Roth IRA earnings come out tax-free only if you meet two conditions

You can withdraw Roth IRA earnings without paying income tax on them, but only if you satisfy two requirements at the time of withdrawal: you must be at least 59½ years old, and your account must have been open for at least five tax years. If you withdraw earnings before meeting both conditions, the earnings portion is taxed as ordinary income, and you may also owe a 10 percent early withdrawal penalty on top of that tax.

The five-year rule applies to each Roth IRA separately. If you open a new Roth IRA, that account's five-year clock starts fresh, even if you already have another Roth IRA that has been open for years. The IRS counts the five years from January 1 of the year you made your first contribution to that specific account.

Your contributions (the money you put in) can always come out tax-free and penalty-free, at any age and at any time. The tax and penalty rules explore only to the earnings — the growth your money made inside the account.

Key Takeaways

  • Earnings withdraw tax-free and penalty-free only if you are 59½ or older and the account has been open for at least five tax years.
  • Contributions can come out anytime, tax-free and penalty-free, regardless of your age or how long the account has been open.
  • If you withdraw earnings before age 59½ or before the five-year mark, the earnings are taxed as ordinary income plus a 10 percent early withdrawal penalty.
  • The five-year rule is tied to each individual Roth IRA account, not to your total Roth savings across multiple accounts.

How the IRS separates contributions from earnings

When you withdraw money from a Roth IRA, the IRS uses a specific ordering rule to determine what comes out first. Contributions always come out before earnings. This means if you have $50,000 in your account made up of $30,000 in contributions and $20,000 in earnings, and you withdraw $35,000, the first $30,000 is treated as contributions (tax-free) and the remaining $5,000 is treated as earnings (subject to tax and penalty if you do not meet the age and five-year requirements).

This ordering rule applies even if you have multiple Roth IRAs. The IRS treats all your Roth accounts as one pool for purposes of calculating what portion of a withdrawal is contributions versus earnings. If you have three Roth IRAs with a combined total of $100,000 in contributions and $50,000 in earnings, and you withdraw $30,000 from one account, the IRS counts that $30,000 as coming from the contribution portion first.

Exceptions that allow early withdrawal of earnings without penalty

Even if you do not meet the age and five-year requirements, you can withdraw earnings without the 10 percent penalty in a few specific situations. These exceptions do not eliminate the income tax on the earnings — only the penalty. The exceptions are: you become permanently disabled, you are a beneficiary withdrawing after the account holder's death, you use the money to pay unreimbursed medical expenses above 7.5 percent of your adjusted gross income, you use it to pay health insurance premiums while unemployed, or you use it for a first-time home purchase (up to $10,000 lifetime).

Even with these exceptions, you still owe income tax on the earnings portion. For example, if you withdraw $8,000 in earnings to buy your first home and you are 45 years old, you will not owe the 10 percent penalty, but you will owe ordinary income tax on that $8,000. The five-year rule exception is different: if your account has been open five years and you are 59½ or older, you owe neither tax nor penalty on earnings.

What happens if you withdraw earnings before age 59½ and before five years

If you withdraw earnings before you turn 59½ and before your account has been open for five tax years, you owe two things: ordinary income tax on the earnings at your regular tax rate, plus a 10 percent early withdrawal penalty on the earnings amount. If you are in the 22 percent tax bracket and you withdraw $5,000 in earnings early, you would owe $1,100 in income tax (22 percent of $5,000) plus $500 in penalty (10 percent of $5,000), for a total of $1,600.

The penalty is calculated only on the earnings portion, not on your contributions. This is why the ordering rule matters: contributions come out first and are never subject to penalty, even if you withdraw them at age 25. Only the earnings portion can trigger the 10 percent penalty.

The five-year rule explained in detail

The five-year holding period is measured from January 1 of the tax year in which you made your first contribution to that Roth IRA. If you opened a Roth IRA on December 15, 2023, and made your first contribution in December 2023, your five-year period started on January 1, 2023. Your five years would be complete on January 1, 2028, meaning you could withdraw earnings tax-free (if you are also 59½) starting in 2028.

If you made your first contribution on January 5, 2024, your five-year period started on January 1, 2024, and would be complete on January 1, 2029. The exact date you make the contribution does not matter — only the tax year in which you make it.

If you convert a traditional IRA to a Roth IRA, that conversion starts its own five-year clock for the converted amount. You can withdraw your original contributions from the conversion anytime, but the earnings on the converted money must wait five years from the conversion year before they can come out tax-free (assuming you are also 59½).

Inherited Roth IRAs and earnings withdrawals

If you inherit a Roth IRA from someone else, the five-year rule is based on when the original account holder opened their account, not when you inherited it. If the original owner's account had been open for five years before they died, you can withdraw earnings tax-free when ready (though you may have other withdrawal requirements depending on your relationship to the deceased and current tax law). If the account had not been open five years, you must wait until the five-year period is complete before withdrawing earnings tax-free.

You still must be 59½ to withdraw inherited earnings tax-free, unless you are the surviving spouse and you elect to treat the inherited Roth as your own, or unless one of the other exceptions applies (such as disability or death of the account holder).

Frequently Asked Questions

Can I withdraw my earnings if I am 59½ but the account is only three years old?

No. You must meet both conditions: age 59½ and a five-year holding period. If your account is only three years old, your earnings remain subject to income tax and the 10 percent penalty, even though you have reached 59½. You must wait until the five-year mark to withdraw earnings tax-free.

Do I have to pay tax on Roth IRA earnings if I never withdraw them?

No. One of the main advantages of a Roth IRA is that earnings grow tax-free inside the account. You only owe tax on earnings if and when you withdraw them before meeting the age and five-year requirements. If you leave the money in the account until you are 59½ and the account is five years old, you can withdraw everything tax-free.

What if I have multiple Roth IRAs — do I count five years for each one separately?

The five-year rule applies to each account separately. However, when you withdraw money, the IRS treats all your Roth IRAs as one pool to determine how much is contributions versus earnings. So you might have one account that is five years old and another that is only two years old, but if you withdraw from the two-year-old account, the IRS still counts contributions from all your Roths as coming out first.

If I convert a traditional IRA to a Roth, does that start a new five-year clock?

Yes. A conversion starts its own five-year holding period for the converted amount. The earnings on the converted money must wait five years from the conversion year before they can come out tax-free. Your original contributions to the Roth (if any) are still available anytime, but converted money is treated differently for the five-year rule.