Roth IRA withdrawals are tax-free only if you meet two conditions

A Roth IRA is not entirely tax-free — it's tax-free only on the earnings (investment gains) you withdraw, and only if you've held the account for at least five tax years and you're either age 59½ or meet one of a few narrow exceptions. The money you contributed yourself comes out tax-free anytime, with no age or holding-period requirement. The distinction matters because many people assume all Roth money is untaxed, then face an unexpected tax bill on earnings.

The five-year rule and age requirement both have to be satisfied for earnings to come out tax-free. If you withdraw earnings before age 59½ and before five years have passed, you owe income tax on those earnings plus a 10% early-withdrawal penalty. The five-year clock starts on January 1 of the year you first fund any Roth IRA — not when you open the account, and not separately for each contribution.

Key Takeaways

  • Your own contributions to a Roth IRA come out tax-free and penalty-free at any time, regardless of age or how long you've owned the account.
  • Earnings (investment gains) are tax-free only if you're age 59½ or older and the account has been open for at least five tax years.
  • Withdrawing earnings before age 59½ triggers both income tax and a 10% penalty, unless you meet a narrow exception like disability or first-time home purchase.
  • The five-year rule applies to your first Roth IRA contribution, not to each individual contribution or conversion.
  • If you convert a traditional IRA to a Roth, a separate five-year rule applies to the converted amount before you can withdraw it penalty-free.

Contributions versus earnings: which comes out first

The IRS treats Roth withdrawals in a specific order: contributions first, then conversions, then earnings. This matters because it lets you pull out your own money without triggering tax or penalty, even if you haven't met the five-year or age requirement. You can withdraw $5,000 in contributions from a Roth you opened two years ago at age 35 with no tax or penalty, because that $5,000 was your money to begin with.

The order is automatic — you don't choose it. If your Roth has $10,000 in contributions and $3,000 in earnings, and you withdraw $8,000, the first $8,000 out is treated as contributions. Only if you withdraw more than your total contributions do you start pulling earnings, which then triggers the five-year and age rules.

The five-year rule explained

The five-year holding period is not five years from your most recent contribution — it's five tax years from January 1 of the year you made your first Roth contribution. If you opened a Roth on December 15, 2023, and made your first contribution that year, the five-year period runs from January 1, 2023, through December 31, 2027. On January 1, 2028, you've satisfied the five-year rule.

This rule applies once per person, not once per account. If you open a second Roth IRA in 2025, you don't restart the clock — the five-year period is already running from your first Roth contribution in 2023. The rule also applies to conversions from traditional IRAs to Roth IRAs, but conversions have their own separate five-year period. A conversion you make in 2024 has its own five-year clock that runs through 2028, independent of your original Roth contributions.

Exceptions that let you withdraw earnings early without penalty

Even if you're under 59½ and haven't held the account five years, you can withdraw earnings penalty-free (though not tax-free) in a few situations. The main ones are disability, medical expenses exceeding 7.5% of your adjusted gross income, health insurance premiums while unemployed, and a first-time home purchase (up to $10,000 lifetime). You still owe income tax on the earnings in these cases — the exception removes only the 10% penalty.

A first-time home purchase is the most common exception. You can withdraw up to $10,000 in earnings from your Roth to buy, build, or rebuild a home, as long as you haven't owned a home in the past two years. The $10,000 limit is per person, per lifetime, not per year. If you use $10,000 for a home purchase at age 40, you cannot use this exception again at age 50, even if you've since sold the home.

What happens if you withdraw earnings before the five-year rule is met

If you withdraw earnings before you're 59½ and before five tax years have passed, the IRS taxes those earnings as ordinary income and assesses a 10% early-withdrawal penalty on top. The tax rate depends on your overall income that year — it could be 10%, 12%, 22%, or higher. The 10% penalty is separate and applies to the earnings amount only.

Example: You open a Roth in 2024, contribute $7,000, and it grows to $9,000 by 2025. You withdraw $9,000 at age 45. The first $7,000 is your contribution and comes out tax-free and penalty-free. The remaining $2,000 is earnings. You owe income tax on that $2,000 at your marginal rate, plus a $200 penalty (10% of $2,000). If you're in the 22% tax bracket, you'd owe roughly $440 in tax plus $200 in penalty, for a total of $640 on the $2,000 withdrawal.

Roth conversions and their own five-year rule

If you convert money from a traditional IRA or 401(k) to a Roth, that converted amount has its own five-year holding period before you can withdraw it penalty-free. A conversion you make in 2024 cannot be withdrawn penalty-free until 2029, even if your original Roth contributions satisfied the five-year rule years earlier.

The converted amount itself is not subject to income tax when you withdraw it — you already paid tax when you converted. But if you withdraw it before five years have passed and you're under 59½, you owe the 10% penalty. The earnings on the converted amount follow the standard five-year and age rules: tax-free only if five years have passed and you're 59½ or older, or if you meet an exception.

Planning around the five-year rule

If you know you'll need money before age 59½, a Roth IRA can still work because you can always withdraw your contributions. The five-year and age rules explore only to earnings. Some people use this to fund a Roth early in their career, knowing they can access their contributions if an emergency arises, while the earnings grow tax-free for retirement.

If you're converting a traditional IRA to a Roth and expect to need the converted amount within five years, the conversion may not make sense — you'd face a 10% penalty on withdrawal before the five-year period ends. Conversions work best when you can leave the converted money untouched for at least five years and ideally until age 59½.

Frequently Asked Questions

Can I withdraw my Roth contributions anytime without tax or penalty?

Yes. Your own contributions come out tax-free and penalty-free at any age and at any time, regardless of how long you've owned the account. Only earnings are subject to the five-year and age rules.

What if I'm 60 and have owned my Roth for only two years — can I withdraw earnings tax-free?

No. Both conditions must be met: you must be 59½ or older AND the account must have been open for five tax years. At age 60 with a two-year-old account, you fail the five-year test, so earnings are taxed and penalized. You can withdraw your contributions penalty-free, but not the earnings.

Does the five-year rule reset if I open a second Roth IRA?

No. The five-year period runs from your first Roth contribution, regardless of how many Roth accounts you own. If you contributed to a Roth in 2020, the five-year rule is satisfied in 2025 for all your Roth IRAs combined.

If I convert a traditional IRA to a Roth, do I owe tax on the conversion?

Yes, you owe income tax on the amount converted in the year you convert it. The conversion itself is taxable. However, you can withdraw the converted amount penalty-free after five years, even before age 59½, because you've already paid the tax.

Can I use the first-time home buyer exception if I've owned a home before?

Only if you haven't owned a home in the past two years. The IRS defines "first-time" as not owning a principal residence during the two-year period before the withdrawal. If you sold a home three years ago, you're may be able to access again.