What Happens When You Withdraw Money From a Roth IRA Early

The Basic Penalty: 10% Tax on Earnings You Withdraw Before 59½

If you withdraw money from your Roth IRA before you turn 59½, you will owe a 10% penalty tax on the earnings portion of that withdrawal. This is separate from regular income tax. The penalty applies only to the investment gains in your account, not to the contributions you made with your own money.

For example, if you contributed $5,000 of your own money and that grew to $6,000, you can withdraw the $5,000 contribution penalty-free. If you withdraw the $1,000 in earnings, you owe 10% of that — $100 — as a penalty, plus income tax on the $1,000.

The IRS calls this the early withdrawal penalty, and it exists to discourage people from treating retirement accounts like regular savings accounts. The penalty is automatic unless you meet one of the specific exceptions.

Key Takeaways

• You can withdraw your own contributions to a Roth IRA at any time without penalty or tax, but earnings are subject to a 10% penalty plus income tax if withdrawn before age 59½.
• Several exceptions exist that let you withdraw earnings penalty-free, including first-time home purchase (up to $10,000 lifetime), disability, medical expenses, and education costs.
• The five-year rule means you must have held the account for at least five years before you can withdraw earnings tax and penalty-free, even if you are over 59½.
• If you withdraw money and later want to put it back, you have 60 days to roll it back into the same or another Roth IRA without tax consequences.
• Roth conversions have their own separate five-year rule that can delay your access to converted funds without penalty.

The Difference Between Contributions and Earnings

Your Roth IRA holds two types of money: contributions (what you put in) and earnings (what your investments made). The IRS treats them differently when you withdraw.

Contributions come out first and penalty-free. You can withdraw the money you personally deposited into the account at any age without owing the 10% penalty or income tax. The IRS tracks this through your Form 5498 and your own records.

Earnings come out second and are subject to the penalty and tax if you are under 59½. This includes all interest, dividends, and capital gains your investments generated. If your account has grown significantly, most of a large withdrawal will be earnings.

You cannot choose which part to withdraw first — the IRS has a stacking rule that assumes you withdraw contributions before earnings. This works in your favor.

Exceptions That Let You Avoid the 10% Penalty

The IRS allows penalty-free withdrawals of earnings in specific situations, even before age 59½. You still owe income tax on the earnings, but not the 10% penalty. These exceptions are:

First-time home purchase: You can withdraw up to $10,000 lifetime from your Roth IRA to buy, build, or rebuild a primary residence. "First-time" means you have not owned a home in the past two years. The $10,000 limit applies across all your IRAs combined, and it is a lifetime cap, not annual.

Disability or death: If you become disabled (as defined by the IRS) or die, your beneficiaries can withdraw without the penalty. Disability has a specific definition — you must be unable to engage in any substantial gainful activity.

Unreimbursed medical expenses: You can withdraw penalty-free to cover medical costs that exceed 7.5% of your adjusted gross income, but only if you itemize deductions on your tax return. You must have paid these expenses in the same year or the prior year.

Health insurance premiums while unemployed: If you lost your job and are receiving unemployment benefits, you can withdraw penalty-free to pay health insurance premiums for yourself, your spouse, and your dependents.

Education expenses: Withdrawals for may have access to education costs — tuition, fees, books, supplies, room and board — avoid the penalty. This covers you, your spouse, children, or grandchildren. The withdrawal must not exceed the education costs paid that year.

IRS levy: If the IRS levies your account to collect back taxes, the withdrawal is penalty-free (though you still owe the tax debt).

The Five-Year Rule: When You Can Access Earnings Tax-Free

Even if you are over 59½, you cannot withdraw earnings tax-free unless your Roth IRA has been open for at least five years. This is called the five-year holding period, and it is separate from your age.

The five-year clock starts on January 1 of the year you first opened any Roth IRA. If you opened one in 2020, the five-year period ends on January 1, 2025. After that date, you can withdraw earnings tax-free and penalty-free once you turn 59½.

