Each retirement account comes with its own tax advantages, and what sets the Roth IRA apart is tax-free withdrawals in retirement.
You pay taxes on the money you put into a Roth IRA upfront, the money grows in the account tax-free, and you can make qualified withdrawals in retirement tax-free. That’s the opposite of traditional IRAs, in which you contribute pretax money and pay taxes on the distributions.
But you can also withdraw from a Roth IRA early, and potentially without incurring taxes or penalties, if you follow the account rules.
» Learn more about traditional IRA withdrawal rules
When can you withdraw from a Roth IRA?
You can withdraw contributions at any time without taxes or penalties. Withdrawing earnings needs to meet two criteria to be penalty-free: The account has to have been open for at least five years, and the owner has to be age 59 ½ or older.
Contributions: Money you add into the Roth IRA that you already paid taxes on.
Earnings: Investment gains that grow in the account.
There are some exceptions, which would allow individuals to tap into their Roth IRA earnings early, and potentially without penalties and taxes.
» See our picks for best Roth IRA accounts
Roth IRA distribution rules: Qualified vs. non-qualified
Roth IRA qualified distributions
To make a qualified distribution of investment earnings from a Roth IRA with no taxes or penalties, the Roth IRA must be at least five years old and one of the following applies:
You are age 59 ½ or older.
The withdrawal is due to a disability.
The withdrawal is made to a beneficiary or your estate after your death.
The withdrawal for is for buying, building or rebuilding a first home (up to a $10,000 lifetime limit).
» Learn more about the 5-year rule for Roth IRAs, and how it applies to accounts, conversions and beneficiaries
Roth IRA non-qualified distributions
Making a Roth IRA withdrawal outside of the above requirements could result in income taxes and a 10% penalty.
However, there are exceptions to the 10% penalty — but not income taxes — if you meet one of the following:
You have unreimbursed medical expenses that are more than 7.5% of your adjusted gross income.
The distribution is for the cost of your medical insurance during unemployment.
You are receiving distributions in the form of a series of substantially equal periodic payments.
You are taking the distribution for qualified higher education expenses.
You are a survivor of domestic abuse.
The distribution is due to an IRS levy.
You made the withdrawal when you were a reservist, as defined by the IRS.
The distribution is for a qualified birth or an adoption of a child.
The distribution is a qualified disaster distribution or qualified disaster recovery distribution.
The distribution is a corrective distribution.
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How to plan a Roth IRA withdrawal
Making a financial plan for retirement often starts with estimating how much you'll need and how much you can contribute, but it also includes planning withdrawals.
With a Roth IRA, withdrawals are already more flexible because you can take out contributions at any time. But there's one more reason: Roth IRAs aren’t subject to required minimum distributions, unlike traditional IRAs or 401(k) plans.
That means account owners aren’t required to make withdrawals, even in retirement, and can allow the funds to continue to grow. And after account holders die, the money in the account can be passed along to the account beneficiary.
Taking money out of a Roth IRA early means potentially losing out on long-term growth, but if you're in a tight spot financially, it can be one option.
Some parameters to guide your decision about an early Roth IRA withdrawal could include how much you think you'll need, whether you're eligible for a qualified or non-qualified withdrawal, and estimating what the taxes and penalties (if any) might be if you plan to take out earnings.
» Learn more about Roth IRAs and how to open an account
Frequently asked questions
Do Roth IRAs have an early withdrawal penalty?
Yes, there may be a 10% penalty if you withdraw money early from your Roth IRA, but only if you're withdrawing from your earnings (the money that your money has earned in interest from being invested) and not your contributions (the money you actually put into the account).
What is the Roth IRA withdrawal age?
You must be 59 ½ and have held your Roth IRA for at least five years before you withdraw investment earnings tax-free and penalty-free. You can withdraw your Roth IRA contributions at any age because you've already paid taxes on that money.
How do conversions work in a Roth IRA withdrawal?
When it comes to Roth IRA withdrawals, contributions come out first. Amounts converted into the Roth IRA come out next, on a first-in, first-out basis, and earnings come out last.
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FAQs
Five-year wait to withdraw earnings: Waiting five years from the tax year of your first Roth IRA contribution to withdraw earnings tax-free can be a drawback if you're close to retiring. Withdrawing contributions before fulfilling the five-year rule could result in paying income taxes and a 10% penalty.
Do you have to wait 5 years to withdraw Roth conversions? ›
For withdrawals of earnings to qualify as tax-free, they must also occur after you've reached age 59½ (or because you qualify for certain exceptions). If you convert a traditional IRA or 401(k) to a Roth IRA, withdrawals are subject to a five-year waiting period to avoid a penalty.
How long do you have to wait to withdraw from a Roth IRA? ›
Roth IRA withdrawal guidelines
Withdrawals must be taken after age 59½. Withdrawals must be taken after a five-year holding period.
