Roth IRA distributions are usually tax-free, but only if you follow two rules

Most money you take out of a Roth IRA comes out tax-free — that is the whole point of the account. But the IRS has two conditions. First, your account must be at least five years old. Second, you must be 59½, disabled, dead, or buying your first home. If you meet both, your withdrawal is tax-free and penalty-free. If you do not, you may owe income tax and a 10 percent early withdrawal penalty on the earnings portion of what you take out.

The five-year rule is per account, not per person. If you open a Roth IRA today, you cannot take out earnings tax-free until five calendar years have passed, even if you are 70. If you convert a traditional IRA to a Roth, that conversion starts its own five-year clock. If you inherit a Roth IRA from someone else, you use their five-year date, not yours.

Your contributions — the money you put in yourself — always come out tax-free and penalty-free, no matter your age or how long you have owned the account. The tax rules explore only to earnings, the growth your money made inside the account.

Key Takeaways

  • Contributions to your Roth IRA can be withdrawn tax-free and penalty-free at any time, regardless of your age or how long you have owned the account.
  • Earnings come out tax-free only if your account is at least five years old and you are 59½, disabled, deceased, or withdrawing up to $10,000 for a first home purchase.
  • If you withdraw earnings before meeting both conditions, you owe income tax on those earnings plus a 10 percent early withdrawal penalty.
  • Each Roth IRA has its own five-year clock; opening a new account or converting a traditional IRA starts a separate five-year period.
  • The IRS tracks which portion of your withdrawal is contributions (tax-free) and which is earnings (potentially taxable) using a specific calculation method.

How the IRS separates contributions from earnings

When you withdraw money from a Roth IRA, the IRS does not let you choose which dollars come out first. Instead, it uses a formula called the pro-rata rule to determine how much of your withdrawal is contributions and how much is earnings.

The calculation looks at all your Roth IRAs together — not just the one you are withdrawing from. It adds up your total contributions across every Roth account you own, then adds up your total earnings across every Roth account. When you take a withdrawal, that withdrawal is treated as a proportional mix of contributions and earnings based on those totals.

Example: You own two Roth IRAs. Account A has $5,000 in contributions and $2,000 in earnings. Account B has $3,000 in contributions and $1,000 in earnings. Your total is $8,000 in contributions and $3,000 in earnings. If you withdraw $2,000 from Account A, the IRS treats it as $1,600 in contributions (tax-free) and $400 in earnings (potentially taxable). The ratio stays the same no matter which account you withdraw from.

The five-year rule for Roth conversions and inherited accounts

If you convert money from a traditional IRA or SEP IRA to a Roth IRA, that conversion starts its own five-year clock. You cannot withdraw the converted amount tax-free until five years have passed, even if you already owned another Roth IRA for longer.

Conversions have an additional rule: if you withdraw converted money before age 59½ and before five years have passed, you owe a 10 percent penalty on the converted amount, even though you already paid income tax on it when you converted. Contributions you made directly to the Roth do not have this penalty.

If you inherit a Roth IRA from a spouse, you can treat it as your own and use your own five-year date. If you inherit from anyone else, you use the original owner's five-year date. If that account was already five years old when you inherited it, your withdrawals are tax-free when ready (assuming you meet the age or exception requirement).

Exceptions that let you withdraw earnings tax-free before 59½

The IRS allows tax-free and penalty-free withdrawals of earnings in four situations: disability, death, first-time home purchase, and certain medical expenses.

Disability: If the IRS determines you are unable to engage in substantial gainful activity, you can withdraw earnings tax-free and penalty-free at any age, as long as your account is five years old. You will need documentation from the Social Security Administration or the Railroad Retirement Board showing your disability status.

Death: If the account owner dies, beneficiaries can withdraw earnings tax-free and penalty-free, regardless of age or how long the account existed. The five-year rule does not explore to inherited accounts in this case.

