Understanding Roth IRA withdrawal rules

If you’ve been saving for retirement in a Roth individual retirement account (IRA), you may be relieved to learn that the Roth IRA withdrawal rules are more lenient than those for a traditional IRA and other retirement accounts.

You can withdraw the money you contribute to your Roth IRA at any time without additional taxes or penalties. Remember, you’ve already paid taxes on that amount—you didn’t get a tax deduction for your contributions like you would with a traditional IRA. However, special rules apply if you want to withdraw the earnings on your contributions or you recently converted a traditional IRA to a Roth IRA. 

Key takeaways

• Roth IRA contributions are after-tax money, and you can withdraw them at any time.
• You may have to pay income taxes and a 10% early withdrawal penalty if you withdraw earnings from your Roth IRA if it hasn’t been five years since you first contributed and you aren’t at least 59 1/2 years old.
• Some exceptions allow you to avoid the early withdrawal penalty and taxes.

Although you can withdraw your Roth IRA contributions at any time without paying additional income taxes or penalties, that’s not the case for the earnings in your Roth IRA. If you want to withdraw any of that money, you may have to include it in your taxable income. Additionally, there could be a 10% early withdrawal penalty unless the withdrawal counts as a “qualified distribution.”

A Roth IRA withdrawal can count as a qualified distribution if it’s been at least five years since you first contributed to a Roth IRA and one of the following applies:

• You are over the age of 59 1/2.
• You withdraw up to $10,000 to buy, build or rebuild your first home.
• You become totally and permanently disabled. 
• You die, and the distribution goes to your beneficiaries or estate.

Keep in mind that the withdrawal rules also vary slightly depending on your circumstances. Read on to learn more.

When you’re under 59 1/2, you’ll need to qualify for an exception to avoid the 10% early withdrawal penalty:

If you’ve had a Roth IRA for less than five years

If it hasn’t been at least five years since you first contributed to a Roth IRA, your earnings could be taxable income. Additionally, a 10% early withdrawal penalty will apply unless you qualify for one of these exceptions:

• You buy, build or rebuild your first home.
• You’ve had or adopted a child within the last year.
• You withdraw less than your eligible higher-education expenses.
• You pay for health insurance premiums while you’re unemployed.
• You have qualifying unreimbursed medical expenses.
• You are a qualified reservist.
• You take the distribution because the IRS is levying the Roth IRA.  
• You’re taking a series of substantially equal payments from your Roth IRA.
• You become totally and permanently disabled.
• You’re withdrawing money from a Roth IRA you inherited.

The timeline for the five years begins on January 1 of the first tax year you contributed to a Roth IRA. You can also make these contributions after the end of the calendar year. For example, you can open and contribute to a Roth IRA for the 2022 tax year through the tax filing deadline of April 18, 2023. This means you might not have to wait five full calendar years.

If you’ve had a Roth IRA for more than five years

Once it’s been at least five years since you contributed to a Roth IRA, your earnings withdrawals can count as qualified distributions that aren’t taxable and don’t have an early withdrawal penalty. If you don’t meet the requirements for a qualified distribution, you can still qualify for an exception to the early withdrawal penalty—but you may have to pay taxes on the distributions.

The five-year timeline depends on when you made your first contribution, not the age of the specific Roth IRA. And you can open new Roth IRAs or move your account to a different financial institution without resetting the timeline.

However, each amount you convert to a Roth IRA from a traditional IRA has a separate five-year waiting period. For example, if you’ve been saving in a Roth IRA for decades, new contributions directly to a Roth IRA don’t have a waiting period. But if you converted money from a traditional IRA last tax year, you need to wait four years before you can withdraw the corresponding principal or earnings without including the amounts in your taxable income. 

Once you reach 59 1/2, you won’t have to worry about the 10% early withdrawal penalty—you can withdraw your contributions and earnings for any reason. However, the non-conversion five-year rules may still apply.

If you’ve had a Roth IRA for less than five years

If it’s been less than five years since you first contributed to a Roth IRA, the earnings you withdraw could be taxable. However, you won’t have an additional early withdrawal penalty.

If you’ve had a Roth IRA for more than five years

If you’ve had a Roth IRA for five or more years, all your withdrawals are tax and penalty free. You can even withdraw the principal and earnings from converted IRAs without waiting five years because you now qualify for penalty-free withdrawals based on age—although you’re taxed on the money when you do the conversion.

Traditional IRAs require you to take required minimum distributions (RMDs) once you turn 73. If you don’t, you may have to pay penalties on the amount you were supposed to withdraw. But if you have a Roth IRA, you don’t need to worry about RMDs from the account unless you’ve inherited the Roth IRA from someone other than your spouse. 

When you inherit a Roth IRA, you may be required to take RMDs following the same rules as traditional IRAs. Your withdrawals of the contributions are tax free, but you may have to pay income tax on earnings if it hasn’t been at least five years since the original account holder opened the account.

Depending on the circumstances, you may need to withdraw the entire balance within five or 10 years. However, if you’re the sole beneficiary and it’s your spouse’s Roth IRA, you can delay withdrawals until the year they would have had to take RMDs. Or you can treat the account as your own—meaning you won’t have any RMDs. 

Remember: You can withdraw contributions from your Roth IRA anytime without paying an early withdrawal penalty. However, you need to qualify for an exception to withdraw earnings early. There are many options, and each has fine print you want to review before requesting a withdrawal. For example, here’s a closer look at how first-time homebuying and higher-education exceptions work.

Buying a first home

In spite of the name, the early withdrawal exception for first-time homebuyers doesn’t necessarily need to be for the first home you buy. 

You can qualify for this exception if you and your spouse weren’t interested in buying a home during the previous two years—even if you previously owned a home. The exception also applies if you’re taking out money to help your children, grandchildren, parents or other ancestors—or those of your spouse—buy a home, as long as they meet the first-time homebuyer qualifications.

No matter who you’re helping buy a home, the exception has a lifetime limit of $10,000. However, your spouse has their own lifetime limit.

Higher-education expenses

The higher-education expenses exception can apply to qualifying expenses for you, your spouse and either your children or grandchildren as long as the student is at an eligible educational institution. The expenses can include required tuition, fees, books, supplies, equipment, special-needs services, and room and board for students with at least a half-time course load.

Only the portion of your early withdrawals under your qualifying expenses is exempt from the penalty. When calculating your qualifying expenses, you can include expenses you paid for with a loan, gift, inheritance or savings. But don’t include costs that were covered by tax-free distributions from Coverdell education savings accounts, tax-free scholarships or fellowships, Pell grants, employer or veterans’ assistance, or other tax-free tuition assistance.

Ordering rules for Roth IRA withdrawals

When you request an unqualified distribution from your Roth IRA, the money will be taken out in a specific order:

1. Your regular Roth IRA contributions
2. Conversions and rollovers on a first-in, first-out basis, starting with the taxable portion 
3. Earnings on your contributions

When determining where your distributions come from and whether taxes or penalties apply, the IRS looks at the aggregate contributions, earnings and withdrawals from all your Roth IRAs. It’s as if all of your Roth IRA holdings are in a single account, even if you actually have several accounts at different financial institutions. 

Saving for retirement is an important part of financial planning, and Roth IRAs offer a flexible option that can give you long-term tax benefits and easy access to the money if you need it early.

You can withdraw your contributions to the account anytime without paying additional taxes or early withdrawal penalties. And, once it’s been five years, you might qualify for other tax- and penalty-free withdrawals of your earnings and converted IRA funds. But before you take out money, review the Roth IRA withdrawal rules.