Withdrawal Rules: Roth vs Traditional IRA

IRAs are powerful retirement savings vehicles, but they come with strings attached—specifically, rules about when and how you can withdraw your money. Take money out at the wrong time or for the wrong reason, and you could face income taxes, a 10% early withdrawal penalty, or both. However, understand the rules, and you'll know exactly how to access your money when you need it, potentially avoiding thousands of dollars in unnecessary taxes and penalties.

The withdrawal rules differ dramatically between traditional and Roth IRAs, and these differences have major implications for how useful each account type is for various life situations. Traditional IRAs are designed to discourage withdrawals before retirement age through taxes and penalties. Roth IRAs offer significantly more flexibility, allowing you to access your contributions at any time without penalty. Yet even Roth IRAs have nuances, particularly around the 5-year rule and earnings withdrawals, that can trip up the unwary.

This comprehensive guide breaks down everything you need to know about IRA withdrawal rules. We'll cover the standard rules for both traditional and Roth IRAs, the exceptions that allow penalty-free early withdrawals, the critical Roth IRA 5-year rule, withdrawal ordering rules, required minimum distributions, and strategies for optimizing your withdrawal approach. Whether you're planning for retirement, facing an emergency that requires tapping your IRA, or simply want to understand your options, this guide provides the clarity you need.

Traditional IRA Withdrawal Rules

Traditional IRAs are structured to incentivize leaving your money invested until retirement. The tax treatment of withdrawals reflects this goal.

The General Rule: Age 59½

Once you reach age 59½, you can withdraw money from your traditional IRA at any time, for any reason, without penalty. These withdrawals are called "qualified distributions." You'll still owe ordinary income tax on the full amount (since you received a tax deduction when you contributed or contributed pre-tax dollars), but there's no penalty.

Example: You're 65 and withdraw $30,000 from your traditional IRA. If you're in the 22% tax bracket, you'll owe approximately $6,600 in federal income tax, but no penalty.

Early Withdrawals Before Age 59½

If you withdraw money from a traditional IRA before age 59½, you'll generally face:

Ordinary income tax on the full withdrawal amount
A 10% early withdrawal penalty on the distribution

Example: You're 45 and withdraw $20,000 from your traditional IRA. Assuming a 22% tax bracket:

Income tax: $4,400 (22% of $20,000)
Early withdrawal penalty: $2,000 (10% of $20,000)
Total tax cost: $6,400
You keep: $13,600 of the $20,000

This dual hit—taxes plus penalty—makes early traditional IRA withdrawals expensive and generally inadvisable unless you qualify for an exception.

Exceptions to the 10% Early Withdrawal Penalty

The IRS provides several exceptions that waive the 10% penalty (though you still owe income tax) on early withdrawals:

1. First-Time Home Purchase

You can withdraw up to $10,000 (lifetime limit) to buy, build, or rebuild a first home for yourself, your spouse, your child, your grandchild, or your parent. "First-time" is defined as not having owned a home in the previous two years.

This $10,000 limit is per person, so a married couple could withdraw up to $20,000 combined if both have IRAs.

2. Qualified Higher Education Expenses

You can withdraw any amount to pay for qualified higher education expenses for yourself, your spouse, your children, or your grandchildren. Qualified expenses include:

Tuition and fees
Books, supplies, and equipment
Room and board (if enrolled at least half-time)

This exception has no dollar limit—you can withdraw as much as needed to cover actual qualified expenses.

3. Unreimbursed Medical Expenses

You can withdraw money to pay for unreimbursed medical expenses that exceed 7.5% of your adjusted gross income (AGI). For example, if your AGI is $60,000, you can take penalty-free withdrawals for medical expenses exceeding $4,500 (7.5% of $60,000).

4. Health Insurance Premiums While Unemployed

If you've lost your job, you can withdraw money to pay health insurance premiums without penalty. To qualify:

You must have received unemployment compensation for 12 consecutive weeks
You must take the distribution during the year you received unemployment or the following year
You must take the distribution no later than 60 days after you've been reemployed

5. Birth or Adoption Expenses

You can withdraw up to $5,000 per child for qualified birth or adoption expenses within one year of the birth or adoption finalization.

