How Are Roth IRA Distributions Taxed and When?

Roth IRA distributions are taxed in layers. The money you contributed comes back to you tax-free and penalty-free at any age, because you already paid income tax on it. Earnings are the part the IRS watches: they come out tax-free only when your withdrawal is “qualified,” meaning you’re at least 59½ (or meet a narrow exception) and your first Roth IRA has been open for at least five tax years. Take earnings out before both conditions are met and you owe ordinary income tax on that growth plus a 10% early distribution penalty, unless one of the statutory exceptions applies.

Your Contributions Always Come Out Tax-Free

Every dollar you put into a Roth IRA was already taxed as income the year you earned it. The IRS treats those contributions as your basis in the account, and you can pull them back out at any age, for any reason, without owing federal income tax or the 10% penalty.¹ Five days after opening the account or fifty years in, the rule is the same for the contribution layer.

That’s the deal that distinguishes a Roth from a traditional IRA. A traditional IRA gives you the deduction now and taxes the withdrawal later. A Roth reverses the order: no deduction going in, no tax coming out once the distribution qualifies.

What Makes a Roth Distribution Qualified

A qualified distribution is the target because it means the entire withdrawal, contributions and earnings together, comes out with no federal income tax. To get there, two conditions have to be satisfied at the same time:²

You’ve reached age 59½, become permanently disabled, died (so the distribution goes to a beneficiary), or are using up to $10,000 for a first-time home purchase.
At least five tax years have passed since January 1 of the year you first contributed to any Roth IRA.

Both boxes have to be checked. Turning 60 doesn’t help if your first Roth contribution went in two years ago. A 20-year-old Roth doesn’t help a 45-year-old who withdraws earnings. Miss either piece and the earnings portion becomes taxable.

How the Five-Year Clock Works

The five-year clock starts on January 1 of the tax year you made your first-ever Roth IRA contribution. Open an account in March 2022 but designate the deposit as a 2021 contribution, and the clock started on January 1, 2021; the five-year period cleared on January 1, 2026.³

Two details catch people. First, the clock runs at the person level, not the account level. Open a second Roth IRA ten years after your first, and the new account inherits the original start date. You only satisfy this rule once. Second, this five-year rule for qualifying earnings is separate from the five-year rule that applies to conversions, covered below.

Ordering: Which Dollars Come Out First

You don’t choose which dollars leave the account. The IRS applies a fixed sequence, and it works in the account holder’s favor:³

Regular contributions come out first. Always tax-free and penalty-free.
Conversion and rollover amounts come out next, first-in first-out. Within each conversion, the taxable portion (money you paid tax on at conversion) leaves before the nontaxable portion.
Earnings come out last. This is the only layer that can trigger tax or penalty.

That ordering is what makes Roth IRAs unusually flexible for early access. To reach the taxable earnings layer, you’d first have to empty every regular contribution and every prior conversion. For most account holders, that cushion covers a real emergency without producing a tax bill.

What a Non-Qualified Distribution Costs

Withdraw earnings before you’ve cleared both the age and five-year tests and the IRS treats that growth as ordinary income. You owe federal income tax at your marginal rate, which for 2026 runs from 10% to 37% depending on your total taxable income.⁴

On top of that, Section 72(t) imposes an additional 10% tax on the taxable portion of early distributions. The penalty applies to the earnings only, not to contributions or to the nontaxable portion of prior conversions.⁵ A 35-year-old who pulls $5,000 in earnings out of a three-year-old Roth could face both ordinary income tax and the 10% penalty on that $5,000. One favorable note: IRA distributions are exempt from the 3.8% net investment income tax, even when the earnings portion is taxable.

Exceptions That Remove the 10% Penalty

Several circumstances waive the 10% early distribution tax on earnings. The earnings may still owe ordinary income tax; the exception only removes the penalty layer. The most commonly used ones for Roth IRAs:⁶

First-time home purchase, up to $10,000 lifetime. If the Roth has also cleared the five-year period, this withdrawal is fully qualified: no income tax and no penalty.²
Qualified higher education expenses for you, your spouse, children, or grandchildren.
Unreimbursed medical expenses above 7.5% of your adjusted gross income.
Permanent disability, meaning inability to perform substantial work due to a condition expected to last indefinitely or result in death.⁷
Substantially equal periodic payments over your life expectancy, taken at least annually and continued for five years or until age 59½, whichever is later.
Health insurance premiums while unemployed, if you received unemployment compensation for at least 12 consecutive weeks.
Distributions the IRS levies directly to satisfy a tax debt.

Newer Exceptions Added by SECURE 2.0

Beginning in 2024, additional penalty exceptions apply to IRA distributions:⁶

Domestic abuse survivors, up to the lesser of $10,000 or 50% of the account balance, repayable within three years.
Emergency personal expenses, one distribution per calendar year up to $1,000. No further emergency withdrawal from the same account for three years unless the earlier one is repaid or replaced by new contributions.
Federally declared disasters, up to $22,000 for individuals with qualifying economic loss.
Birth or adoption, up to $5,000 per child, available to each parent.

To claim any exception, file Form 5329 with your return and enter the specific exception code and the excluded amount.⁸

Conversions Carry Their Own Five-Year Clock

Money you convert from a traditional IRA or 401(k) into a Roth IRA starts a separate five-year clock, and each conversion has its own, beginning January 1 of the year the conversion is completed. This clock is independent of the five-year rule for earnings.³

The conversion five-year rule governs the 10% penalty only, not income tax. You already paid income tax on the converted amount in the year of the conversion. But withdraw that converted money before five years have passed and before reaching 59½, and the IRS applies the 10% additional tax on the taxable portion that was converted. The rule exists to stop people from converting funds and immediately withdrawing them to sidestep the early distribution penalty that would have applied in the original account.

Ordering helps here. Because conversions come out first-in, first-out, your oldest conversions leave first. If your earliest conversion is more than five years old, those dollars come out penalty-free even when newer conversions haven’t cleared their own five-year windows.

Inherited Roth IRAs Follow Different Rules

When you inherit a Roth IRA, the tax treatment turns on whether the original owner’s account had already cleared the five-year holding period. If it had, distributions of both contributions and earnings come out tax-free to the beneficiary. If the owner died before the five years were up, the earnings portion may be taxable. The 10% early distribution penalty never applies to inherited accounts, regardless of the beneficiary’s age.³

A surviving spouse can roll the inherited account into their own Roth IRA and treat it as always having been theirs. The original owner’s five-year clock carries over, and there are no required minimum distributions during the spouse’s lifetime.

Most non-spouse beneficiaries who inherit from someone who died in 2020 or later have to empty the account by the end of the 10th year after the year of death.⁹ No annual minimum applies within that window. A narrow set of eligible designated beneficiaries (minor children, disabled or chronically ill individuals, and beneficiaries not more than 10 years younger than the deceased) may instead stretch distributions over their own life expectancy.

Reporting the Distribution

Your custodian sends you a Form 1099-R for each year you take a distribution, showing the gross amount and a distribution code identifying the type. Qualified distributions carry code Q; early and other non-qualified distributions use different codes.

You report the taxable portion of a Roth withdrawal on Form 8606, Part III. That form tracks your basis (contributions plus prior conversion amounts) and calculates whether any of the distribution is taxable. Even a fully tax-free withdrawal goes on Part III, so the basis reduction is documented for future years.¹⁰ Hold on to your Forms 8606, 5498 (contribution records), and 1099-R for every year you own the account. That paper trail is what proves which dollars are contributions and which are earnings if the IRS questions a withdrawal.

If you owe the 10% additional tax, or if you qualify for an exception the 1099-R doesn’t reflect, file Form 5329 with your return to calculate the penalty or claim the waiver.¹¹

1
Internal Revenue Service. IRA Deduction Limits
2
Office of the Law Revision Counsel. 26 U.S. Code 408A – Roth IRAs
3
Internal Revenue Service. Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs)
4
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
5
Office of the Law Revision Counsel. 26 USC 72 – Annuities, Certain Proceeds of Endowment and Life Insurance Contracts
6
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
7
Office of the Law Revision Counsel. 26 U.S. Code 72 – Annuities, Certain Proceeds of Endowment and Life Insurance Contracts
8
Internal Revenue Service. 2025 Instructions for Form 5329 – Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts
9
Internal Revenue Service. Retirement Topics – Beneficiary
10
Internal Revenue Service. Instructions for Form 8606
11
Internal Revenue Service. About Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts