Roth IRA withdrawals are not taxed when you take them out, but the tax treatment depends on whether you are withdrawing contributions or earnings, and how long you have held the account.
The core rule is simple: money you put into a Roth IRA comes out tax-free whenever you want it. The earnings (investment gains) inside the account also grow tax-free. But when you withdraw earnings before age 59½, the IRS taxes those earnings as ordinary income, plus usually adds a 10% early withdrawal penalty. After age 59½, if your account has been open for at least five years, both contributions and earnings come out with no tax or penalty.
The five-year rule is the part that trips up most people. It is not five years from when you made a contribution — it is five years from January 1 of the year you opened your first Roth IRA, regardless of which Roth account you are withdrawing from. If you opened a Roth in 2020, the five-year clock started January 1, 2020, and you clear it on January 1, 2025.
Key Takeaways
- Contributions (the money you deposited) can be withdrawn tax-free and penalty-free at any age and any time.
- Earnings (investment gains) withdrawn before age 59½ are taxed as ordinary income and subject to a 10% early withdrawal penalty, with limited exceptions.
- The five-year holding period starts January 1 of the year you opened your first Roth IRA, not the year of each individual contribution.
- After age 59½ and five years of account ownership, both contributions and earnings withdraw tax-free and penalty-free.
- Roth conversions from traditional IRAs trigger their own five-year rule for the converted amount, separate from your original Roth contributions.
How contributions and earnings are treated differently
The IRS tracks your Roth contributions separately from your earnings. When you withdraw money, the IRS assumes you take out contributions first, then earnings. This is called the "ordering rule," and it means you can always pull out what you put in without tax or penalty.
Earnings are the investment returns — dividends, capital gains, interest — that your money earned inside the account. These are the dollars that grew your balance beyond what you deposited. If you withdraw earnings before age 59½ and before the five-year mark, the IRS taxes them at your ordinary income tax rate (the same rate as your salary or wages) and adds a 10% penalty on top.
Example: You open a Roth IRA in 2024 and deposit $7,000. By 2026, it grows to $8,500. If you withdraw $8,500 in 2026, the first $7,000 comes out tax-free (your contribution). The remaining $1,500 is earnings. Since you are under 59½ and have not held the account five years, that $1,500 is taxed as ordinary income plus 10% penalty, unless an exception applies.
The five-year rule and when it matters
The five-year holding period is the gate that unlocks tax-free earnings withdrawal. It begins on January 1 of the year you first opened any Roth IRA. If you opened one in 2019, your five years ended January 1, 2024. If you opened one in 2024, your five years end January 1, 2029.
This rule applies even if you have multiple Roth IRAs. The IRS does not count five years per account — it counts five years from your first Roth. If you opened a Roth in 2020 and opened a second Roth in 2023, both accounts clear the five-year rule on January 1, 2025.
The five-year rule does not care about your age. You can be 70 years old, but if your first Roth was opened in 2024, you cannot withdraw earnings tax-free until 2029. Conversely, if you opened a Roth in 2015 and you are now 45, you have already satisfied the five-year rule, so earnings come out tax-free (though you still cannot withdraw them penalty-free until age 59½ unless an exception applies).
Age 59½ and the penalty exemption
The 10% early withdrawal penalty on earnings stops applying once you reach age 59½. At that point, if you also meet the five-year rule, earnings withdraw with no tax and no penalty. If you reach 59½ but have not held a Roth for five years, earnings are still taxed as ordinary income, but the 10% penalty is waived.
The IRS recognizes several exceptions to the 10% penalty even before age 59½. These include withdrawals for a first-time home purchase (up to $10,000 lifetime), medical expenses that exceed 7.5% of your adjusted gross income, health insurance premiums while unemployed, disability, and a few others. Even with an exception, earnings are still taxed as ordinary income — the exception only removes the penalty.
Roth conversions and their own five-year rule
If you convert money from a traditional IRA or 401(k) into a Roth, that converted amount has its own five-year holding period. This is separate from your original Roth contributions and separate from the five-year rule that unlocks earnings.
When you convert, you pay income tax on the amount converted in that tax year. After conversion, the converted dollars sit in a separate "bucket" for five years. If you withdraw the converted amount before five years pass and before age 59½, you owe the 10% penalty on the converted portion (though not on your original contributions, which always come out penalty-free).
Example: In 2024, you convert $50,000 from a traditional IRA to a Roth. You pay income tax on $50,000 in 2024. In 2025, you withdraw $50,000. Since the conversion has not been held five years, you owe a 10% penalty ($5,000) on the converted amount, even though you already paid income tax on it in 2024.
Taxes on Roth IRA growth while the account is open
While money sits inside a Roth IRA, no tax is due on the growth. Dividends, capital gains, and interest accumulate tax-free. This is one of the main reasons people fund Roths — the tax-free compounding over decades can be substantial.
You do not file any forms or report Roth growth on your tax return each year. The account grows silently, with no annual tax bill. This is different from a taxable brokerage account, where you owe tax on dividends and capital gains every year, even if you do not withdraw the money.
Required minimum distributions and Roth IRAs
Traditional IRAs require you to start taking money out at age 73 (as of 2023, under the SECURE 2.0 Act). Roth IRAs have no required minimum distributions during your lifetime. You can leave the money in the account to grow tax-free for as long as you live, and withdraw whenever you choose.
After you die, beneficiaries who inherit a Roth IRA must withdraw the balance within ten years under current rules, though the withdrawal itself is tax-free to them (since Roth money is already tax-paid). This makes Roths a powerful tool for leaving tax-free wealth to heirs.
Frequently Asked Questions
Can I withdraw my contributions anytime without tax or penalty?
Yes. Contributions always come out tax-free and penalty-free, at any age, for any reason. The IRS considers them your own money that you already paid tax on (or did not owe tax on, in the case of non-deductible contributions). You can withdraw contributions without triggering the five-year rule or age 59½ requirement.
What happens if I withdraw earnings before five years and before age 59½?
Earnings are taxed as ordinary income at your current tax rate, and a 10% penalty is added on top. If you withdraw $1,500 in earnings, you owe income tax on $1,500 plus $150 in penalty. Some exceptions (first-time home purchase, disability, medical hardship) remove the penalty but not the income tax.
Do I have to report my Roth IRA on my tax return every year?
No. Roth IRAs do not require annual tax reporting while the account is open and you are not withdrawing. You only report a Roth withdrawal on your tax return if you withdraw earnings before age 59½ and before five years, because those earnings are taxable income. Contributions and may have access to withdrawals do not appear on your return.
If I have multiple Roth IRAs, do I count five years for each one?
No. The five-year rule applies to all your Roth IRAs as a group. It starts on January 1 of the year you opened your first Roth, and all your Roths clear the rule on the same date. You cannot restart the clock by opening a new Roth account.
What if I convert a traditional IRA to a Roth — do I pay tax twice?
You pay income tax on the converted amount in the year of conversion. When you later withdraw that converted money, it comes out tax-free (assuming five years have passed and you are age 59½, or an exception applies). You do not pay tax again on the withdrawal itself, but you do pay the 10% penalty if you withdraw the converted amount before five years and before age 59½.