6. Disability

If you become totally and permanently disabled, you can take penalty-free withdrawals at any age. The IRS defines disability as being unable to engage in any substantial gainful activity due to a physical or mental condition that is expected to last indefinitely or result in death.

7. Substantially Equal Periodic Payments (SEPP or 72(t))

You can take penalty-free early withdrawals through a program of substantially equal periodic payments based on your life expectancy. Once you begin these payments, you must continue them for at least five years or until you reach age 59½, whichever is longer.

This is a complex strategy with strict rules. Modifying or stopping the payments early results in retroactive penalties on all distributions. Consult a financial professional before using this exception.

8. IRS Levy

If the IRS levies your IRA to collect unpaid taxes, those distributions are penalty-free (though still taxable).

9. Qualified Reservist Distributions

Military reservists called to active duty for more than 179 days can take penalty-free distributions during their active duty period.

10. Terminal Illness

If you've been diagnosed with a terminal illness (a condition reasonably expected to result in death within 84 months), you can take penalty-free withdrawals.

11. Qualified Disaster Distributions

After certain federally declared disasters, affected individuals may be able to take penalty-free distributions up to specified limits.

Important: Exceptions Waive Penalty, Not Taxes

All these exceptions eliminate the 10% penalty but don't eliminate the income tax. Traditional IRA withdrawals are always taxable as ordinary income (except for any non-deductible contributions—the "basis" portion).

Mandatory Withdrawals: Required Minimum Distributions

Starting at age 73 (or 75 for those born in 1960 or later), you must begin taking Required Minimum Distributions from your traditional IRA. These mandatory withdrawals are taxable and calculated based on your age and account balance. See our detailed guide on RMDs for complete information.

Roth IRA Withdrawal Rules

Roth IRA withdrawal rules are more complex than traditional IRA rules, but they offer significantly more flexibility, especially for early withdrawals.

Understanding the Two Types of Roth IRA Money

To understand Roth withdrawal rules, you first need to know that Roth IRAs contain two distinct types of money:

Contributions: The money you deposited (already taxed)
Earnings: The investment gains, dividends, and interest your contributions have generated

These are treated very differently for withdrawal purposes.

Roth IRA Contributions: Withdraw Anytime, Tax-Free and Penalty-Free

Here's the powerful flexibility of Roth IRAs: you can withdraw your contributions at any time, at any age, for any reason, with no taxes and no penalties.

Because you already paid income tax on Roth contributions, the IRS doesn't penalize you for taking that money back out. This makes Roth IRAs function partly as an emergency fund while still being a retirement account.

Example: You're 35 and have contributed $30,000 to your Roth IRA over the years. Your account is now worth $42,000 ($30,000 contributions + $12,000 earnings). You can withdraw up to $30,000 at any time without taxes or penalties. However, withdrawing the $12,000 in earnings would be subject to restrictions.

Roth IRA Earnings: The 5-Year Rule and Age 59½ Requirement

To withdraw earnings from your Roth IRA tax-free and penalty-free, you must meet two requirements:

The 5-year rule: At least five years must have passed since January 1 of the year you made your first Roth IRA contribution (to any Roth IRA)
Age 59½: You must be at least age 59½ (or meet one of the exceptions)

Meet both requirements, and your earnings come out completely tax-free and penalty-free. This is called a "qualified distribution."

The Roth IRA 5-Year Rule Explained

The 5-year rule often confuses people, so let's clarify exactly how it works.

The clock starts on January 1 of the year you make your first contribution to any Roth IRA. Even if you make your first contribution on December 31, 2024, the 5-year clock starts on January 1, 2024, meaning you'd satisfy the rule on January 1, 2029.

Example: Sarah opens her first Roth IRA in August 2024 and contributes $6,000.

