Tax Rules for Roth IRA Contributions and Withdrawals

You don't pay taxes on money you withdraw from a Roth IRA in retirement, but the rules for contributions and early withdrawals are different

The main tax advantage of a Roth IRA is that may have access to withdrawals — money you take out after age 59½ and at least five years after your first contribution — come out tax-free. That includes all the earnings your money made while it sat in the account. You also don't pay taxes on the contributions themselves when you withdraw them, because you already paid income tax on that money before you put it in.

The catch is that the five-year rule and the age requirement both have to be met. If you withdraw money before you turn 59½, or before five years have passed since you opened your first Roth IRA, the earnings portion of your withdrawal is taxable and may be subject to a 10% penalty. Your contributions can always come out penalty-free, but earnings cannot.

You also never have to take money out of a Roth IRA during your lifetime, unlike traditional IRAs. This means you can let the account grow tax-free for as long as you live, and your heirs inherit the account with its tax-free growth intact (though they do have to follow different withdrawal rules).

Key Takeaways

• Withdrawals of contributions and earnings are tax-free after age 59½ if your account has been open for at least five years.
• Withdrawals before age 59½ are tax-free for contributions but taxable and penalized for earnings, unless an exception applies.
• You pay income tax on money before you contribute it to a Roth IRA, so contributions themselves are never taxed again.
• Roth IRAs have no required minimum distributions during your lifetime, so you can leave the money untouched and let it grow tax-free.

How the five-year rule works

The five-year clock starts on January 1 of the year you make your first contribution to any Roth IRA, not the date you actually deposit the money. If you open your account in December 2024 and contribute $7,000, the five-year period runs from January 1, 2024, through December 31, 2028. You can withdraw earnings tax-free starting January 1, 2029, as long as you are also 59½ or older.

The five-year rule applies to your Roth IRA accounts as a group, not to each account separately. If you have multiple Roth IRAs, the clock started on the earliest one applies to all of them. This matters if you roll money from one Roth IRA to another or convert a traditional IRA to a Roth — the five-year period for that conversion money is separate and starts the year you convert.

If you inherit a Roth IRA from someone else, you have your own five-year clock that starts when you inherit it, separate from the original owner's clock. This is one reason inherited Roth accounts can be complicated — the five-year rule depends on when the original owner opened their account, not when you received it.

What happens if you withdraw before age 59½

You can withdraw your contributions at any time without tax or penalty, because you already paid income tax on that money. The IRS lets you take out contributions first, so if you contributed $10,000 and your account grew to $12,000, you can withdraw $10,000 with no tax consequences.

The $2,000 in earnings is a different story. If you withdraw earnings before age 59½, you owe income tax on that amount plus a 10% early withdrawal penalty — unless you meet one of the IRS exceptions. The exceptions include disability, medical expenses over 7.5% of your income, health insurance while unemployed, and first-time home purchase (up to $10,000 lifetime). You can also withdraw earnings penalty-free (but not tax-free) if you have had the account open for five years and meet certain conditions.

The IRS assumes you withdraw contributions before earnings, so you have to track your contributions separately to prove how much you can take out tax-free. Keep records of every contribution you make, including rollovers and conversions, because the IRS will not do this math for you.

Conversions and the pro-rata rule

If you convert money from a traditional IRA or SEP IRA to a Roth IRA, you pay income tax on the converted amount in the year you convert it. The conversion itself is not a taxable event — the tax bill comes from converting pre-tax money into after-tax money.

The pro-rata rule affects people with both traditional and Roth IRAs. If you have $50,000 in a traditional IRA and convert $10,000 to a Roth, the IRS treats the conversion as if you converted a mix of pre-tax and after-tax money, based on your total IRA balance. If 80% of your total IRA money is pre-tax, then 80% of the $10,000 conversion ($8,000) is taxable. This rule applies across all your traditional IRAs, SEP IRAs, and straightforward IRAs combined — not just the one you are converting from.

