Do You Pay Taxes on a Roth IRA? Withdrawals, Conversions, and Heirs

You do pay taxes on a Roth IRA, but only on the front end. Contributions go in with money you have already paid income tax on, so the IRS does not tax them again when they come out. Earnings inside the account can also come out completely tax-free, but only if the withdrawal is “qualified”: you are at least 59½ years old and at least five tax years have passed since your first Roth IRA contribution. Withdrawals that fail either test can trigger income tax on the earnings portion and, in many cases, a 10% early withdrawal penalty.

Contributions Are Taxed Before They Go In

The Internal Revenue Code bars any deduction for Roth IRA contributions, so funding a Roth does not lower your taxable income for the year.¹ The trade-off is simple. You pay taxes now so you do not pay them later.

Because tax has already been collected on the money you contributed, those dollars are permanently free from further federal tax. You can withdraw your original contributions at any time, at any age, for any reason, without owing income tax or a penalty. That is true even in year one, and it is true whether you are 25 or 75.

When Withdrawals Are Completely Tax-Free

A withdrawal from your Roth IRA is fully tax-free, on both contributions and earnings, when it counts as a “qualified distribution.” Two conditions have to be satisfied at the same time.¹ First, at least five tax years must have passed since your first Roth IRA contribution. Second, the withdrawal must fit one of these triggers:

You are 59½ or older.
You are totally and permanently disabled.
The distribution is paid to your beneficiary or estate after your death.
You are using up to $10,000 in earnings for a first-time home purchase.

Both conditions have to be met. Turning 59½ does not help if your first Roth is only three years old, and clearing the five-year mark does not help if none of the triggers apply.² When you clear both, the money lands in your bank account with zero federal tax on any part of it, contributions or growth.

How the Five-Year Rule Works

The five-year clock starts on January 1 of the tax year for which you make your first-ever Roth IRA contribution, not the day you actually deposit the money. Timing matters because you can designate a contribution for the prior tax year up until the filing deadline. If you make your first Roth contribution in April 2026 and mark it for the 2025 tax year, your five-year period begins January 1, 2025, and ends after December 31, 2029.²

The clock belongs to you, not to each individual contribution. Once your first Roth contribution starts it, every later contribution rides on that same start date. Moving money between Roth IRA accounts does not reset it. The IRS ties the period to your first participation in any Roth IRA.

If you are over 59½ but have not yet met the five-year mark, any earnings you withdraw are taxable as ordinary income. The rule exists to stop someone from opening a Roth, immediately pulling out investment growth, and paying no tax on those gains.

What You Owe on a Non-Qualified Withdrawal

Any withdrawal that misses either the trigger or the five-year requirement is non-qualified. That does not automatically mean a tax bill, because the IRS uses a fixed order that decides which dollars come out first, and contributions always come out first.² The order is:

Regular contributions come out first. Always tax-free and penalty-free.
Conversion and rollover amounts come out next, first-in-first-out, with the taxable portion of each conversion pulled before the nontaxable portion.
Earnings come out last. This is the only slice that can be hit with both income tax and the 10% early withdrawal penalty on a non-qualified distribution.

In practice, most people who dip into a Roth early owe nothing, because they never withdraw enough to reach earnings. The tax and penalty only matter once contributions and conversion dollars have all been pulled out.

When earnings do get withdrawn as a non-qualified distribution, they are taxed as ordinary income and generally face an added 10% penalty.³ For someone in the 22% federal bracket, that combination can send roughly 32% of an early earnings withdrawal to the federal government.

Keep clean records of every contribution and every withdrawal. The burden is on you to prove which dollars are a return of after-tax contributions and which are taxable earnings. Without documentation, the IRS can treat the whole distribution as taxable.