5-year period begins: January 1, 2024
5-year period ends: January 1, 2029
Sarah satisfies the 5-year rule on January 1, 2029

If Sarah is over 59½ on January 1, 2029, she can withdraw all earnings tax-free and penalty-free.

Important: The 5-year clock is per Roth IRA owner, not per account. If you open multiple Roth IRAs over the years, they all reference your first Roth IRA contribution date.

What Happens If You Withdraw Earnings Early?

If you withdraw earnings before satisfying both the 5-year rule and age 59½ requirement (or qualifying exception):

The earnings are taxable as ordinary income
You owe a 10% early withdrawal penalty on the earnings

Example: You're 45, opened your Roth IRA three years ago, and need to withdraw $20,000. Your account has $25,000 in contributions and $10,000 in earnings.

First $20,000 comes from contributions: tax-free and penalty-free
If you withdrew $30,000, the additional $5,000 (from earnings) would be taxable and subject to the 10% penalty because you haven't met the age or 5-year requirements

Exceptions to Roth IRA Early Withdrawal Penalties

The same exceptions that apply to traditional IRA early withdrawals also apply to Roth IRA earnings withdrawals:

First-time home purchase (up to $10,000)
Qualified higher education expenses
Unreimbursed medical expenses exceeding 7.5% of AGI
Health insurance premiums while unemployed
Birth or adoption expenses (up to $5,000)
Disability
Substantially equal periodic payments (SEPP/72(t))
IRS levy
Qualified reservist distributions
Terminal illness

However, there's an important distinction: these exceptions only waive the 10% penalty on Roth earnings. If you haven't satisfied the 5-year rule, the earnings are still taxable income even though the penalty is waived.

Roth IRA Withdrawal Ordering Rules

When you take a Roth IRA distribution, the IRS mandates a specific ordering of which money comes out first:

Regular contributions (always tax-free and penalty-free)
Conversion contributions (follows first-in, first-out basis; each conversion has its own 5-year clock for penalty purposes)
Earnings (subject to 5-year rule and age 59½ requirement)

This ordering rule means your contributions always come out first, making it much easier to access Roth money without tax consequences than it might initially appear.

Special Rule for Roth Conversions

Money converted from a traditional IRA to a Roth IRA has its own 5-year rule. Each conversion has a separate 5-year clock that starts on January 1 of the year you do the conversion. If you withdraw converted funds before five years have passed and before age 59½, you'll pay the 10% penalty (but no income tax, since you paid tax on the conversion).

Example: You convert $50,000 from a traditional IRA to a Roth IRA in 2024 and pay income tax on the conversion. If you withdraw that $50,000 in 2026 (before five years) and you're under 59½, you'll pay a 10% penalty ($5,000) but no income tax.

Once you're 59½, the 5-year conversion rule no longer applies—you can withdraw converted amounts without penalty.

No RMDs for Roth IRAs

Unlike traditional IRAs, Roth IRAs have no Required Minimum Distributions during your lifetime. You can leave the money growing tax-free for as long as you live.

Side-by-Side Comparison: Traditional vs. Roth Withdrawal Rules

Let's summarize the key differences in a clear comparison:

Traditional IRA

Before Age 59½:

All withdrawals taxable as ordinary income
10% penalty applies (unless you qualify for an exception)
No distinction between contributions and earnings

After Age 59½:

All withdrawals taxable as ordinary income
No penalty
No time-based restrictions

RMDs:

Required starting at age 73 (or 75 for those born in 1960+)

Roth IRA

Contributions:

Withdraw anytime, any age, tax-free and penalty-free

Earnings before age 59½ and/or 5 years:

Taxable as ordinary income
10% penalty applies (unless exception)

Earnings after age 59½ AND 5 years:

Completely tax-free and penalty-free

RMDs:

None during your lifetime

Strategic Withdrawal Planning

Understanding the rules is one thing; using them strategically is another. Here are some approaches to optimize your IRA withdrawals.

Strategy 1: Use Roth IRAs as a Super Emergency Fund

Because you can withdraw Roth contributions anytime without taxes or penalties, Roth IRAs can function as an emergency fund while also serving as a retirement account. The money grows tax-free, and you can access it if truly needed.

