A Roth IRA offers one of the biggest benefits in retirement planning: tax-free withdrawals. But to take advantage of that benefit, you need to follow specific IRS rules. Withdrawals that don’t meet the requirements could result in taxes, penalties, or both.

Unlike traditional retirement accounts, a Roth IRA is funded with after-tax dollars. That means you pay taxes before making contributions, and in return, qualified withdrawals during retirement are completely tax-free. However, the IRS applies certain timing and age-based rules to determine whether your distribution is qualified.

• To avoid taxes and penalties, you must meet two key conditions:
• You must be at least 59½ years old when you take the withdrawal.
• Your Roth IRA must be open for at least five years.
• Following these rules ensures your savings work the way they’re designed to—providing tax-free income when you need it most.

Contributions and Earnings

When you withdraw money from a Roth IRA, the rules differ depending on whether you’re taking out contributions or earnings. You can withdraw your contributions at any time without taxes or penalties since you’ve already paid income tax on that money.

However, withdrawing earnings—the investment growth your account has generated—requires you to meet two conditions to avoid penalties and taxes: you must be at least 59½ years old, and your account must have been open for at least five years. These requirements help ensure the Roth IRA remains a long-term retirement vehicle.

The five-year rule exists because of the tax-free growth benefit. As long as you meet both the age and timing criteria, your withdrawals will count as qualified distributions, meaning you can take out both contributions and earnings completely tax-free.

Roth IRA Income Limits

The IRS limits who can contribute to a Roth IRA based on modified adjusted gross income (MAGI). These limits adjust annually, so it’s important to check where your income falls each year.

2024 Roth IRA income limits

Single filers:

• Full contribution allowed if MAGI is less than $146,000
• Partial contribution if MAGI is between $146,000 and $161,000
• No contribution allowed if MAGI is $161,000 or more

Married filing jointly:

• Full contribution allowed if MAGI is less than $230,000
• Partial contribution if MAGI is between $230,000 and $240,000
• No contribution allowed if MAGI is $240,000 or more

2025 Roth IRA income limits (projected)

Single filers:

• Full contribution allowed if MAGI is less than $150,000
• Partial contribution if MAGI is between $150,000 and $165,000
• No contribution allowed if MAGI is $165,000 or more

Married filing jointly:

• Full contribution allowed if MAGI is less than $236,000
• Partial contribution if MAGI is between $236,000 and $246,000
• No contribution allowed if MAGI is $246,000 or more

Contribution limits

For both 2024 and 2025:

• You can contribute up to $7,000 per year
• If you’re age 50 or older, you can contribute up to $8,000

If your income falls within the phase-out range, your allowed contribution amount will be reduced. Those earning above the limit may consider a backdoor Roth IRA strategy to gain Roth benefits.

Roth IRA 5-Year Rule

To take tax-free withdrawals from a Roth IRA, you must follow the IRS’s 5-year rule. This rule requires that your account be open for at least five years before you can withdraw any earnings tax-free—even if you're over age 59½.

Many people assume that reaching retirement age is enough, but that’s only part of the requirement. Even if you're 60 or older, your withdrawals won't count as qualified distributions unless your Roth IRA has been open for at least five years. Otherwise, you could owe both income tax and a 10% penalty on any earnings you take out.

This rule applies only to earnings, not contributions. You can always withdraw your original contributions tax-free, regardless of your age or how long the account has been open.

Qualified Distributions

A qualified distribution from a Roth IRA is both tax-free and penalty-free, but only if it meets specific IRS rules.

To qualify, the withdrawal must meet two main requirements:

• The account holder must be at least 59½ years old
• The Roth IRA must have been open for at least five years

Both conditions must be met for earnings to be withdrawn without taxes or penalties. However, there’s one exception: if the account holder dies, distributions to beneficiaries are considered qualified—even if the five-year rule or age requirement hasn't been met.

Non-Qualified Distributions

You can withdraw money from a Roth IRA at any time, but not all withdrawals qualify for tax-free treatment. If your withdrawal doesn't meet the age or five-year rule set by the IRS, it will be considered a non-qualified distribution.

Non-qualified distributions are not entirely taxable. You will only pay taxes and penalties on the earnings portion of the withdrawal. Your original contributions are always tax-free and penalty-free, since you already paid taxes on that money when you deposited it.

If you take out earnings before you reach age 59½ or before your account has been open for five years, those funds are taxed as regular income. You may also face a 10 percent early withdrawal penalty, unless an exception applies.

Withdrawal Rules for Age 59 and under

If you are under age 59½ and want to withdraw funds from your Roth IRA, you can request a distribution through the financial institution managing your account. When you file your taxes, you will report the withdrawal on Form 1040. Any portion of the withdrawal that includes earnings may be subject to income tax and a 10 percent early withdrawal penalty.

There are exceptions that can help you avoid the penalty in specific cases. One such exception involves divorce-related transfers. If a court orders you to transfer part or all of your IRA to your former spouse, and you complete a direct transfer, the transaction will not trigger penalties or taxes.

However, the funds must go directly to your ex-spouse's IRA. If you withdraw the money and then try to transfer it, the IRS will treat it as a distribution. In that case, taxes and penalties would apply to the earnings portion of the withdrawal.

Withdrawal Rules for Over Age 59½

Once you reach age 59½, you can withdraw from your Roth IRA without paying taxes or penalties—as long as your account has been open for at least five years. If you haven’t met the five-year requirement, any earnings you withdraw will be subject to income tax and a 10 percent early withdrawal penalty. Your original contributions, however, can still be withdrawn tax-free at any time.

One of the key benefits of a Roth IRA is that it does not require minimum distributions during your lifetime. Unlike traditional IRAs, you are never forced to start withdrawing funds at a certain age. You can leave your Roth IRA untouched as long as you want, even passing it on to beneficiaries if you choose.

Final Thoughts

Roth IRAs offer the advantage of tax-free withdrawals, but only if you follow the IRS rules. Timing matters—meeting both the age and five-year requirements is key to avoiding taxes and penalties on your earnings.

If you’re planning your withdrawal strategy or comparing options across multiple retirement accounts, consider speaking with a Certified Financial Planner®. A professional can help you minimize your tax burden and create a strategy that aligns with your long-term financial goals.

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