You don't pay federal income tax on Roth IRA withdrawals in retirement, but the rules depend on when you withdraw and how long you've held the account

The core tax advantage of a Roth IRA is that money you withdraw in retirement comes out tax-free — both the contributions you put in and the earnings those contributions generated. This is different from a traditional IRA, where withdrawals are taxed as ordinary income. However, the tax-free treatment only applies if you meet two conditions: you must be at least 59½ years old, and your Roth IRA must have been open for at least five tax years.

If you withdraw money before you meet both conditions, the earnings portion of your withdrawal is taxed as ordinary income, and you may owe a 10% early withdrawal penalty on top of that tax. Your contributions themselves can always come out tax-free, even before 59½, because you already paid taxes on that money when you earned it. The five-year rule applies to each Roth IRA separately — if you open a new Roth IRA, that account's five-year clock starts over.

Key Takeaways

  • Withdrawals from a Roth IRA after age 59½ and after the account has been open for five tax years are not subject to federal income tax.
  • You can withdraw your contributions (the money you put in) at any time without tax or penalty, regardless of your age or how long the account has been open.
  • Withdrawals of earnings before age 59½ or before the five-year mark are taxed as ordinary income and subject to a 10% early withdrawal penalty, unless an exception applies.
  • The five-year rule is tracked per account, so opening a new Roth IRA restarts the clock for that specific account.

How the five-year rule works

The five-year holding period begins on January 1 of the tax year in which you first contribute to any Roth IRA. This is important: if you open your first Roth IRA in 2024, the five-year clock starts January 1, 2024, even if you don't fund it until December 2024. The clock does not reset if you open a second Roth IRA later — the five-year rule applies to your Roth IRA accounts as a group for purposes of determining whether earnings are tax-free.

However, if you convert a traditional IRA to a Roth IRA (called a Roth conversion), that conversion starts its own separate five-year clock. This means you could have one five-year period running for your original Roth IRA contributions and a different five-year period for a conversion. The IRS tracks these separately, and the rules for which earnings are tax-free can become complicated if you have both.

Once five tax years have passed and you reach 59½, all future withdrawals are tax-free. You do not need to do anything to activate this — it happens automatically.

Contributions versus earnings: what comes out first

When you withdraw money from a Roth IRA, the IRS assumes contributions come out first, then earnings. This matters because contributions are always tax-free, but earnings may not be. If you have $50,000 in a Roth IRA made up of $30,000 in contributions and $20,000 in earnings, and you withdraw $40,000, the first $30,000 is treated as a contribution withdrawal (tax-free), and the remaining $10,000 is treated as an earnings withdrawal (subject to tax and penalty if you don't meet the age and five-year requirements).

This ordering rule applies even if you have multiple Roth IRAs. The IRS treats all your Roth IRAs as a single account for purposes of determining the tax treatment of withdrawals. If you have three Roth IRAs with different balances, you cannot choose to withdraw from the one with the most earnings first to avoid tax — the pro-rata rule applies across all accounts combined.

Early withdrawal exceptions that avoid the 10% penalty

Even if you withdraw earnings before age 59½ or before the five-year mark, you can avoid the 10% penalty in certain situations. The earnings portion will still be taxed as ordinary income, but the penalty does not apply. These exceptions include withdrawals for a first home purchase (up to $10,000 lifetime), may have access to education expenses, unreimbursed medical expenses, health insurance premiums during unemployment, and disability or medical hardship.

You must document the reason for the withdrawal. For example, if you withdraw for education expenses, you need records showing the student's enrollment and the costs paid. The IRS does not require you to submit these documents with your tax return, but you must keep them in case of an audit. If you claim an exception and the IRS later determines you did not may have access to, you will owe the penalty retroactively plus interest.

Roth conversions have their own penalty exception: you can withdraw converted funds without penalty after they have been in the Roth IRA for five tax years, even if you are under 59½. However, earnings on those converted funds still face the 10% penalty if you withdraw them before 59½.

State and local taxes on Roth IRA withdrawals

Federal income tax is not owed on may have access to Roth IRA withdrawals, but state and local taxes vary. Most states do not tax Roth IRA withdrawals, but a few do. States like Pennsylvania and New Hampshire tax some retirement income, though their rules differ. Some states exempt Roth withdrawals specifically while taxing traditional IRA withdrawals.

If you live in a state with income tax, check your state's tax agency website or speak with a tax professional about whether Roth withdrawals are taxed in your state. This is especially important if you are planning to move in retirement or if you withdraw before age 59½ and need to know your full tax bill.

Roth conversions and the pro-rata rule

If you convert money from a traditional IRA to a Roth IRA, the tax treatment depends on how much pre-tax money you have in all your traditional IRAs combined. The pro-rata rule requires you to calculate the percentage of your total traditional IRA balance that is pre-tax versus after-tax (contributions you already paid tax on). That same percentage applies to the amount you convert.

For example, if you have $100,000 in traditional IRAs and $20,000 of that is after-tax contributions, then 80% of any conversion is taxable. If you convert $10,000, you owe tax on $8,000 of it. This rule applies even if you have IRAs at different banks or with different custodians — the IRS aggregates all your traditional, SEP, and SIMPLE IRAs for this calculation. Once converted, the money is in the Roth IRA and follows the normal Roth rules (five-year holding period, tax-free withdrawals after 59½).

Inherited Roth IRAs and tax treatment

If you inherit a Roth IRA from someone other than a spouse, the tax treatment of withdrawals depends on whether the original account holder had satisfied the five-year requirement. If they had, your withdrawals are tax-free. If they had not, the earnings portion of your withdrawal is taxable, though you may not owe the 10% penalty depending on your relationship to the deceased and the rules in effect when you inherit.

The rules for inherited Roth IRAs changed significantly under the SECURE Act (passed in 2019), and most non-spouse beneficiaries must now withdraw the entire account within 10 years. The tax treatment of those withdrawals still depends on whether the five-year rule was satisfied by the original owner. Consult a tax professional if you inherit a Roth IRA, because the rules are complex and mistakes can be costly.

Frequently Asked Questions

Do I owe taxes on Roth IRA earnings if I leave the money in the account?

No. You only owe taxes on earnings when you withdraw them and you do not meet the age and five-year requirements. Money that stays in the account grows tax-free indefinitely, regardless of how much it earns.

What happens if I withdraw before the five-year rule is satisfied?

Contributions come out tax-free. Earnings are taxed as ordinary income and subject to a 10% penalty unless an exception applies (first home, education, disability, etc.). The penalty is calculated on the earnings portion only, not on contributions.

Can I avoid the five-year rule by opening a new Roth IRA?

No. The five-year clock is based on when you first contributed to any Roth IRA, not on individual accounts. Opening a new Roth IRA does not restart the clock for your original contributions, though conversions do have their own separate five-year periods.

Do I have to report Roth IRA withdrawals on my tax return?

If your withdrawals are entirely from contributions or are may have access to (after 59½ and five-year rule met), you do not report them on your federal return. If you withdraw earnings before meeting the requirements, you report the taxable portion on Form 1040 and may owe the 10% penalty, reported on Form 5329.

What if I live in a state with income tax?

Most states do not tax Roth withdrawals, but some do. Check your state's tax agency or a tax professional to confirm whether your state taxes Roth IRA distributions. This affects your total tax bill even if federal tax is zero.