What is the difference between an early withdrawal with a Roth IRA compared to an early withdrawal with a traditional IRA? ›
There are no penalties on withdrawals of Roth IRA contributions. But there's a 10% federal penalty tax on withdrawals of earnings. With a traditional IRA, there's a 10% federal penalty tax on withdrawals of both contributions and earnings.
What is the backdoor Roth 5 year rule? ›
Because a backdoor Roth IRA is categorized as a conversion—not a contribution—you cannot access any of the funds held in the converted Roth IRA without penalty for the first five years after conversion. If you do a backdoor Roth IRA conversion every year, you must wait five years to tap each portion you convert.
Does each Roth conversion reset the 5 year clock for previous Roth conversions? ›
The five-year clock for this purpose starts the first time money is deposited into any Roth IRA that you own, through either a contribution or a conversion from a traditional IRA (commonly known as a Roth conversion). The clock doesn't restart for later Roth contributions or for newly opened Roth IRA accounts.
At what age does a Roth IRA not make sense? ›
You're never too old to fund a Roth IRA. Opening a later-in-life Roth IRA means you don't have to worry about the early withdrawal penalty on earnings if you're 59½. No matter when you open a Roth IRA, you have to wait five years to withdraw the earnings tax-free.
Do Roth IRA withdrawals count as income? ›
Key Takeaways. Earnings that you withdraw from a Roth IRA don't count as income as long as you meet the rules for qualified distributions. Typically, you will need to have had a Roth IRA for at least five years and be at least 59½ years old for a distribution to count as qualified, but there are some exceptions.
What is the Roth conversion ladder? ›
A Roth conversion ladder is a multiyear strategy to transfer pretax funds to a Roth IRA to kickstart future tax-free growth. You'll owe upfront levies on the converted balance, but there is no 10% early withdrawal penalty after five years.
What happens if I withdraw my Roth IRA early? ›
Generally, early withdrawal from an Individual Retirement Account (IRA) prior to age 59½ is subject to being included in gross income plus a 10 percent additional tax penalty. There are exceptions to the 10 percent penalty, such as using IRA funds to pay your medical insurance premium after a job loss.
One key disadvantage: Roth IRA contributions are made with after-tax money, meaning there's no tax deduction in the years you contribute.
What is the hierarchy for Roth withdrawal? ›
The IRS has prescribed a distribution hierarchy for Roth IRA assets. Contributions are always taken first; conversions (if any) are second in order by year of contribution, with converted pre-tax assets taken first and converted after-tax assets taken second.
What are the exceptions to the Roth 5 year rule? ›
Exceptions to the 5-Year Rule
Under certain conditions, you are allowed to withdraw earnings without meeting the five-year rule, regardless of your age. You may use up to $10,000 to pay for your first home or use the money to pay for higher education for yourself or for a spouse, child, or grandchild.
Is the backdoor Roth going away in 2024? ›
Yes. Backdoor Roth IRAs are still allowed in 2024. However, there has been talk of eliminating the backdoor Roth in recent years. And the future is, of course, difficult to predict.
What is the downside of Backdoor Roth? ›
Cons: All or part of a backdoor Roth IRA conversion could be a taxable event. You may have to pay federal, state, and local taxes on converted earnings and deductible contributions. Conversions could kick you into a higher tax bracket for the year.
How do I convert my IRA to a Roth without paying taxes? ›
The point of a Roth IRA is that it's already taxed money that grows tax-free. So, to convert your traditional IRA to a Roth IRA you'll have to pay ordinary income taxes on your traditional IRA contributions in the year of the conversion before they “count” as Roth IRA funds.
How long do you have to undo a Roth conversion? ›
In some cases it can make sense to undo a Roth IRA conversion and then redo it. If you want to redo the conversion, you must wait until the later of 1) the first day of the year following the year of the original conversion, or 2) the 31st day after the recharacterization.
Is there an early withdrawal penalty for Roth IRA conversion? ›
There are no required minimum distributions, as you have with a traditional IRA. Plus, you're able to take out contributions (but not earnings) at any time without penalty. If you take earnings out early, you can be hit with taxes and a 10 percent bonus penalty.
Is there a 5 year rule for traditional IRA withdrawal? ›
Traditional IRAs
Under the 5-year rule, the beneficiary of a traditional IRA will not face the usual 10% withdrawal penalty on any distribution, even if they make it before they are 59½. Income taxes will be due, however, on the funds, at the beneficiary's regular tax rate.
What is the 5 year rule for Roth 401k? ›
Contributions and earnings in a Roth 401(k) can be withdrawn without paying taxes and penalties if you are at least 59½ and have had your account for at least five years. Withdrawals can be made without penalty if you become disabled.