This doesn't mean you should routinely raid your Roth IRA, but knowing the flexibility exists provides peace of mind and makes contributing to a Roth less psychologically difficult for people worried about locking up their money.

Strategy 2: Withdrawal Sequencing in Retirement

Most financial planners recommend a withdrawal sequence that minimizes taxes and maximizes wealth:

Taxable accounts first: Withdraw from regular brokerage accounts, taking advantage of favorable capital gains rates
Traditional IRA/401(k) next: Withdraw from pre-tax accounts, managing your tax bracket carefully
Roth IRA last: Leave Roth money growing tax-free as long as possible since there are no RMDs

However, this sequence can be adjusted based on your tax situation each year. Sometimes it makes sense to take Roth withdrawals to avoid pushing into a higher bracket or to manage RMDs.

Strategy 3: Satisfy RMDs from Traditional, Supplement with Roth

Once RMDs begin, you must take at least that amount from your traditional IRA. But if you need more money, supplement with Roth IRA withdrawals (tax-free) rather than taking more from your traditional IRA (taxable). This keeps your taxable income lower.

Example: Your RMD is $30,000, and you need $50,000 for living expenses. Take the $30,000 RMD from your traditional IRA and the additional $20,000 from your Roth IRA. You only pay tax on $30,000 instead of $50,000.

Strategy 4: The Roth Conversion Ladder

If you retire early (before 59½) and need access to traditional IRA funds without penalties, you can use a "Roth conversion ladder":

Convert a portion of your traditional IRA to Roth IRA
Pay the income tax on the conversion
Wait five years
Withdraw the converted amount penalty-free (since conversions have their own 5-year clock)

By converting amounts five years before you need them, you create a pipeline of accessible funds. Early retirees often convert amounts annually starting at retirement, creating a "ladder" of funds accessible five years later.

Strategy 5: Using Penalty Exceptions Strategically

If you need money before 59½, use the penalty exceptions strategically:

If you're buying a home, the $10,000 first-time homebuyer exception can help
If you have kids in college, pay tuition directly from your IRA to avoid penalties
If you have high medical expenses, time IRA withdrawals to years with large unreimbursed costs

Remember, exceptions only waive penalties—you still owe income tax on traditional IRA withdrawals.

Strategy 6: Timing Your First Roth Contribution

Since the 5-year clock starts January 1 of the year you make your first Roth contribution, contributing even a small amount early in your life starts that clock ticking. A $100 contribution at age 25 starts the 5-year clock, so by age 30 you've satisfied that rule (you'd still need to reach 59½ for qualified earnings withdrawals).

Common Withdrawal Mistakes to Avoid

Mistake 1: Not Tracking Contribution vs. Earnings

You're responsible for knowing how much of your Roth IRA is contributions versus earnings. Most custodians report this on year-end statements, but track it yourself as well. IRS Form 5498 shows annual contributions, and Form 1099-R reports distributions.

Mistake 2: Confusing the Multiple 5-Year Rules

There are different 5-year rules for different purposes:

Roth contribution 5-year rule (for qualified distributions)
Roth conversion 5-year rule (for each conversion, affects penalties)
Inherited Roth IRA 5-year rule (for non-spouse beneficiaries)

Make sure you understand which rule applies to your situation.

Mistake 3: Taking Withdrawals Without Considering Tax Implications

Even penalty-free withdrawals from traditional IRAs are taxable income. A large withdrawal could push you into a higher tax bracket, increase Medicare premiums, or cause more Social Security to be taxed. Run the numbers before taking large distributions.

Mistake 4: Not Withholding Taxes

Traditional IRA withdrawals are taxable, but taxes aren't automatically withheld unless you request it. If you don't withhold or make estimated tax payments, you could face underpayment penalties. Tell your custodian to withhold a percentage (typically 10-20% federal, plus state if applicable).

