Are IRAs Taxable? Traditional, Roth, and Early Withdrawal Rules

IRA withdrawals are taxable in most cases, but the answer depends on which type of IRA you hold. Money you pull from a traditional IRA is included in your gross income and taxed at ordinary income rates. Money you pull from a Roth IRA comes out tax-free once you’re at least 59½ and the account has been open for five tax years. On top of income tax, withdrawals before age 59½ generally carry an extra 10% penalty, and skipping a required withdrawal after retirement age brings its own penalty. The rest comes down to timing, exceptions, and how the money went in.

Traditional IRA Withdrawals Are Taxed as Ordinary Income

Every dollar you withdraw from a traditional IRA is included in your gross income for that year.¹ It’s taxed at ordinary income rates, not the lower long-term capital gains rates that apply to stocks in a regular brokerage account. For 2026, federal brackets for single filers start at 10% on the first $12,400 of income and top out at 37% on income above $640,600.² Your actual rate depends on your total income for the year, so a large withdrawal can push you into a higher bracket.

The reason the whole withdrawal is taxable is that most traditional IRA contributions were made with pre-tax dollars. You deducted them from your income when you contributed, and the account grew without any annual tax on dividends, interest, or gains. The IRS collects on the back end.

There is one important exception. If you ever made nondeductible contributions — because your income was too high to deduct them — you already paid tax on that money. That amount is your “basis,” and it comes out of the account tax-free. You cannot pick and choose, though. The IRS uses a pro-rata rule that spreads your basis across every traditional, SEP, and SIMPLE IRA you own. If 10% of your total balance is basis, then 10% of any withdrawal is tax-free and the rest is taxable. You track basis on Form 8606, and failing to file it when required to report a nondeductible contribution carries a $50 penalty.³

Withholding on the Way Out

When you take money from a traditional IRA, your custodian automatically withholds 10% for federal income tax unless you opt out or choose a different rate on IRS Form W-4R.⁴ That 10% is often not enough to cover the actual tax owed, especially if the withdrawal is large. If your withholding falls short, you may need to make estimated payments to avoid an underpayment penalty.

The Social Security Side Effect

Traditional IRA withdrawals can also make more of your Social Security benefits taxable. The IRS uses a “combined income” figure — your adjusted gross income, plus nontaxable interest, plus half of your Social Security benefits — to decide how much of your benefit is subject to tax. For single filers, up to 50% of benefits become taxable once combined income tops $25,000, and up to 85% once it exceeds $34,000. For joint filers, the thresholds are $32,000 and $44,000.⁵ A single sizable IRA withdrawal can be enough to trip those thresholds.

Roth IRA Withdrawals Are Tax-Free When They Qualify

Roth IRAs work the opposite way. You paid tax on the money before it went in, so qualified withdrawals come out completely tax-free — both your original contributions and every dollar of investment growth.⁶

A distribution is “qualified” when two conditions are both met:

You are at least 59½ years old, or disabled, or the distribution is being taken after the account owner’s death.
At least five tax years have passed since your first Roth IRA contribution.

When a Roth withdrawal qualifies, it doesn’t show up on your tax return as income. That also means it won’t push your Social Security benefits into taxable territory the way a traditional IRA withdrawal can.

Getting to Contributions Before Retirement

Even before you meet the qualified-distribution test, you can still reach your own contributions without tax or penalty. The IRS uses an ordering system that treats Roth withdrawals as coming out in this sequence:⁷

Regular contributions first. These are always tax-free and penalty-free, at any age.
Conversion and rollover amounts second, in first-in, first-out order. The taxable portion of each conversion comes out before the nontaxable portion. Withdraw a taxable conversion within five years while under 59½, and you owe the 10% penalty on that portion.
Earnings last. Earnings pulled before a qualified distribution are taxable as ordinary income and, if you’re under 59½, hit with the 10% penalty.

The practical takeaway: you can always withdraw the money you contributed to a Roth without owing tax on it, no matter your age or how long the account has been open. The tax question only becomes real when you start reaching into converted funds or earnings.

The 10% Early Withdrawal Penalty

If you take money from any IRA before age 59½, you generally owe an additional 10% tax on top of any income tax due.⁸ For a traditional IRA, that’s your ordinary income rate plus 10%. For a Roth, the penalty only touches earnings and taxable conversion amounts, because your contributions come out clean under the ordering rules.

