You don't pay tax on Roth IRA withdrawals in retirement, but the rules about when and how much you can withdraw matter

A Roth IRA is designed so that you pay income tax on the money before it goes in, and then pay no tax when you take it out later. That's the core difference from a traditional IRA. But "no tax on withdrawals" only applies if you follow the rules — mainly, you have to be 59½ years old and the account has to have been open for at least five years.

The money you contribute (put in) is never taxed again when you withdraw it. The earnings (the growth your money makes) are also tax-free if you meet those two conditions. If you withdraw before 59½ or before the five-year mark, the earnings portion gets taxed as income, and you may owe a 10 percent penalty on top.

Key Takeaways

  • Contributions to a Roth IRA are made with money you've already paid income tax on, so you never pay tax on that money again.
  • Earnings (investment growth) inside a Roth IRA are tax-free when you withdraw them, but only if you're at least 59½ and the account has been open for five tax years.
  • Withdrawing earnings before 59½ or before five years triggers income tax on the earnings plus a 10 percent early withdrawal penalty, with some exceptions.
  • You can withdraw your contributions at any time without tax or penalty, even before 59½, because you already paid tax on that money.
  • You are never required to take money out of a Roth IRA during your lifetime, unlike traditional IRAs.

Why contributions are never taxed again

When you put money into a Roth IRA, you use money from your paycheck that you've already paid federal income tax on. The IRS has already collected its share. Because of that, the IRS doesn't tax you again when you withdraw that same money later — it would be double taxation.

This is why you can always pull out your contributions without any tax bill or penalty, no matter your age. The IRS knows exactly how much you contributed each year because you report it on your tax return. That amount is yours to take back whenever you need it.

How earnings are taxed differently

The money your Roth IRA earns — through interest, dividends, or investment gains — is where the tax advantage really shows up. Inside the account, that growth is never taxed each year the way it would be in a regular brokerage account. And when you withdraw it in retirement, it's not taxed then either.

But this tax-free growth only applies to withdrawals that follow the rules. If you take out earnings before you're 59½, or before your account has been open for five tax years, those earnings are taxed as ordinary income. You'll also owe a 10 percent penalty on the earnings portion (not on your contributions).

The five-year rule and how it works

The five-year rule is separate from your age. Your Roth IRA account must have been open for at least five tax years before you can withdraw earnings tax-free. This clock starts on January 1 of the year you open the account, not the day you fund it.

If you open a Roth IRA in December 2024 and fund it in January 2025, the five-year period runs from January 1, 2024. You can withdraw earnings tax-free starting January 1, 2029, even though you only funded it four years earlier. If you open and fund in January 2025, the five-year clock starts January 1, 2025, and you can withdraw earnings tax-free starting January 1, 2030.

This rule applies to each Roth IRA separately if you have more than one, but most people have just one account. If you convert money from a traditional IRA to a Roth IRA, a separate five-year rule applies to that converted amount.

Early withdrawal exceptions that avoid the penalty

The 10 percent early withdrawal penalty doesn't apply in a few specific situations, though income tax on earnings may still apply. You can withdraw earnings penalty-free (but not tax-free) if you're disabled, if you're a first-time homebuyer taking up to $10,000 lifetime, or if you're paying for may have access to education expenses.

You can also withdraw earnings penalty-free if you've had the account open for five years and you're using the money for a may have access to birth or adoption expense (up to $35,000 lifetime). In all these cases, you still owe income tax on the earnings portion, but you skip the 10 percent penalty.

Your contributions can always come out penalty-free and tax-free, regardless of age or reason. Only the earnings portion is subject to the penalty rules.

What happens if you inherit a Roth IRA

If someone leaves you a Roth IRA, the tax treatment depends on whether you're the spouse or a non-spouse beneficiary. A spouse can treat the inherited Roth as their own and follow the normal withdrawal rules. A non-spouse beneficiary must withdraw the entire account within 10 years (as of 2024), but those withdrawals are tax-free as long as the original account owner had met the five-year rule.

If the original owner had not yet met the five-year requirement, the earnings portion of inherited withdrawals will be taxed to you, but you won't owe the 10 percent penalty. The rules around inherited retirement accounts are complex, so it's worth reviewing them with a tax professional if you inherit a Roth IRA.

No required withdrawals during your lifetime

Unlike a traditional IRA, you are never required to take money out of a Roth IRA while you're alive. This is a major tax advantage if you don't need the money — your contributions and earnings can keep growing tax-free indefinitely. You can leave the account untouched for decades if you choose.

Your beneficiaries will have to withdraw the money after you die, but during your lifetime, the decision is entirely yours. This flexibility makes a Roth IRA useful as a long-term wealth-building tool, not just a retirement account.

Frequently Asked Questions

Can I withdraw my contributions without paying tax or penalty?

Yes. Your contributions are always available to withdraw tax-free and penalty-free at any age, because you already paid income tax on that money before putting it in. The IRS tracks your contribution basis, so you can take out exactly what you contributed without any tax consequences.

What happens if I withdraw earnings before 59½?

You'll owe income tax on the earnings at your regular tax rate, plus a 10 percent early withdrawal penalty on the earnings portion. However, some exceptions exist — such as disability, first-time homebuying, or may have access to education expenses — that waive the penalty but not the income tax.

Does the five-year rule reset if I open a second Roth IRA?

No. The five-year rule is based on when you first opened any Roth IRA, not on individual accounts. If you opened your first Roth in 2020, any Roth IRA you open in 2024 uses the same five-year clock that started in 2020.

Do I have to pay taxes on the money growing inside my Roth IRA each year?

No. Unlike a regular investment account, you pay no tax on interest, dividends, or capital gains inside a Roth IRA while the money is growing. That's one of the main advantages. You only face tax if you withdraw earnings before meeting the age and five-year requirements.

What if I need money before retirement — can I use my Roth IRA?

You can withdraw your contributions at any time without tax or penalty. If you need to withdraw earnings before 59½, you'll owe income tax on them and likely a 10 percent penalty, unless an exception applies. Many people use a Roth IRA as an emergency fund for this reason — the contributions are always accessible.