Mistake 5: Withdrawing Roth Earnings Too Early

Just because you can withdraw Roth contributions anytime doesn't mean you should routinely do so. Leave your money invested for retirement. The ability to access contributions should be a safety net, not a piggy bank.

Mistake 6: Not Understanding Roth Conversion 5-Year Clocks

If you do multiple Roth conversions in different years, each has its own 5-year clock. Withdraw converted funds before their specific 5-year period ends (and before 59½), and you'll pay a penalty. Keep detailed records of when each conversion occurred.

Mistake 7: Assuming All Early Withdrawal Exceptions Apply Equally

Some exceptions are unlimited (qualified education expenses), while others have caps (first-time homebuyer is $10,000 lifetime; birth/adoption is $5,000 per child). Know the limits before relying on an exception.

Special Situations

Inherited IRAs

If you inherit an IRA, different withdrawal rules apply depending on your relationship to the deceased and when they died. Surviving spouses have the most flexibility and can often treat the IRA as their own. Non-spouse beneficiaries typically must withdraw the entire inherited IRA within 10 years under the SECURE Act rules (passed in 2019).

Substantially Equal Periodic Payments (SEPP/72(t))

This strategy allows penalty-free early withdrawals through a series of calculated payments. However, it's complex and inflexible—once started, you must continue for at least five years or until age 59½, whichever is longer. Stopping or modifying payments triggers retroactive penalties on all previous distributions. Use this only with professional guidance.

60-Day Rollover Rule

You can withdraw money from an IRA and have 60 days to deposit it into the same or another IRA without it counting as a distribution. This is called a 60-day rollover. However:

You can only do one IRA-to-IRA 60-day rollover per 12-month period
Miss the 60-day deadline, and the withdrawal becomes taxable plus penalized if you're under 59½
This rule doesn't apply to trustee-to-trustee transfers (which are unlimited and much safer)

The 60-day rollover is risky and generally discouraged except in specific circumstances.

How to Take a Distribution

When you're ready to withdraw money from your IRA:

Contact your IRA custodian and request a distribution form or log into your online account
Specify the amount and which account it comes from (if you have multiple IRAs)
Choose federal and state tax withholding (if applicable). For traditional IRAs, consider withholding 10-20% for federal taxes
Select payment method: Direct deposit to your bank account (fastest) or check by mail
Indicate the reason for the distribution if you're claiming a penalty exception
Submit the request and wait for processing (typically 3-7 business days for direct deposit)

You'll receive Form 1099-R from your custodian showing the distribution amount and any taxes withheld. Report this on your tax return.

The Bottom Line

Understanding IRA withdrawal rules gives you power and flexibility in managing your retirement savings. Traditional IRAs impose significant restrictions on early access through taxes and penalties, reinforcing their purpose as long-term retirement vehicles. Roth IRAs offer much greater flexibility, allowing penalty-free and tax-free access to contributions at any time, while still incentivizing long-term investing through the 5-year rule and age requirements for earnings.

Key takeaways:

Traditional IRA withdrawals before 59½ generally incur both income tax and a 10% penalty unless you qualify for an exception
Roth IRA contributions can be withdrawn anytime without taxes or penalties, providing valuable flexibility
Roth IRA earnings withdrawals require meeting both the 5-year rule and age 59½ (or qualifying exception) for tax-free and penalty-free treatment
Multiple 5-year rules exist for different Roth IRA situations; understand which applies to you
Penalty exceptions exist for specific life situations (home purchase, education, medical, etc.) but they don't eliminate income tax on traditional IRA withdrawals
Strategic withdrawal planning in retirement can minimize taxes and maximize wealth

IRAs are designed for retirement, and the rules reflect that purpose. But life doesn't always cooperate with long-term plans. Knowing the rules for accessing your money—penalty-free when possible, and strategically when necessary—ensures you can make informed decisions that protect your financial well-being both today and in retirement.

If you're considering a withdrawal, especially an early withdrawal or a large distribution, consult with a financial advisor or tax professional to understand the full tax implications and explore alternatives that might better serve your needs.