You don't pay taxes on Roth IRA withdrawals in retirement, but the rules for getting money out before then are different

A Roth IRA is built around a tax trade-off: you put in money you've already paid income tax on, and then the money grows tax-free. When you withdraw in retirement—meaning age 59½ or later, and the account has been open at least five years—you owe no federal income tax on any of it, including the earnings.

The catch is that the tax-free withdrawal only applies to money you take out under those specific conditions. If you withdraw before 59½, or if your account hasn't been open five years yet, the earnings portion of your withdrawal is taxable income, and you may also owe a 10 percent penalty on top of the tax.

The money you contributed—your contributions—can always come out tax-free and penalty-free, at any age. The IRS treats contributions and earnings as separate buckets, and it tracks which is which.

Key Takeaways

  • Withdrawals from a Roth IRA after age 59½ are not taxed if the account has been open for at least five years, including the earnings.
  • Money you contributed to the account can be withdrawn at any time without tax or penalty, but earnings withdrawn before 59½ are taxed as income plus a 10 percent penalty.
  • The IRS separates your contributions from your earnings, so you need to know how much of each you have before you withdraw.
  • Certain hardships—disability, medical bills, first-time home purchase—allow you to withdraw earnings early without the 10 percent penalty, though you still owe income tax.

How the five-year rule works

The five-year rule is not about your age—it's about how long the account itself has existed. Your Roth IRA must have been open for at least five tax years before you can withdraw earnings tax-free, even if you're already 59½ or older.

The clock starts on January 1 of the year you open the account. If you open a Roth IRA on December 15, 2024, the five-year period runs from January 1, 2024, and ends on December 31, 2028. You can withdraw earnings tax-free starting January 1, 2029, as long as you're also 59½ by then.

If you inherit a Roth IRA from a spouse, you can treat it as your own and the five-year clock resets. If you inherit from a non-spouse, the five-year rule is more complicated and depends on when the original account owner opened it.

What happens if you withdraw before retirement age

Withdrawals before age 59½ are split into two parts: your contributions and your earnings. Your contributions always come out tax-free and penalty-free. Your earnings come out taxable and subject to a 10 percent penalty unless an exception applies.

The IRS uses a formula called the pro-rata rule to figure out how much of your withdrawal is contributions versus earnings. If you have multiple IRAs (including traditional IRAs), the rule applies across all of them together, not to each account separately. This can create an unexpected tax bill if you have both a Roth and a traditional IRA.

Example: You have a Roth IRA with $5,000 in contributions and $2,000 in earnings. You withdraw $3,500 before age 59½. The IRS treats the withdrawal as 71 percent contributions ($5,000 ÷ $7,000) and 29 percent earnings ($2,000 ÷ $7,000). So $2,485 comes out tax-free and $1,015 is taxable income plus the 10 percent penalty.

Exceptions that waive the 10 percent penalty

The IRS allows you to withdraw earnings early without the 10 percent penalty in specific situations. You still owe income tax on the earnings, but not the extra penalty. These exceptions include disability, medical expenses that exceed 7.5 percent of your adjusted gross income, health insurance premiums while unemployed, and a first-time home purchase (up to $10,000 lifetime).

Other exceptions exist for substantially equal periodic payments (a complex calculation that requires professional help), education expenses, and a few others. Each exception has its own rules and documentation requirements. The IRS publication 590-B lists all of them in detail.

How conversions affect your tax bill

If you convert money from a traditional IRA to a Roth IRA, you pay income tax on the amount converted in the year you do it. That converted amount then sits in your Roth IRA as a contribution, and you can withdraw it anytime without tax or penalty.

The earnings on that converted money follow the normal Roth rules: tax-free after 59½ if the account has been open five years, taxable before then unless an exception applies. The five-year rule for conversions is slightly different—there's a separate five-year period for each conversion—but most people don't need to worry about this unless they convert multiple times.

State taxes and Roth IRAs

Federal income tax is the main concern with Roth withdrawals, but a few states also tax retirement income. Most states exempt Roth IRA withdrawals from state income tax, but a handful do not. Pennsylvania, for example, taxes IRA withdrawals but exempts Roth IRAs. New Jersey taxes both. The rules vary by state, so check your state's tax authority website if you live in a state with income tax.

If you move to a different state after you retire, the state where you withdraw the money is usually the one that taxes it, not the state where you earned it or where the account is based.

Frequently Asked Questions

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 before age 59½ and do not may have access to for an exception, you report the taxable portion on Form 1040. Your financial institution sends you a Form 1099-R showing the total withdrawal; you use that to figure out how much is taxable.

What if I withdraw contributions and earnings in the same year?

The IRS treats all withdrawals in a year as coming out in a specific order: contributions first, then conversions, then earnings. So if you withdraw $8,000 and you have $5,000 in contributions, $2,000 in conversions, and $3,000 in earnings, the first $5,000 is tax-free, the next $2,000 is taxable (from the conversion), and the last $1,000 is taxable earnings.

Can I avoid the tax by rolling my Roth IRA into another retirement account?

Rolling a Roth IRA into another Roth IRA does not trigger taxes. Rolling it into a traditional IRA converts it to a traditional account and creates a tax situation similar to a conversion. Rolling it into a 401(k) is only possible if your 401(k) plan allows Roth rollovers, which not all do.

What if I take a loan from my Roth IRA instead of withdrawing?

Roth IRAs do not allow loans. You can only withdraw or convert. If you take money out, it counts as a withdrawal for tax purposes, even if you plan to put it back.

Do required minimum distributions apply to Roth IRAs?

You do not have to take required minimum distributions from your own Roth IRA during your lifetime. If you inherit a Roth IRA from someone else, the rules depend on when you inherited it and whether the original owner had started taking distributions.