How Roth IRA Withdrawals and Growth Work Tax-Free

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

A Roth IRA lets you withdraw your money without paying federal income tax on it — but that tax-free status has conditions. The money you put in (called contributions) can come out anytime without tax or penalty. The earnings your money makes (interest, dividends, capital gains) come out tax-free only after you turn 59½ and have held the account for at least five tax years. If you withdraw earnings before then, you pay income tax on them plus a 10% penalty, with some exceptions.

The five-year rule applies to each Roth IRA separately. If you open a second Roth IRA, the five-year clock starts over for that account. The rule is about the account's age, not your age — a 70-year-old with a brand-new Roth IRA still has to wait five years before earnings come out tax-free.

Key Takeaways

• Money you contribute to a Roth IRA comes out tax-free at any time, regardless of your age or how long you have held the account.
• Earnings (growth) come out tax-free only after you turn 59½ and the account has existed for at least five tax years.
• Withdrawing earnings before 59½ triggers income tax on those earnings plus a 10% penalty, unless you meet a narrow exception like disability or a first-time home purchase.
• The five-year rule is tied to each individual Roth IRA account, so opening multiple accounts means tracking multiple timelines.
• You never have to take money out of a Roth IRA during your lifetime, unlike traditional IRAs, which have required withdrawals starting at age 73.

The difference between contributions and earnings

Your Roth IRA holds two types of money: what you put in and what it earned. The IRS treats them differently for tax purposes.

Contributions are the dollars you deposit yourself. If you put $7,000 into a Roth IRA in 2024, that $7,000 is your contribution. You can withdraw it anytime, tax-free and penalty-free. The IRS does not care whether you are 25 or 75 — contributions always come out clean.

Earnings are the returns your money made: interest from a savings account, dividends from stocks, capital gains when you sell an investment at a profit. If your $7,000 grows to $9,000, that $2,000 is earnings. Those earnings stay locked until you meet the age and time requirements.

When you withdraw from a Roth IRA, the IRS assumes you take contributions first. So if you have $9,000 in the account and withdraw $7,000, you are withdrawing your original contribution and owe no tax. If you withdraw $9,000, the first $7,000 is contribution (tax-free) and the last $2,000 is earnings (taxable unless you meet the requirements).

The five-year rule and when it starts

The five-year rule is about the account itself, not about you. The clock starts on January 1 of the tax year you open the Roth IRA, even if you open it in December. If you open a Roth IRA on December 15, 2024, the five-year period runs from January 1, 2024, through December 31, 2028. You can withdraw earnings tax-free starting January 1, 2029.

If you have multiple Roth IRAs, each one has its own five-year clock. Opening a second Roth IRA in 2025 does not restart the clock on your first one from 2024. You track them separately.

The five-year rule also applies if you convert a traditional IRA to a Roth IRA. The conversion starts a new five-year period for the converted money. This matters because if you convert at age 58 and withdraw the converted funds at age 59, you have met the age requirement but not the five-year requirement — the earnings portion gets taxed and penalized.

Age 59½ and the penalty-free withdrawal rule

Even after five years, earnings stay locked until you turn 59½. At that point, if you also meet the five-year rule, withdrawals are completely tax-free. Before 59½, you can withdraw contributions anytime, but earnings trigger a 10% penalty plus income tax.

The 59½ threshold is exact. If you turn 59 and 6 months on June 15, 2025, you can withdraw earnings tax-free starting that day. The IRS does not round down to 59.

Some situations let you withdraw earnings before 59½ without the 10% penalty, though you still pay income tax on them. These include disability, medical expenses over 7.5% of your income, health insurance premiums while unemployed, and a first-time home purchase (up to $10,000 lifetime). Even with these exceptions, you must still meet the five-year rule or the earnings are taxed.

What happens if you withdraw earnings early

If you withdraw earnings before you turn 59½ and have not met the five-year rule, two things happen: you pay income tax on the earnings at your regular tax rate, and you pay a 10% penalty on top of that.

Example: You open a Roth IRA at age 58 with $10,000. It grows to $12,000 by age 59. You withdraw $12,000. The first $10,000 is your contribution (tax-free). The $2,000 in earnings is taxable because you have not met the five-year rule yet. You owe income tax on that $2,000 at your tax bracket rate, plus a $200 penalty (10% of $2,000). If you are in the 22% tax bracket, you owe $440 total ($440 in tax plus $200 in penalty).

The penalty applies only to the earnings portion, not to your contributions. And the penalty is waived if you meet one of the narrow exceptions — but the income tax still applies even with an exception.

Roth IRAs have no required withdrawals during your lifetime

Unlike a traditional IRA, a Roth IRA has no required minimum distributions (RMDs). You never have to take money out during your lifetime, no matter how old you are or how much the account has grown. This makes a Roth IRA useful for leaving money to heirs or for people who do not need the income.

Your heirs will have to take distributions after you die, but the account itself does not force you to withdraw anything while you are alive. This is one of the main advantages of a Roth over a traditional IRA.

How conversions affect the five-year rule

If you convert money from a traditional IRA or 401(k) to a Roth IRA, the converted amount starts a new five-year clock. The conversion itself is taxable in the year you do it — you pay income tax on the amount converted. But the earnings that grow after the conversion are subject to a separate five-year rule.

This creates a situation where you might have multiple five-year periods running at once. If you convert $50,000 in 2024 and another $50,000 in 2025, the 2024 conversion can have earnings withdrawn tax-free starting in 2029, but the 2025 conversion cannot until 2030. You track each conversion separately.

The contribution portion of a conversion (the amount you actually converted) can be withdrawn anytime without penalty, just like regular contributions. Only the earnings on the converted money are subject to the five-year rule and the 59½ age requirement.

Frequently Asked Questions

Can I withdraw my contributions anytime without penalty?

Yes. Contributions come out tax-free and penalty-free at any age and at any time. The IRS considers contributions your own money that you already paid tax on (or will not pay tax on). Only earnings are restricted by age and time requirements.

What if I need the money before 59½?

You can withdraw your contributions anytime. If you need earnings, you can withdraw them before 59½ without the 10% penalty only if you meet a narrow exception: disability, medical expenses over 7.5% of income, health insurance while unemployed, or a first-time home purchase (up to $10,000 lifetime). You still pay income tax on the earnings even with an exception.

Do I have to wait five years if I am already 59½?

Yes. Both conditions must be met: you must be 59½ and the account must be five years old. If you open a Roth IRA at age 60, you still cannot withdraw earnings tax-free until the account turns five years old, even though you are already past 59½.

What if I have multiple Roth IRAs?

Each account has its own five-year clock. A Roth IRA opened in 2024 reaches five years in 2029, regardless of when you open a second account. You track the age of each account separately for withdrawal purposes.

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. You can leave the money in the account as long as you want, and it continues to grow tax-free. This is different from traditional IRAs, which require withdrawals starting at age 73.