Do You Pay Taxes on Your Roth IRA Gains?

Gains inside a Roth IRA grow tax-free, and you owe no tax on them when you take the money out, provided the withdrawal is what the IRS calls a qualified distribution. That means two things at once: your first Roth IRA has been open for at least five tax years, and you’re 59½ or older (disability, death, and a first-home purchase up to $10,000 also count). Miss either condition and the earnings portion of what you withdraw is taxed as ordinary income, and a 10% additional tax usually applies on top.

The Two Conditions for Tax-Free Gains

The five-year clock starts on January 1 of the tax year of your first contribution to any Roth IRA, not the date the money actually went in. A December 2025 contribution starts the clock on January 1, 2025, and the period ends January 1, 2030. The clock runs once across all Roth IRAs you own; you don’t restart it every time you open a new account.¹

The second condition is a triggering event set by federal law:

Reaching age 59½.
Total and permanent disability under the IRS definition.
Death (distributions to a beneficiary or the estate).
A first-time home purchase, capped at $10,000 in lifetime earnings.

Both boxes have to be checked. A 45-year-old with a Roth that’s been open twelve years still can’t pull earnings out tax-free, because the age threshold isn’t met. A 62-year-old who opened the Roth last year can’t either, because the five-year clock hasn’t finished.²

What You Actually Owe on an Early Withdrawal

Not every dollar in a Roth is treated the same on the way out. The IRS applies a fixed ordering rule that decides which layer you’re pulling from, and this ordering is what protects most early withdrawals from tax.

Your original contributions come out first. You already paid income tax on that money before it went into the account, so it comes back to you tax-free and penalty-free at any age, no matter how long the Roth has been open. You can withdraw up to the total you’ve contributed and owe nothing.¹

Conversion and rollover amounts come out next, oldest first, with the taxable portion of each conversion coming out ahead of the nontaxable portion. Earnings and investment growth are last. The IRS only treats a withdrawal as coming from your gains once you’ve drained both prior layers.¹

When you do reach the earnings layer without meeting the qualified distribution rules, those earnings are taxed as ordinary income. On top of the income tax, the IRS charges a 10% additional tax unless an exception applies.³

The practical result: someone who needs cash from a Roth before retirement can usually get their contributions back without any tax consequence. The tax question only starts to bite once the withdrawal reaches earnings.

Exceptions That Waive the 10% Penalty

Several situations let you skip the 10% penalty on a non-qualified distribution. You still owe ordinary income tax on any earnings withdrawn — the exceptions cover the penalty, not the tax itself.

Unreimbursed medical expenses above 7.5% of adjusted gross income.
Health insurance premiums paid after receiving unemployment compensation for at least 12 weeks.
Higher education expenses for you, a spouse, or a dependent.
First-time home purchase, up to $10,000 in lifetime distributions.
Substantially equal periodic payments under an IRS-approved method.
Birth or adoption expenses, up to $5,000 per child.
Federally declared disaster losses, up to $22,000.
Domestic abuse victim distributions, up to the lesser of $10,000 or 50% of the account, for distributions made after December 31, 2023.
Distributions made because the IRS levied the account.
Distributions to a qualified military reservist called to active duty.

None of these exceptions convert the earnings into tax-free money. They only remove the extra 10%.⁴

Gains on Money You Converted from a Traditional IRA

Converting a traditional IRA or 401(k) into a Roth is a taxable event in the year of the conversion: the pre-tax amount you move gets added to that year’s ordinary income. Once inside the Roth, the money grows tax-free, and qualified withdrawals of those gains later on owe nothing.⁵

Each conversion carries its own separate five-year clock. Pull the converted amount out before that clock finishes and you can owe the 10% penalty on the taxable portion, even though you already paid income tax when you converted. This is a different five-year rule from the one that governs tax-free earnings, and it runs conversion by conversion: a 2025 conversion starts one clock, a 2027 conversion starts another.¹

The conversion five-year rule stops mattering at 59½. Once you hit that age, the age-based exception covers the penalty regardless of how recently you converted.

Rolling a designated Roth 401(k) into a Roth IRA works a bit differently. The years the money spent in the 401(k) don’t count toward the Roth IRA’s five-year holding period. What matters is when you first contributed to any Roth IRA. If your Roth IRA has already been open more than five years when the rollover lands, the rolled-in money benefits from qualified distribution treatment as soon as you meet a triggering event.⁶

Gains Passed to a Beneficiary

Heirs follow different rules than the original owner. If the owner had held the Roth for at least five tax years before death, distributions to a beneficiary are generally tax-free, including the earnings, because death itself is a qualifying event. The beneficiary doesn’t need to be 59½.²

If the owner died before finishing the five-year period, the beneficiary keeps using the owner’s original start date. Earnings withdrawn during the remaining wait are taxable to the extent they would have been taxable to the owner. Once the five years are up, earnings come out tax-free.¹

Most non-spouse beneficiaries who inherited after 2019 have to empty the account within 10 years of the owner’s death. That deadline is about timing the distributions, not about creating a new tax on qualified earnings.¹

You Are Never Forced to Realize the Gains

A Roth IRA has no required minimum distributions during the original owner’s lifetime. There is no age at which the IRS makes you start withdrawals, so the gains can keep compounding tax-free indefinitely. That rule only covers the original owner; beneficiaries have the distribution schedule described above.⁷

1
Internal Revenue Service. Publication 590-B – Distributions From Individual Retirement Arrangements (IRAs)
2
Office of the Law Revision Counsel. 26 USC 408A – Roth IRAs
3
Internal Revenue Service. Topic No 557 – Additional Tax on Early Distributions From Traditional and Roth IRAs
4
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
5
Internal Revenue Service. Retirement Plans FAQs Regarding IRAs – Rollovers and Roth Conversions
6
Internal Revenue Service. Retirement Plans FAQs on Designated Roth Accounts
7
Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs