IRA Withdrawal Tax Rules: Traditional, Roth, RMDs, and Penalties

IRA withdrawal tax rules split along two main lines: money coming out of a Traditional IRA is taxed as ordinary income at federal rates from 10% to 37% in 2026, while qualified withdrawals from a Roth IRA are tax-free. Take money out before age 59½ and you generally owe an extra 10% penalty on top of any income tax. Wait too long, and starting at age 73 the IRS forces annual withdrawals through required minimum distributions. The details depend on the account type, your age, and why you’re withdrawing.

How Traditional IRA Withdrawals Are Taxed

Every dollar you pull from a Traditional IRA counts as ordinary income in the year you receive it.¹ The IRS taxes that income at your marginal rate, which for 2026 starts at 10% on the first $12,400 of taxable income for single filers and climbs to 37% on income above $640,600.² Because most contributions went in pre-tax, the government collects its share when the money comes out.

The picture gets more complicated if you ever made nondeductible contributions with after-tax dollars. When your account holds both pre-tax and after-tax money, you can’t cherry-pick which dollars to withdraw. The IRS applies a pro-rata rule that treats each distribution as a proportional mix of taxable and nontaxable funds.³ You track your after-tax basis on Form 8606, which calculates how much of each withdrawal comes out tax-free. Failing to file that form when required carries a $50 penalty per missed year, and more importantly, you lose the paper trail proving you already paid tax on part of your balance.⁴

How Roth IRA Withdrawals Are Taxed

Roth contributions go in after-tax, so the tax benefit sits on the back end: qualified distributions are completely tax-free. A distribution qualifies when two conditions are met. You must be at least 59½, and five full tax years must have passed since you first funded any Roth IRA.⁵ Distributions also qualify after the owner’s death or due to permanent disability, but the five-year clock still applies.

Because you already paid tax on your contributions, the IRS lets you withdraw those contributed amounts at any time, at any age, with no tax and no penalty. The ordering rules work in your favor: the IRS treats contributions as coming out first, then conversion amounts, then earnings. Only the earnings portion of a nonqualified distribution gets hit with income tax and potentially the 10% early withdrawal penalty. That makes a Roth more flexible than most people realize for accessing funds before retirement, at least up to what you’ve contributed.

The 10% Early Withdrawal Penalty

Pulling money from a Traditional IRA before 59½ costs you an extra 10% of whatever taxable amount you withdraw, stacked on top of the regular income tax.⁶ On a $20,000 early withdrawal, that’s $2,000 in penalty alone before income tax. You report and pay the penalty through Form 5329 when you file your return.

Congress has carved out a long list of exceptions where the 10% penalty doesn’t apply. Some of the most commonly used:⁷

First-time home purchase, up to $10,000 over your lifetime for buying, building, or rebuilding a first home.
Higher education expenses, including tuition, fees, books, and room and board for you, your spouse, children, or grandchildren.
Unreimbursed medical expenses exceeding 7.5% of your adjusted gross income.
Health insurance premiums paid after at least 12 consecutive weeks of receiving unemployment compensation.
Total and permanent disability, with no dollar cap if you meet the IRS definition.
Amounts seized by the IRS to satisfy a tax debt.
Military reservist distributions when called to active duty for at least 180 days.

These exceptions waive the 10% penalty only. Traditional IRA distributions still count as taxable income regardless of the reason for withdrawal.

SECURE 2.0 Emergency Exceptions

Starting in 2024, the SECURE 2.0 Act added several penalty exceptions:⁷

One penalty-free emergency personal expense withdrawal per calendar year, capped at the lesser of $1,000 or your vested balance above $1,000.
Domestic abuse victim distributions of up to the lesser of $10,000 or 50% of your account balance.
Unlimited penalty-free withdrawals for terminal illness if a physician certifies an illness reasonably expected to result in death within 84 months.

Substantially Equal Periodic Payments

If none of the exceptions fit, there’s one more way to avoid the penalty before 59½: committing to a schedule of substantially equal periodic payments, sometimes called 72(t) distributions. You pick an IRS-approved calculation method and take fixed annual withdrawals based on your life expectancy.⁸

The catch is the commitment. Once you start, you cannot change or stop the payments until the later of five years from your first payment or the date you turn 59½. Modify the schedule early and the IRS hits you with the 10% penalty on every distribution taken under the arrangement, plus interest going back to each year. The only exceptions to that recapture are death and disability. Powerful for early retirees, unforgiving if your financial needs shift.

Required Minimum Distributions

Tax deferral on a Traditional IRA doesn’t last forever. Federal law forces you to start pulling money out, and paying taxes on it, once you reach a set age. For people born between 1951 and 1959, required minimum distributions start at age 73. If you were born in 1960 or later, that age rises to 75.⁹

Your annual RMD is calculated by dividing your IRA balance as of December 31 of the prior year by a life expectancy factor from the IRS Uniform Lifetime Table.¹⁰ At 73, that factor is roughly 26.5, so a $500,000 account would require approximately an $18,900 withdrawal. The factor shrinks each year, so your required withdrawal percentage gradually increases as you age.

Roth IRAs are exempt from required minimum distributions during the owner’s lifetime, which is one of their biggest advantages. Your Roth balance can keep compounding tax-free for decades with no forced withdrawals.

The First-Year Deadline Trap

You can delay your very first RMD until April 1 of the year after you reach the applicable age.¹¹ That sounds generous, but it creates a trap. Your second RMD is still due by December 31 of that same year. Pushing the first one to April means taking two full RMDs in one calendar year, which can bump you into a higher tax bracket.

The Penalty for Missing an RMD

Falling short on a required distribution triggers an excise tax of 25% on the shortfall. If you missed $10,000, that’s $2,500 owed to the IRS on top of the regular income tax you’d pay when you eventually take the distribution. The penalty drops to 10% if you correct the mistake within a correction window that generally runs through the end of the second tax year after the penalty was imposed.¹² The gap between 25% and 10% on a missed $20,000 RMD is $3,000, so correcting promptly is worth it.

Rollovers and the 60-Day Rule

Moving IRA money between accounts is tax-free if you follow the rules, but the IRS leaves little room for error. In a direct transfer between trustees, the money moves between financial institutions without ever touching your hands. No tax, no withholding, no limit on how often you can do this.¹³

An indirect rollover is messier. You receive the distribution personally and then have exactly 60 days to deposit it into another IRA or eligible plan. Miss the window by one day and the entire amount becomes a taxable distribution, plus the 10% early withdrawal penalty if you’re under 59½. Making it worse, your IRA custodian withholds 10% for federal taxes when they cut the check. If you want to roll over the full original amount, you need to come up with that withheld portion from other funds and deposit it within the 60-day period. Whatever you don’t roll over is taxable.¹³

There’s also a once-per-year limit: you can complete only one indirect IRA-to-IRA rollover in any 12-month period, and the IRS counts all your IRAs (Traditional, Roth, SEP, and SIMPLE) as one for this purpose. The limit doesn’t apply to direct transfers or to rollovers between an employer plan and an IRA. The simplest advice is to always use a direct transfer unless you have a specific reason not to.

Roth Conversions

Converting a Traditional IRA to a Roth IRA lets you pay the tax now in exchange for tax-free growth and withdrawals later. The converted amount is taxed as ordinary income in the year of conversion.¹⁴ No income limit applies to who can convert and no cap on the amount, but converting a large balance in one year can push you into a much higher bracket.

The 10% early withdrawal penalty does not apply to conversions, regardless of your age. However, if you withdraw the converted amount from the Roth IRA within five years, the penalty may apply to that withdrawal. Each conversion starts its own five-year clock. Conversions get reported on Form 8606.⁴ Many retirees use conversions strategically in lower-income years, such as between retirement and the start of RMDs, to soften the eventual tax hit from forced distributions.

Inherited IRA Rules

When you inherit an IRA, the tax treatment depends on your relationship to the deceased owner and when they died. The SECURE Act fundamentally changed these rules for deaths occurring in 2020 or later, eliminating the stretch IRA for most beneficiaries.

Most non-spouse beneficiaries must now empty the entire inherited account by the end of the tenth year following the owner’s death.¹⁵ You can take distributions at any pace during that decade: all in year one, evenly spread, or nothing until year ten and then a lump sum. If the original owner had already reached their required beginning date before dying, the IRS also requires annual distributions during the 10-year period. Skipping years in that scenario can trigger the missed-RMD excise tax.

Withdrawals from an inherited Traditional IRA are taxed as ordinary income to you, the beneficiary. For an inherited Roth IRA, distributions are generally tax-free as long as the original five-year holding period was satisfied before the owner’s death.

A narrower group of eligible designated beneficiaries gets more favorable treatment. Surviving spouses can roll the inherited IRA into their own account and treat it as if it were always theirs, resetting the RMD clock to their own age. Minor children of the deceased, disabled or chronically ill individuals, and beneficiaries not more than 10 years younger than the deceased can take distributions over their own life expectancy rather than the 10-year rule.¹⁵

State Income Taxes on IRA Withdrawals

Federal taxes are only part of the picture. Most states with an income tax treat IRA distributions as taxable income, and rates vary widely. A handful of states impose no income tax at all, which means IRA withdrawals escape state-level taxation entirely. Others offer partial exemptions for retirement income above certain age or dollar thresholds. California imposes its own 2.5% additional tax on early distributions, layered on top of the federal 10% penalty. When planning withdrawals, factor in your state’s treatment, because the combined federal and state bite can meaningfully change the math on conversion strategies, Roth versus Traditional decisions, and the timing of large distributions.

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. Rollovers of After-Tax Contributions in Retirement Plans
4
Internal Revenue Service. Instructions for Form 8606
5
Office of the Law Revision Counsel. 26 USC 408A – Roth IRAs
6
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
7
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
8
Internal Revenue Service. Substantially Equal Periodic Payments
9
Office of the Law Revision Counsel. 26 USC 401 – Qualified Pension, Profit-Sharing, and Stock Bonus Plans
10
Internal Revenue Service. Publication 590-B, Distributions from Individual Retirement Arrangements
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. Rollovers of Retirement Plan and IRA Distributions
14
Internal Revenue Service. Retirement Plans FAQs Regarding IRAs
15
Internal Revenue Service. Retirement Topics – Beneficiary