Situations That Waive the Penalty

Federal law lists a number of situations where the 10% add-on doesn’t apply, even under age 59½. The withdrawal is still taxable if it comes from a traditional IRA — the exception only removes the penalty. Recognized exceptions include:⁹

First-time home purchase, up to $10,000 lifetime.⁸
Unreimbursed medical expenses above 7.5% of adjusted gross income.
Health insurance premiums paid while unemployed, if you received unemployment compensation for at least 12 consecutive weeks.
Higher education expenses for you, your spouse, or dependents.
Disability that prevents substantial gainful activity and is expected to be long-lasting or fatal.
Substantially equal periodic payments taken for at least five years or until age 59½, whichever is longer. Change the schedule early and prior penalties come back retroactively.

Newer categories were added starting in 2024:¹⁰

Emergency personal expenses, one withdrawal per calendar year up to the lesser of $1,000 or your vested balance above $1,000.
Domestic abuse victims, up to the lesser of $10,000 or 50% of the account balance, within one year of the abuse.
Terminal illness certified by a physician as expected to result in death within 84 months.
Federally declared disasters, up to $22,000 per disaster.

Required Minimum Distributions Force Taxable Withdrawals

The IRS will not let money sit in a traditional IRA forever. Once you hit a specific age, required minimum distributions kick in each year, and those withdrawals are taxed as ordinary income like any other. The age depends on when you were born: 73 if you were born between 1951 and 1959, and 75 if you were born in 1960 or later.¹¹ You can delay your first RMD until April 1 of the following year, but then you’ll take two RMDs in the same tax year, which can push you into a higher bracket.

Missing an RMD is expensive. The penalty is 25% of the amount you should have withdrawn. If you catch the shortfall and take it out within the correction window — generally by the end of the second tax year after the penalty was imposed — the penalty drops to 10%.¹²

Roth IRAs sit outside this rule. Original Roth owners are never required to take distributions during their lifetime, which is one reason a Roth is useful for keeping money growing tax-free as long as possible.

Inherited IRAs Follow Their Own Tax Timeline

If you inherit an IRA, the tax character of the account carries over. Distributions from an inherited traditional IRA are included in your gross income the same way they would have been for the original owner.¹³ What changes is how quickly you have to take the money out.

A surviving spouse has the most options. You can roll the inherited IRA into your own IRA and treat it as your own, which puts you back on your own RMD schedule. You can also keep it as an inherited account and take distributions based on your life expectancy, or if the original owner had not reached their required beginning date, wait until the year they would have turned 73.

Most non-spouse beneficiaries who inherited from someone who died in 2020 or later have to empty the account within 10 years of the year of death. If the original owner had already begun taking RMDs, you also have to take annual distributions during that 10-year window. A narrow group of “eligible designated beneficiaries” can stretch withdrawals over their own life expectancy instead: minor children of the deceased (until they reach the age of majority), individuals who are disabled or chronically ill, and beneficiaries who are no more than 10 years younger than the deceased owner.

Inherited Roth IRAs generally follow the same 10-year rule for non-spouse beneficiaries, but the distributions are tax-free as long as the original owner had met the five-year holding period.

What the IRS Sees

Your custodian reports every IRA distribution to the IRS on Form 1099-R, which you also receive. Box 7 carries a code describing the withdrawal: 1 for an early distribution with no known exception, 7 for a normal distribution, Q for a qualified Roth distribution, and so on.¹⁴ If your traditional IRA holds any nondeductible contributions, or if you converted funds to a Roth, you also file Form 8606 to work out the taxable and nontaxable portions of your distribution.³

State Taxes Are Separate

Federal tax is only part of the picture. Most states also tax traditional IRA withdrawals as ordinary income, though a handful have no state income tax at all, and others offer partial exemptions for retirees or for residents over a certain age. Rates in states that do tax retirement income run as high as 13.3%. Qualified Roth distributions are generally tax-free at the state level as well, but the specifics vary. Check with your state’s tax agency for how it treats retirement account withdrawals.

1
Office of the Law Revision Counsel. 26 USC 408 – Individual Retirement Accounts
2
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
3
Internal Revenue Service. Instructions for Form 8606
4
Internal Revenue Service. Pensions and Annuity Withholding
5
Office of the Law Revision Counsel. 26 USC 86 – Social Security and Tier 1 Railroad Retirement Benefits
6
Office of the Law Revision Counsel. 26 USC 408A – Roth IRAs
7
Internal Revenue Service. Publication 590-B – Distributions from Individual Retirement Arrangements (IRAs)
8
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
9
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
10
Internal Revenue Service. Notice 2024-55 – Certain Exceptions to the 10 Percent Additional Tax
11
Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
12
Office of the Law Revision Counsel. 26 USC 4974 – Excise Tax on Certain Accumulations in Qualified Retirement Plans
13
Internal Revenue Service. Retirement Topics – Beneficiary
14
Internal Revenue Service. Instructions for Forms 1099-R and 5498