If you convert a traditional IRA to a Roth, that conversion has its own five-year rule. Converted funds must sit in the Roth for five years before you can withdraw them penalty-free, even if you are over 59½. This five-year period starts the year of the conversion.

The five-year rule applies to each conversion separately. If you convert in 2023 and again in 2024, the 2023 conversion can be withdrawn penalty-free starting in 2028, and the 2024 conversion in 2029.

How to Calculate What You Owe

When you withdraw from a Roth IRA before 59½, you will receive a Form 1099-R from your bank showing the withdrawal amount. The form will indicate whether the withdrawal is subject to the early withdrawal penalty.

To calculate your penalty: take the earnings portion of your withdrawal and multiply by 0.10. If you withdrew $3,000 and $2,000 of that is earnings, your penalty is $200.

You also owe income tax on the earnings at your regular tax rate. If you are in the 22% tax bracket, you would owe $440 in income tax on that $2,000 in earnings, plus the $200 penalty, for a total of $640.

Report the penalty on Form 5329 when you file your tax return. You cannot avoid it by not reporting it — the bank reports the withdrawal to the IRS, and the penalty is due whether you claim it or not.

Rolling Back a Withdrawal Within 60 Days

If you withdraw money and change your mind, you have 60 days to put it back into a Roth IRA without tax or penalty consequences. This is called a rollover.

You can roll the money back into the same Roth IRA or into a different one. The money must be deposited within 60 days of the withdrawal. If you miss the important date, the withdrawal is treated as taxable and subject to penalty if applicable.

You are limited to one rollover per Roth IRA per 12-month period. If you do multiple rollovers in a year, only the first one is penalty-free. This rule changed in 2024 and now applies to all IRAs combined, not just Roth IRAs.

A rollover is different from a transfer. A transfer moves money directly from one institution to another and has no time limit or frequency restriction. If your bank can do a direct transfer, that is safer than a rollover.

What Happens if You Cannot Avoid the Penalty

If you withdraw earnings before 59½ and do not meet an exception, you will owe the 10% penalty plus income tax. You cannot waive or reduce the penalty — it is automatic.

The penalty is reported on Form 5329 and added to your tax bill. If you cannot pay it when you file, you can set up a payment plan with the IRS, but interest will accrue on the unpaid amount.

Some people request a waiver of the penalty if they can show reasonable cause — for example, a serious illness or financial hardship. The IRS rarely grants these, but you can request one by filing Form 5329 with an explanation and attaching a statement describing your circumstances.

Frequently Asked Questions

Can I withdraw my contributions without penalty?

Yes. Contributions you made with your own money can be withdrawn at any time, at any age, without penalty or tax. Only earnings are subject to the 10% penalty if withdrawn before 59½. Your bank will show your contribution basis on your account statements.

What if I need the money for an emergency?

You can withdraw your contributions penalty-free. If you need earnings, check whether you meet one of the exceptions — disability, medical expenses, education, or first-time home purchase are the most common. If you do not meet an exception, you will owe the 10% penalty plus income tax on the earnings portion.

Does the 10% penalty explore to conversions?

Conversions have a separate five-year rule. If you convert a traditional IRA to a Roth and withdraw the converted funds within five years, you owe the 10% penalty on the earnings portion. Contributions to a Roth (not conversions) are always penalty-free to withdraw.

What if I am over 59½ but my account is less than five years old?

You can withdraw contributions penalty-free at any age. You cannot withdraw earnings tax-free until the account has been open for five years, even though you are over 59½. You will owe income tax on the earnings, but not the 10% penalty because of your age.

Can I get the penalty waived?

The IRS rarely waives the penalty, but you can request one by filing Form 5329 with a written explanation of reasonable cause — serious illness, financial hardship, or other circumstances beyond your control. The IRS reviews these on a case-by-case basis and does not grant most requests.