Exceptions That Waive the 10% Penalty

Even if earnings come out before 59½, several exceptions can wipe out the 10% penalty. The earnings themselves may still owe ordinary income tax if the distribution is not fully qualified, but the extra 10% goes away. The common exceptions include:⁴

Qualified higher education expenses for you, your spouse, children, or grandchildren at an eligible institution.⁵
Unreimbursed medical expenses above 7.5% of your adjusted gross income.
Health insurance premiums while unemployed, if you received unemployment compensation for at least 12 consecutive weeks.
A first-time home purchase, up to $10,000 lifetime.
Substantially equal periodic payments taken over your life expectancy.⁶
Total and permanent disability.

The SECURE 2.0 Act added newer exceptions that took effect after December 31, 2023. One allows a penalty-free distribution of up to the lesser of $1,000 or your vested balance above $1,000 for a personal or family emergency, limited to once per calendar year. Another allows a distribution of up to the lesser of $10,000 or 50% of your account for victims of domestic abuse.⁴

Taxes When You Convert From a Traditional IRA

Moving money from a traditional IRA or a 401(k) into a Roth IRA creates an immediate taxable event. Those funds were originally contributed pre-tax or grew tax-deferred, so the converted amount is added to your gross income for the year. A large conversion can push you into a higher bracket, which is why many people spread conversions across several years.

The Pro-Rata Rule

If your traditional IRAs hold a mix of pre-tax and after-tax money, you cannot pick out only the after-tax portion to convert. The IRS treats all of your traditional, SEP, and SIMPLE IRA balances as a single pool and calculates the taxable share of any conversion based on the ratio of pre-tax to after-tax money across all of them.⁷ If 80% of your combined traditional IRA balance is pre-tax, then 80% of anything you convert is taxable, no matter which account the money physically comes from. Balances in employer plans like a 401(k) are not counted in this calculation.

The Separate Five-Year Rule for Conversions

Converted funds carry their own five-year holding period, separate from the one that applies to regular contributions. Each conversion starts a new clock on January 1 of the year the conversion happens. If you pull the converted amount out before age 59½ and before that conversion’s five-year period ends, you owe the 10% early withdrawal penalty on the taxable portion, even though you already paid income tax on it in the conversion year.² Once you hit 59½, this penalty no longer applies regardless of how recent the conversion was.

No Required Withdrawals During Your Lifetime

A Roth IRA does not force you to take withdrawals while you are alive. The IRS confirms that the required minimum distribution rules do not apply to Roth IRAs during the owner’s lifetime.⁸ You can leave the balance untouched for as long as you live, and it keeps growing tax-free the whole time.

Taxes for Heirs Who Inherit a Roth IRA

When a Roth IRA owner dies, distributions to the beneficiary are generally tax-free, but the timing of those distributions depends on who inherits.⁹

A surviving spouse has the widest options. They can roll the inherited Roth IRA into their own Roth IRA and treat it as if it had always been theirs, or keep it as an inherited account and take distributions based on their own life expectancy.

Most non-spouse beneficiaries who inherit from someone who died in 2020 or later must empty the account by December 31 of the year containing the tenth anniversary of the owner’s death.² A narrower group of “eligible designated beneficiaries,” including minor children of the deceased, disabled or chronically ill individuals, and people no more than 10 years younger than the original owner, may stretch distributions over their own life expectancy instead.⁹

Contributions withdrawn from an inherited Roth are always tax-free. Earnings are tax-free too, as long as the original owner’s five-year holding period had already been met. If the original owner had not held the Roth for at least five tax years at the time of death, earnings paid to the beneficiary may be subject to income tax until that five-year window closes.

1
Office of the Law Revision Counsel. 26 USC 408A – Roth IRAs
2
Internal Revenue Service. Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs)
3
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
4
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
5
Internal Revenue Service. Topic No. 557, Additional Tax on Early Distributions From Traditional and Roth IRAs
6
Internal Revenue Service. Substantially Equal Periodic Payments
7
Office of the Law Revision Counsel. 26 USC 408 – Individual Retirement Accounts
8
Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
9
Internal Revenue Service. Retirement Topics – Beneficiary