Most of the benefits associated with Roth individual retirement accounts (ܫRoth IRAs) relate to withdrawals. While contributions don’t provide a current-year tax deduction, earnings can be withdrawn tax-free🃏 in retirement when certain conditions are met. Roth IRA contributions—not earnings—can be withdrawn at any time, free of penalty and tax.

What Are Rot♐h IRA Earnings, Conversions,﷽ and Contributions?

Your Roth IRA bala🦂nce is made up of three types of money:

• Contributions: The cash you contribute to your Roth IRA
• Conversions: The cash you moved into a Roth IRA from another retirement account, such as a 澳洲幸运5官方开奖结果体彩网:traditional IRA or 401(k)
• Earnings: The investment returns you made on your contributions and conversions

In 2025, the Roth IRA maximum annual contribution limit is $7,000 ($8,000 for those 50 years old and up), unchanged from 2024. In gener✅al, there’s no limit on how much you can convert from other retirement accounts 🍷into a Roth IRA. And there’s certainly no limit on how much you can earn within a Roth IRA.

Let’s say your🌱 Rot🌌h IRA balance is $500,000. It can break down as follows:

• $150,000 in cash contributions that you made directly over the years
• $185,000 converted from a Roth 401(k) after you left an employer for a new role
• $165,000 in earnings on the contributions and converted funds

Upon withdrawal, these three𝕴 types of Roth IRA funds may be treated differently for tax purposes.

Income Limitations for a Roth IRA

Your income plays a role in how and how much you can directly contribute to a Roth IRA. To start, your direct Roth IRA contribution is further limited by your 澳洲幸运5官方开奖结果体彩网:earned income, which is generally the money you (澳洲幸运5官方开奖结果体彩网:and your spouse) earned from working during the year.

If your 澳洲幸运5官方开奖꧒结果体彩网:modified adjusted gros🐓s income (MAGI) is below a specified threshold, you can make a full $7,000 (or $8,000 if you’re at least 50 years old) direct contribution to a Roth IRA. If you’re within the phase-out range, your direct contribution is limited. If your income is above the top of the range, you can’t make a direct Roth IRA contribution. The phaseout ranges, which are adjusted annually for inflation, are:

• For 2025: $236,000 to $246,000 (married filing jointly), $0 to $10,000 (married filing separately), $150,000 to $165,000 (single and head of household filers)
• For 2024: $230,000 to $240,000 (married filing jointly), $0 to $10,000 (married filing separately), $146,000 to $161,000 (single and head of household filers)

Don’t despair if your income is within or above the phase-out range. You may still make indirect Roth IRA contributions through a 澳洲幸运5官方开奖结果体彩网:backdoor Roth IRA—a maneuver that i🍌nvolves making a nondeductible traditional IR🐬A contribution and immediately moving the funds to a Roth IRA.

Qualified and Non-Qualified Ro🥂th IRA Distributions

Roth IRA withdrawals, called distributions, are either qualified or non-qualified. Qualified distri🗹butions receive better tax tr♑eatment than non-qualified distributions.

Qualified distributions are made tax- and penalty-free. When you satisfy the five-year rule (discussed next), a distribution is qualified if:

• You made it on or after the date you turn 59½ years old.
• You made it because you’re disabled.
• You made it to a beneficiary or to your estate after your death.
• You use the funds to buy your first home, up to $10,000 in a lifetime, and meet related requirements.

Non-qualified distributions are withdrawals that aren’t qualified distributions. A portion of the funds withdrawn is 澳洲幸运5官方开奖结果体彩网:taxable as ordinary income and subject to a 10% withdrawal penalty. The 10% penalty applies to the earnings withdraw♋n🌞.

When making a Roth IRA withdrawal, here’s the order in which the Internal Revenue Service (IRS) treats the funds as having been withdrawn:

1. Contributions
2. Conversions
3. Earnings

In general, contributions and prior-year conversions are not taxable upon withdrawal; these amounts sh♈ould have been taxed in prior years. However, the earnings and current-year conversions willꦦ be taxed if they are part of a non-qualified distribution.

Let’s say you have a Roth IRA with a $125,000 balance: $50,000 in contributions, $0 in conversions, and $75,000 in earninꦓgs. If you make a $60,000 non-qualified distribution, $50,000 will be a nontaxable return of your original contribution. However, the $10,000 withdrawal of earnings will be subject to taxes and penalties.

You may be able to avoid the 10% penalty if one or more of the following circumstances apply:

• You have unreimbursed medical expenses that are more than 7.5% of your adjusted gross income (AGI).
• You have an emergency personal expense.
• You need to pay for health insurance while unemployed.
• You are taking a series of substantially equal periodic payments.
• You are paying qualified higher education expenses.
• You’re subject to an IRS levy.
• You had a child, whether by birth or adoption.
• You were affected by a qualified disaster.
• You were a victim of domestic abuse.

This isn’t an exhaustive list of penalty exceptions, and to qualify for e🌱ach exception, you must meet one or more associated requirements.

What Is the Roth IRA Five-Year Rule?

With few exceptions, Roth IRA withdrawals of earnings are only tax-free when the Roth IRA—or any other Roth IRA you own—has been open for at least five years. It’s w🐠hat we call the five-yea꧃r rule, and it applies to taxpayers of all ages.

Let’s say you open your Roth IRA on June 30, 2025. According to the five-year rule, your account is treated as having been opened on Jan. 1, 2025. That means you can make your first tax-free withdrawal of earnings on Jan. 1, 2030, assuming you’re making a qualified distribut♑ion.

Note that the five-year rule doesn🧔’t affect withdrawals of contributions. Distributions of contributions are always tax- and pe🍌nalty-free, regardless of how long ago the account was opened.

Overview of Roth IRA Withdrawal Examples

The Bottom Line

If you opened your Roth IRA at least five years ago and you’re at least 59½ years old, your Roth IRA withdrawals are generally tax❀-free and penalty-free. Otherwise, you might be able to avoid penalties and🧸 taxes on Roth IRA earnings if you meet an exception, such as purchasing a home or being disabled.