You don't pay taxes on Roth IRA withdrawals in retirement, but the rules depend on how long you've held the account and your age

The core appeal of a Roth IRA is that money you withdraw after age 59½ comes out tax-free, as long as you've owned the account for at least five years. That's different from a traditional IRA, where withdrawals are taxed as ordinary income. But the tax picture gets more complicated if you withdraw money before retirement, convert funds from another account, or earn money inside the Roth itself.

The IRS divides Roth withdrawals into two categories: contributions (the money you put in) and earnings (the growth on that money). Contributions always come out tax-free and penalty-free, whenever you need them. Earnings follow stricter rules. If you're under 59½ or haven't met the five-year holding period, you'll owe income tax on the earnings portion plus a 10% early withdrawal penalty—unless you may have access to for a narrow exception.

Key Takeaways

  • Contributions to a Roth IRA can be withdrawn at any time without taxes or penalties, but earnings are locked until you reach 59½ and have owned the account for five tax years.
  • The five-year rule resets for each Roth conversion or backdoor Roth contribution, meaning you may have multiple five-year clocks running at once.
  • Early withdrawal of earnings triggers both income tax and a 10% penalty unless you meet an IRS exception like disability, first-time home purchase, or may have access to education expenses.
  • You never owe taxes on the money you contribute to a Roth IRA, even if you withdraw it immediately, because you already paid income tax when you earned it.

How the five-year rule works and why it matters

The five-year holding period is not about your age—it's about how long the Roth account itself has existed. The clock starts on January 1 of the year you open your first Roth IRA, not the day you fund it. If you opened a Roth in 2024, the five-year period ends on January 1, 2029. Any earnings withdrawn before that date are subject to tax and the 10% penalty, even if you're already 59½.

This rule applies separately to each Roth conversion or backdoor Roth contribution. If you convert a traditional IRA to a Roth in 2024, that conversion has its own five-year clock. You could have owned your original Roth IRA since 2010 and still owe penalties on earnings from a 2024 conversion if you touch them before 2029. The IRS tracks these separately using Form 8606.

Once you clear both hurdles—age 59½ and five years of ownership—all future withdrawals are tax-free, including earnings. You can withdraw as much as you want, whenever you want, with no tax bill and no required minimum distributions.

Contributions versus earnings: which can you withdraw penalty-free

The IRS treats contributions and earnings differently because you've already paid income tax on contributions. When you earned the money and put it into a Roth, you paid tax on that income. Withdrawing it again doesn't create a second tax bill.

Earnings, by contrast, have never been taxed. That growth is what the Roth is designed to shelter. The IRS wants you to leave it alone until retirement, so it penalizes early access. If you withdraw $50,000 from a Roth IRA that holds $40,000 in contributions and $10,000 in earnings, the first $40,000 comes out clean. The $10,000 in earnings triggers tax and penalties if you don't meet an exception.

Figuring out how much is contributions versus earnings can be tricky if you've made multiple contributions over years or done conversions. The IRS uses a pro-rata calculation that blends all your Roth and traditional IRAs together. If you have a traditional IRA with $100,000 and a Roth with $50,000 in contributions and $10,000 in earnings, a withdrawal is treated as coming proportionally from both accounts—80% non-taxable and 20% taxable. You can't cherry-pick the contributions and leave the earnings behind.

Early withdrawal exceptions that avoid the 10% penalty

The IRS allows penalty-free early withdrawal of Roth earnings (though not the tax) in a few specific situations. You can withdraw earnings without the 10% penalty if you're disabled, if you're a beneficiary withdrawing after the account holder's death, or if you're using the money for may have access to medical expenses that exceed 7.5% of your adjusted gross income.

First-time home buyers can withdraw up to $10,000 in lifetime earnings penalty-free to buy, build, or rebuild a home. You must not have owned a home in the two years before the withdrawal. may have access to education expenses for you, your spouse, or your children also avoid the penalty—tuition, fees, books, supplies, and room and board if you're at least a half-time student.

