Roth IRAs are not taxed on withdrawals in retirement, but there are rules about when you can withdraw without penalty

The core difference between a Roth IRA and a traditional IRA is when you pay taxes. With a Roth, you contribute money that has already been taxed (you do not get a tax deduction when you put it in). In return, the money grows tax-free, and you withdraw it tax-free in retirement. With a traditional IRA, you get a tax deduction upfront, but you pay income tax on everything you withdraw later.

This means a Roth IRA itself is not taxed — neither the growth inside it nor the money you take out — as long as you follow the withdrawal rules. The catch is that "retirement" has a specific meaning to the IRS, and withdrawing before that age triggers penalties.

Key Takeaways

  • Roth IRA contributions are made with after-tax dollars, so you pay no income tax on withdrawals in retirement.
  • The money inside a Roth grows tax-free and stays tax-free when you withdraw it, as long as you are at least 59½ and have held the account for at least five years.
  • Withdrawing before age 59½ triggers a 10% penalty on the earnings portion, though contributions themselves can be withdrawn anytime without penalty.
  • You can withdraw your contributions (the money you put in) at any time for any reason without tax or penalty, but earnings are restricted.
  • Roth conversions from a traditional IRA are taxed in the year you convert, not when you withdraw the converted money later.

What gets taxed and what does not

A Roth IRA holds two types of money: contributions (what you put in) and earnings (the growth on that money). The tax treatment is different for each.

Contributions can be withdrawn anytime, tax-free and penalty-free. You already paid income tax on this money before it went into the account, so the IRS does not tax it again. This is true no matter your age or how long you have held the account.

Earnings — the investment gains, dividends, and interest your money made inside the account — are tax-free only if you withdraw them after age 59½ and have owned the Roth for at least five years. If you withdraw earnings before meeting both conditions, you owe income tax on those earnings plus a 10% penalty.

The five-year rule and when it starts

The five-year rule is not about how long you have been contributing. It is about how long that specific Roth account has existed. The clock starts on January 1 of the year you open the account, regardless of when in that year you open it.

If you opened your Roth IRA on December 15, 2024, the five-year period ends on January 1, 2030. If you opened it on January 2, 2024, the five-year period also ends on January 1, 2029. The IRS counts tax years, not calendar days.

If you have multiple Roth IRAs, each one has its own five-year clock. However, if you convert money from a traditional IRA to a Roth (called a Roth conversion), that converted money has its own five-year waiting period separate from your regular contributions.

Penalties for early withdrawal of earnings

If you withdraw earnings before age 59½, you owe both income tax and a 10% penalty on the earnings portion. The contribution portion is never penalized. This penalty applies on top of the income tax you owe, making early withdrawal of earnings expensive.

There are a few exceptions where the 10% penalty is waived (though you still owe income tax on the earnings). These include withdrawals for a first-time home purchase (up to $10,000 lifetime), certain medical expenses, disability, or substantially equal periodic payments. However, you still must meet the five-year rule — if you have not held the account for five years, you cannot access earnings penalty-free even with an exception.

How Roth conversions are taxed

A Roth conversion happens when you move money from a traditional IRA (or another pre-tax retirement account) into a Roth IRA. The money you convert is treated as income in the year you convert it, and you owe income tax on it at your regular tax rate.

Once the money is in the Roth, it follows the normal Roth rules: contributions can be withdrawn anytime, and earnings are tax-free after age 59½ and five years. The converted amount itself is treated as a contribution for withdrawal purposes, so you can withdraw the converted amount anytime without penalty — you only cannot touch the earnings on that converted money until you meet the age and five-year requirements.

Required minimum distributions do not apply to Roth IRAs

With a traditional IRA, the IRS requires you to start taking withdrawals (called required minimum distributions or RMDs) at age 73. With a Roth IRA, there are no required withdrawals during your lifetime. You can leave the money in the account as long as you want, and it continues to grow tax-free.

This is one of the biggest tax advantages of a Roth. If you do not need the money in retirement, you can let it compound for decades without the IRS forcing you to withdraw and pay tax on it.

State income tax on Roth IRAs

Federal income tax does not apply to Roth withdrawals in retirement, but state income tax rules vary. Most states do not tax retirement income, including Roth withdrawals, but some do. A few states tax all income regardless of source.

Check your state's tax rules or speak with a tax professional about how your state treats Roth withdrawals. Some states that do not have income tax at all (like Florida, Texas, and Wyoming) have no state tax on Roth withdrawals. Others tax retirement income selectively. Knowing your state's rules helps you plan whether a Roth makes sense for your situation.

Frequently Asked Questions

Can I withdraw my contributions without paying tax?

Yes. Contributions to a Roth IRA can be withdrawn anytime, tax-free and penalty-free, at any age. The IRS considers this your own money since you already paid income tax on it. Only the earnings portion is restricted.

What happens if I withdraw earnings before age 59½?

You owe income tax on the earnings at your regular tax rate, plus a 10% penalty. The only way to avoid the penalty is if you meet one of the IRS exceptions (first-time home purchase, disability, medical hardship) and have held the account for five years.

Do I have to pay taxes on money that grows inside my Roth?

No. The growth inside a Roth IRA — whether from stock gains, dividends, or interest — is never taxed as long as you follow the withdrawal rules. You pay tax only on earnings you withdraw before age 59½.

Is a Roth conversion taxed twice?

No, but it is taxed once in the year you convert. You owe income tax on the converted amount at your regular rate in that year. After that, the money grows tax-free and withdrawals are tax-free in retirement.

What if I have both a traditional IRA and a Roth IRA?

They are separate accounts with separate rules. Contributions to each are tracked separately, and the five-year rule applies to each Roth account individually. Withdrawals from a traditional IRA are taxed as income; withdrawals from a Roth are not (if you meet the rules).