Conversions have their own five-year rule separate from contributions. Money you convert cannot be withdrawn penalty-free for five years, even if you meet an exception like disability. This five-year period starts the year you convert, not the year you made the original contribution to the traditional IRA.

Taxes on Roth IRA earnings while the account is open

You pay no taxes on earnings while the money sits in your Roth IRA, no matter how much the account grows. If you contribute $7,000 and it becomes $50,000 over 30 years, you owe no tax on that $43,000 in growth as long as the money stays in the account. This is the core tax advantage of a Roth — the earnings compound tax-free.

This tax-free growth applies whether your investments gain value slowly or quickly. Stocks, bonds, mutual funds, and other investments inside a Roth IRA all grow without triggering capital gains tax, dividend tax, or interest tax. You only pay tax when you withdraw the money, and then only if you do not meet the age and five-year requirements.

What your heirs owe on an inherited Roth IRA

When you leave a Roth IRA to a beneficiary, they inherit the account tax-free, but they must follow withdrawal rules that depend on their relationship to you and when you opened the account. A spouse can treat the inherited Roth as their own, which means they get the same tax-free withdrawal rules you had. Non-spouse beneficiaries must withdraw the entire account within 10 years of your death (as of 2024), though the earnings portion of those withdrawals is tax-free if you had owned the account for five years.

The five-year rule for the original owner still applies to inherited accounts. If you opened your Roth IRA in 2020 and died in 2023, your beneficiary cannot withdraw earnings tax-free until 2025, even though they just inherited the account. This is one reason to open a Roth IRA early — it locks in the five-year clock for your heirs.

Roth IRA contributions are never deductible

Unlike traditional IRA contributions, Roth contributions are made with after-tax money and are never deductible from your income. You cannot reduce your taxable income by contributing to a Roth. This is why you pay tax on the money before it goes in — the contribution itself is not a tax deduction.

This also means you do not report Roth contributions on your tax return the way you do with traditional IRA contributions. You straightforward contribute the money from your bank account, and the IRS knows you already paid tax on it. When you file your taxes, you do not claim a deduction for the contribution.

Frequently Asked Questions

Do I owe taxes if I withdraw my contributions early?

No. Your contributions can be withdrawn at any time without tax or penalty, because you already paid income tax on that money before you put it in. The earnings on those contributions are a different matter — those are taxable and penalized if you withdraw them before age 59½, unless you meet an IRS exception.

What is the difference between a Roth conversion and a regular contribution for taxes?

A regular contribution uses money you have not yet paid tax on, so you pay tax before contributing and owe no tax when you withdraw it later. A conversion takes pre-tax money from a traditional IRA and moves it to a Roth, which means you pay income tax on the converted amount in the year you convert. After that, the converted money grows tax-free like any other Roth money.

Can I avoid the 10% penalty on early earnings withdrawals?

Yes, if you meet one of the IRS exceptions: disability, medical expenses over 7.5% of your income, health insurance premiums while unemployed, or first-time home purchase (up to $10,000 lifetime). You can also withdraw earnings penalty-free if your account has been open for five years and you are disabled or deceased (for beneficiaries). The earnings are still taxable in most cases, but the 10% penalty does not explore.

Do I have to take money out of my Roth IRA when I turn 72?

No. Roth IRAs have no required minimum distributions during your lifetime, so you can leave the money untouched for as long as you live. This is different from traditional IRAs, which require you to start withdrawing at age 73 (as of 2023). Your beneficiaries do have to withdraw the account within 10 years of your death, but you never have to touch it while you are alive.

What happens if I do not meet the five-year rule when I withdraw?

The earnings portion of your withdrawal is taxable as ordinary income, and you owe a 10% penalty on those earnings unless you meet an exception. Your contributions still come out tax-free and penalty-free. For example, if you withdraw $12,000 from an account with $10,000 in contributions and $2,000 in earnings, you owe tax and penalty only on the $2,000.