Roth IRA contributions are never taxed when you withdraw them, but earnings are taxed unless you follow the withdrawal rules
The money you put into a Roth IRA is never taxed again — you already paid income tax on it before it went in. The investment growth inside the account is also tax-free. But there is a catch: you have to follow specific rules about when and how you withdraw the money, or the tax-free treatment disappears.
The basic rule is simple: contributions come out tax-free anytime. Earnings (the profit your investments made) come out tax-free only if you are 59½ or older and have held the account for at least five tax years. If you break that rule, the earnings portion of your withdrawal gets taxed as ordinary income, and you may owe a 10 percent early withdrawal penalty on top.
Key Takeaways
- Money you contributed to a Roth IRA can be withdrawn tax-free at any age, because you already paid income tax on it.
- Investment earnings inside a Roth IRA grow tax-free and can be withdrawn tax-free if you are 59½ or older and have owned the account for at least five tax years.
- Withdrawing earnings before 59½ or before the five-year mark triggers income tax on those earnings plus a 10 percent penalty, unless an exception applies.
- Certain hardships like disability, death, or a first home purchase may let you withdraw earnings early without the 10 percent penalty, though income tax still applies.
Why contributions are never taxed again
A Roth IRA is funded with money you have already paid income tax on. When you earn a paycheck and put $7,000 into a Roth IRA, that $7,000 came from after-tax dollars — you paid the IRS its share first. The IRS does not tax the same dollar twice, so that contribution amount is yours to withdraw whenever you want.
This is different from a traditional IRA, where contributions may be tax-deductible in the year you make them, and you pay tax on the full amount when you withdraw it later. With a Roth, the tax is paid upfront, and the contribution itself is always tax-free to pull out.
How the five-year rule works for earnings
The earnings — the investment returns your money made inside the account — are treated differently. Those earnings have never been taxed. The IRS lets them grow tax-free inside a Roth IRA, but only if you follow the rules.
The five-year rule starts counting from January 1 of the tax year in which you first contributed to any Roth IRA. It does not restart if you open a second Roth IRA or make a new contribution. If you opened your first Roth IRA in 2020, the five-year period ends on January 1, 2025, and you can withdraw earnings tax-free starting that date — as long as you are also 59½ or older.
If you withdraw earnings before both conditions are met (age 59½ and five years), the earnings portion of your withdrawal is taxed as ordinary income at your regular tax rate, and you owe a 10 percent early withdrawal penalty on the earnings amount.
How to figure out which part of a withdrawal is contributions versus earnings
If you have made multiple contributions over the years and your account has grown, you need to know how much of your withdrawal is contributions (tax-free) and how much is earnings (potentially taxable). The IRS uses a formula called the pro-rata rule to calculate this.
Add up all your Roth IRA contributions across all your Roth accounts. Divide that by your total Roth IRA balance (contributions plus earnings). That percentage tells you what portion of any withdrawal is contributions. The rest is earnings.
Example: You have contributed $50,000 total to your Roth IRAs, and your account balance is now $80,000. That means $50,000 is contributions and $30,000 is earnings. If you withdraw $20,000, the formula says 62.5 percent of it ($12,500) is contributions and 37.5 percent ($7,500) is earnings. The $12,500 comes out tax-free; the $7,500 is subject to tax and penalty if you do not meet the age and five-year rules.
Exceptions that let you withdraw earnings early without the 10 percent penalty
The IRS allows you to withdraw earnings before 59½ without the 10 percent penalty in specific situations. The earnings are still taxed as income, but you avoid the extra penalty. These exceptions include disability, death (your beneficiary can withdraw), a first-time home purchase (up to $10,000 lifetime), and may have access to education expenses.
There is also an exception for substantially equal periodic payments, which is a complex rule that lets you take a series of equal withdrawals before 59½ without penalty. This requires calculating the payment amount using IRS formulas and committing to the schedule for at least five years or until you turn 59½, whichever is longer.
Even with these exceptions, the earnings portion is still subject to income tax. You are only avoiding the 10 percent penalty. If you are unsure whether your situation qualifies, a tax professional can review your circumstances.
What happens to your Roth IRA after you die
When a Roth IRA owner dies, the account passes to a beneficiary — usually a spouse or child named on the account. The beneficiary inherits the account tax-free, meaning the contributions and earnings are not taxed when the account changes hands.
However, the beneficiary must follow withdrawal rules based on their relationship to the original owner and the date of death. A surviving spouse can treat the inherited Roth as their own or keep it as an inherited account. Other beneficiaries must withdraw the entire balance within ten years (under current rules), though the withdrawals themselves are tax-free because the original owner already paid tax on the contributions and the earnings grow tax-free in a Roth.
Roth conversions and the pro-rata rule
If you convert money from a traditional IRA to a Roth IRA, that conversion is a taxable event in the year it happens. You pay income tax on the amount converted. Once the money is in the Roth, the same rules apply: contributions (in this case, the amount you converted and paid tax on) can be withdrawn anytime, and earnings follow the five-year and age 59½ rules.
The pro-rata rule also applies to conversions. If you have both a traditional IRA and a Roth IRA, and you convert part of the traditional IRA to a Roth, the IRS treats all your traditional IRAs as one pool for calculating how much of the conversion is pre-tax money (taxable) versus after-tax money (not taxable). This can create an unexpected tax bill if you have significant pre-tax balances in traditional IRAs.
Frequently Asked Questions
Can I withdraw my Roth IRA contributions without paying tax or penalty?
Yes. Contributions can be withdrawn at any age without tax or penalty. You only need to know how much you contributed versus how much is earnings. Your Roth IRA custodian (the bank or brokerage holding the account) can provide a statement showing your contribution basis.
What if I withdraw earnings before age 59½ but I have owned the account for more than five years?
The earnings are still taxed as ordinary income. The five-year rule and the age 59½ rule both have to be met for earnings to come out tax-free. Meeting only one of them does not protect the earnings from tax.
Do I have to report my Roth IRA on my tax return?
You do not report contributions or tax-free withdrawals. If you withdraw earnings and owe tax on them, you report that on your return. Roth conversions are reported on Form 8606. Your custodian will send you a Form 5498 showing your contributions and conversions for the year.
If I inherit a Roth IRA, do I have to pay tax on it?
No. The account passes to you tax-free. However, you must follow withdrawal rules based on your relationship to the original owner. A spouse can treat it as their own; other beneficiaries must withdraw it within ten years. The withdrawals themselves are tax-free because the original owner already paid tax on the contributions.
What is the difference between a Roth IRA and a Roth 401(k) for taxes?
Both use after-tax money and grow tax-free. The main difference is that a Roth 401(k) has required minimum distributions starting at 73, while a Roth IRA does not. A Roth IRA also has income limits on contributions, while a Roth 401(k) does not. The five-year rule applies to both, but the clock starts separately for each account type.