Even with these exceptions, you still owe income tax on the earnings portion. The penalty is waived, but the tax bill remains. If you're in the 24% tax bracket and withdraw $10,000 in earnings, you'll owe $2,400 in federal income tax plus any state tax, even though you avoid the $1,000 penalty.

Roth conversions and the pro-rata rule

When you convert money from a traditional IRA to a Roth, you pay income tax on the amount converted in that year. But the five-year rule still applies to the converted funds. You can withdraw your original contributions to the Roth anytime, but converted funds are treated as earnings for the first five years.

The pro-rata rule complicates this further. If you have $100,000 in a traditional IRA (of which $20,000 is non-deductible contributions you've already paid tax on) and you convert $50,000 to a Roth, the IRS treats the conversion as 80% taxable and 20% non-taxable. You'll owe tax on $40,000 of the conversion. The $10,000 of non-taxable basis stays with your traditional IRA.

This is why people with large traditional IRAs sometimes struggle with backdoor Roth contributions. The pro-rata rule can force a bigger tax bill than expected. A tax professional can help you model the impact before you convert.

What happens if you inherit a Roth IRA

Beneficiaries who inherit a Roth IRA have different rules depending on their relationship to the original owner. A surviving spouse can treat the inherited Roth as their own, roll it into their own Roth, or keep it as an inherited Roth. Non-spouse beneficiaries must treat it as inherited and cannot roll it into their own Roth.

Inherited Roth IRAs still follow the five-year rule, but the clock is based on when the original owner opened their Roth, not when you inherited it. If the original owner had owned the Roth for seven years, you can withdraw earnings tax-free immediately. If they'd owned it for only two years, you must wait until the five-year period from their opening date is complete.

Under the SECURE Act (passed in 2019), most non-spouse beneficiaries must empty the inherited Roth within ten years of the original owner's death. Withdrawals of contributions are always tax-free. Withdrawals of earnings are tax-free if the five-year rule is met; otherwise, earnings are taxable.

State taxes and Roth IRAs

Federal tax treatment is only part of the story. Some states tax IRA withdrawals, though most do not. States that tax retirement income include Vermont, Minnesota, and Colorado, though the rules vary. A few states exempt Roth withdrawals specifically because they're already taxed at the federal level, while others treat Roth and traditional IRAs the same way.

If you live in a state with income tax, check your state's rules before you withdraw. Moving to a no-income-tax state after retirement can be a tax strategy, but it requires planning. Some states also tax the growth inside the account while you own it, though this is rare.

Frequently Asked Questions

Can I withdraw my contributions without paying taxes?

Yes. Contributions to a Roth IRA can be withdrawn at any time, tax-free and penalty-free. The IRS has already taxed that money when you earned it, so there's no second tax bill. You can only withdraw earnings penalty-free if you're 59½ and have owned the account for five years.

What if I withdraw earnings before age 59½?

You'll owe income tax on the earnings at your ordinary tax rate, plus a 10% early withdrawal penalty. The penalty is $1,000 on a $10,000 early earnings withdrawal. Some exceptions (disability, first-time home purchase, education expenses) waive the penalty but not the tax.

Does the five-year rule apply to each Roth IRA separately?

No. The five-year rule is based on when you first opened any Roth IRA, not on individual accounts. However, conversions and backdoor contributions have their own separate five-year clocks. You could have multiple five-year periods running at once if you've done conversions in different years.

Do I owe taxes on Roth IRA growth if I never withdraw it?

No. Growth inside a Roth IRA is never taxed, whether you withdraw it or leave it to heirs. That's the entire point of the Roth structure. You pay tax going in, and everything after that is tax-free forever.

What if I convert a traditional IRA to a Roth—do I pay taxes then?

Yes. You owe income tax on the amount you convert in the year of the conversion, calculated at your ordinary tax rate. This is separate from the five-year rule. You pay the tax upfront, and then the converted funds grow tax-free inside the Roth.