original Roth IRA is older than five years.

There's also a pro-rata rule that affects conversions. If you have both traditional IRA money and Roth IRA money, and you convert some traditional IRA funds to Roth, the IRS treats all your IRAs as one pool for tax purposes. This can create unexpected tax bills in conversion years. Working with a tax professional before converting is usually worth the cost.

State taxes and Roth IRAs

Federal income tax is not charged on Roth IRA withdrawals, but some states have their own income taxes. Most states that have income tax do not tax Roth IRA withdrawals, treating them the same way the federal government does. A few states—including Pennsylvania and New Hampshire—don't tax IRA withdrawals at all.

If you live in a state with income tax, check your state's rules before you retire. Some states have changed their treatment of retirement accounts in recent years, so what was true five years ago might not be true now.

Required minimum distributions and Roth IRAs

Unlike traditional IRAs, Roth IRAs have no required minimum distributions (RMDs) during your lifetime. You never have to withdraw money just because you've reached a certain age. This makes Roths useful for people who don't need the money right away and want to let the account keep growing tax-free.

Your beneficiaries, however, do face distribution rules after you die. The rules depend on when you opened the account and who inherits it, so this is another area where a conversation with a tax professional or financial advisor can save money later.

Frequently Asked Questions

Can I withdraw my contributions anytime without penalty?

Yes. Your contributions are always yours to withdraw tax-free and penalty-free, regardless of your age or how long you've had the account. Only the earnings portion is subject to the five-year rule and age restrictions.

What if I'm 65 and my Roth IRA is only three years old?

You can withdraw your contributions anytime. The earnings are still subject to income tax because the account hasn't been open five years yet, even though you're past 59½. Both the five-year rule and the age rule must be met for earnings to be tax-free.

Do I pay taxes on Roth IRA growth while the money is still in the account?

No. The entire point of a Roth IRA is that the money grows tax-free inside the account. You only face taxes if you withdraw earnings before meeting the five-year and age requirements.

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

Yes. The amount you convert is treated as income in the year of conversion, and you owe income tax on it at your regular tax rate. This is separate from the five-year rule that applies to the converted funds themselves.

What if I need money before 59½ but my account is already five years old?

You can withdraw your contributions anytime. For earnings, you can withdraw them tax-free if your account is five years old, but you'll still owe the 10% penalty unless you may have access to for an exception like first-time homebuyer or disability.