Roth IRA withdrawals are tax-free, but only if you follow the rules

A Roth IRA is tax-free in a specific way: you pay taxes on the money going in, then you never pay taxes on the growth or the withdrawals. But "tax-free" has conditions. You can withdraw your contributions (the money you put in) anytime without tax or penalty. You can only withdraw the earnings (the money your investments made) tax-free if you are 59½ or older and have held the account for at least five tax years. If you withdraw earnings before then, you owe income tax on them plus a 10 percent penalty.

The five-year rule is per account, not per person. If you open a Roth IRA today, your five-year clock starts now. If you convert a traditional IRA to a Roth, a separate five-year clock starts for that conversion. This matters because the rules for conversions are different from the rules for regular contributions.

Key Takeaways

  • You can withdraw the money you contributed to a Roth IRA at any time, tax-free and penalty-free, regardless of your age.
  • Earnings (investment growth) are tax-free only if you are 59½ or older and the account has been open for at least five tax years.
  • Withdrawing earnings before 59½ triggers income tax on those earnings plus a 10 percent early withdrawal penalty.
  • The five-year rule applies separately to each Roth IRA account and to each conversion from a traditional IRA.

The difference between contributions and earnings

Your Roth IRA holds two kinds of money: what you put in (contributions) and what it earned (earnings). The IRS treats them differently on withdrawal.

Contributions are always yours to take out. If you put $7,000 into a Roth IRA in 2024 and the account grows to $9,000, you can withdraw the $7,000 anytime without tax or penalty. The $2,000 in earnings stays in the account unless you meet the withdrawal conditions.

Earnings are the gains from interest, dividends, and investment growth. These are what the Roth is designed to protect from tax. But that protection only kicks in at 59½ with a five-year holding period. Before that, the IRS treats an earnings withdrawal as early, which means you owe tax on it plus a 10 percent penalty.

The five-year rule and when it starts

The five-year rule is not about your age—it is about how long your Roth IRA has existed. You must have opened the account at least five tax years before you withdraw earnings tax-free. A tax year runs January 1 through December 31, so if you open a Roth on December 15, 2024, your five-year period ends on December 31, 2029.

The five-year clock starts on January 1 of the year you open the account, not on the day you open it. This means if you open a Roth in December 2024, you have almost a full year of your first tax year already counted. If you open one in January 2025, the same rule applies—your five years run from January 1, 2025 through December 31, 2029.

If you have multiple Roth IRAs, each one has its own five-year clock. If you convert a traditional IRA to a Roth, that conversion has its own separate five-year rule for the converted amount. This is important because you might be able to withdraw contributions from one Roth while still being in the five-year window for another.

What happens if you withdraw earnings early

If you withdraw earnings before you are 59½ and your account is less than five years old, two things happen: you owe income tax on the earnings at your regular tax rate, and you owe a 10 percent early withdrawal penalty on top of that.

Example: You open a Roth IRA in 2024 and contribute $7,000. By 2025, it grows to $8,500. You withdraw $1,500 (the earnings) in 2025 at age 45. You owe income tax on that $1,500 at your tax bracket rate, plus $150 in penalties (10 percent of $1,500). If you are in the 22 percent tax bracket, you owe about $480 in tax plus $150 in penalties, for a total of $630 on a $1,500 withdrawal.

The penalty is calculated on the earnings amount, not the total withdrawal. Your contributions always come out penalty-free. The IRS assumes you withdraw contributions first, so you only hit the penalty if you take out more than you contributed.

Exceptions to the early withdrawal penalty

The IRS allows you to withdraw earnings before 59½ without the 10 percent penalty in a few situations, though you still owe income tax. These exceptions are narrow and require documentation.

You can withdraw earnings penalty-free (but not tax-free) if you are a first-time homebuyer and withdraw up to $10,000 in your lifetime for a down payment. You must use the money within 120 days of withdrawal. You can also withdraw penalty-free if you have a permanent disability, if you are withdrawing to pay medical expenses that exceed 7.5 percent of your adjusted gross income, or if you are withdrawing to pay health insurance premiums while unemployed.

These exceptions still require you to pay income tax on the earnings. They only remove the 10 percent penalty. And they are one-time or lifetime limits in some cases, so using them affects future withdrawals.

Roth conversions and their own five-year rule

If you convert money from a traditional IRA or 401(k) to a Roth, the five-year rule works differently. You can withdraw the amount you converted anytime without penalty, but the earnings on that converted amount follow a separate five-year clock.

Example: You convert $50,000 from a traditional IRA to a Roth in 2024. By 2025, it grows to $52,000. You can withdraw the $50,000 (your conversion amount) anytime penalty-free. The $2,000 in earnings must wait until 2029 (five years) and until you are 59½ to come out tax-free. If you withdraw the earnings before then, you owe tax and the 10 percent penalty.

Conversions are taxed in the year you do them. If you convert $50,000, you owe income tax on that $50,000 in that tax year, even if you do not withdraw it. This is different from regular contributions, which are not deductible and do not create a tax bill.

How to track contributions versus earnings

Your Roth IRA custodian (the bank or brokerage holding the account) tracks your contributions and earnings separately. When you request a withdrawal, they report it to the IRS on Form 5498-R, which shows how much came from contributions and how much from earnings.

You should keep your own records too. Save your contribution receipts and statements showing the growth of your account. If you ever need to prove how much you contributed, these records are your evidence. The IRS can ask for them if you are audited.

If you have made non-deductible contributions to a traditional IRA, those complicate the picture. The IRS has a "pro-rata rule" that treats all your traditional and SEP IRAs as one pool for tax purposes. If you convert part of a traditional IRA to a Roth, some of the conversion is taxable based on the ratio of pre-tax to after-tax money in all your IRAs combined. This is a situation where a tax professional's help is worth the cost.

Frequently Asked Questions

Can I withdraw my contributions anytime without penalty?

Yes. Contributions to a Roth IRA can be withdrawn at any age and at any time without tax or penalty. Only earnings are subject to the age and five-year rules. Your custodian will report the withdrawal, but there is no tax consequence for taking out money you already paid tax on.

What if I need the money before I am 59½?

You can withdraw your contributions anytime. If you need earnings, you can withdraw them penalty-free (but not tax-free) if you meet one of the exceptions: first-time homebuyer (up to $10,000 lifetime), permanent disability, medical expenses over 7.5 percent of income, or health insurance premiums while unemployed. Otherwise, you owe tax and a 10 percent penalty on the earnings.

Does the five-year rule reset if I add more money to my Roth?

No. The five-year clock is tied to the account, not to individual contributions. If you open a Roth in 2024 and add money in 2025, both amounts use the same five-year period that started in 2024. Each new contribution does not restart the clock.

What if I have a Roth conversion—does it use the same five-year rule as my regular contributions?

No. A conversion has its own separate five-year rule. If you convert a traditional IRA to a Roth in 2024, the earnings on that conversion must wait until 2029 to be withdrawn tax-free. But contributions you make directly to the Roth use the five-year clock that started when you opened the account, which may be earlier.

Do I have to withdraw money from my Roth IRA at any point?

No. Unlike traditional IRAs, 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. Your beneficiaries will have to withdraw it after you die, but you do not.