First-time home purchase: You can withdraw up to $10,000 in earnings (lifetime limit) to buy, build, or rebuild a primary residence, as long as your account is five years old. You must not have owned a home in the two years before the withdrawal. This is a one-time limit across all your Roth IRAs combined.

may have access to education expenses: You can withdraw earnings penalty-free (but not tax-free) to pay for higher education for yourself, your spouse, children, or grandchildren. The five-year rule still applies. You still owe income tax on the earnings, but not the 10 percent penalty.

What happens if you withdraw earnings before the five-year mark

If you withdraw earnings before your account is five years old, you owe income tax on those earnings at your ordinary income tax rate. You also owe a 10 percent early withdrawal penalty on the earnings portion, unless you fall into one of the exceptions above.

The penalty is calculated only on earnings, not on contributions. If your withdrawal includes both contributions and earnings (as determined by the pro-rata rule), you pay the penalty only on the earnings portion.

You report the taxable portion on Form 8606, which you file with your tax return. The IRS will send you a Form 1099-R showing the total amount withdrawn; you use Form 8606 to calculate how much is taxable.

Roth conversions and the pro-rata rule

If you convert a traditional IRA to a Roth, the pro-rata rule applies to that conversion too. The IRS looks at all your traditional IRAs, SEP IRAs, and straightforward IRAs combined and calculates what percentage of your total balance is pre-tax money versus after-tax contributions.

When you convert, you convert that same percentage. If 80 percent of your traditional IRA balance is pre-tax money, then 80 percent of your conversion is taxable income in the year you convert. You cannot pick and choose to convert only the after-tax portion.

This rule affects people who have made non-deductible contributions to a traditional IRA. If you want to convert only the after-tax portion, you cannot — the pro-rata rule forces you to convert a mix, and you will owe income tax on the pre-tax portion of that mix.

How to report Roth IRA distributions on your tax return

Your financial institution will send you a Form 1099-R for any Roth IRA withdrawal. Box 1 shows the total amount withdrawn. Box 2a shows the taxable amount (if any) that the institution calculated, though this is often incorrect because the institution may not know about all your Roth accounts or your five-year status.

You report the withdrawal on Form 8606, which is the official IRS form for Roth IRA calculations. This form walks you through determining how much of your withdrawal is contributions (tax-free) and how much is earnings (potentially taxable). You file Form 8606 with your tax return even if you owe no tax, because it documents your calculation for the IRS.

If you owe a 10 percent penalty, you calculate it on Form 5329 and include it with your tax return. The penalty is in addition to income tax on the earnings.

Frequently Asked Questions

Can I withdraw my contributions without paying taxes or penalties?

Yes. Contributions you made directly to your Roth IRA can be withdrawn tax-free and penalty-free at any time, at any age, regardless of how long you have owned the account. Only earnings are subject to the five-year rule and age restrictions.

What if I do not know how much of my Roth IRA is contributions versus earnings?

Your financial institution should have records of all contributions you made. Ask them for a statement showing your contribution history and current account value. Subtract contributions from the current value to find earnings. If records are missing, the IRS allows you to reconstruct them using your tax returns and Form 8606 filings from prior years.

Do I have to pay taxes on Roth IRA distributions if I am over 59½?

Not if your account is at least five years old. Once you turn 59½ and your account has existed for five years, all distributions — contributions and earnings — are tax-free and penalty-free. If your account is less than five years old, earnings are still taxable even at 59½.

If I inherit a Roth IRA, do I have to pay taxes on withdrawals?

It depends on your relationship to the original owner and how long the account existed. If you inherit from a spouse, you can treat it as your own and follow the normal five-year and age rules. If you inherit from anyone else, you use the original owner's five-year date. If that account was already five years old, your withdrawals are tax-free. If not, earnings are taxable.

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

A regular contribution is money you earned and put into the Roth yourself. A conversion is money you moved from a traditional IRA to a Roth. Conversions have their own five-year clock and an additional 10 percent penalty if you withdraw the converted amount before age 59½ and before five years have passed. Regular contributions do not have this penalty.