Roth IRA Early Withdrawal: Exactly How Much Tax and Penalty You Owe

Key Takeaways

Roth IRA contributions can be withdrawn at any age, any time, with zero tax and zero penalty. Only earnings are at risk.
Withdrawing $20,000 in earnings before age 59½ in the 22% federal bracket costs $4,000 in penalty plus $4,400 in income tax, a $8,400 reduction on a single withdrawal.
Track your total lifetime contributions separately from account balance so you always know exactly which dollars are penalty-free.
Tool: Run your Roth IRA withdrawal numbers now →

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Contributions vs. Earnings: The Distinction That Changes Everything

The IRS treats Roth IRA withdrawals under a strict ordering rule. Contributions come out first. Earnings come out last. This ordering rule, codified in IRC Section 72, is what makes a Roth IRA structurally different from a Traditional IRA in early-withdrawal situations.

Your Roth IRA contributions are after-tax dollars. The IRS already collected its share when you earned that income. Pulling those dollars back out triggers no additional federal income tax and no 10% early withdrawal penalty, regardless of your age or how long the account has been open.

Your earnings, meaning any growth above your total lifetime contributions, face a different standard. Before age 59½ and before the account satisfies the five-year rule, those earnings are subject to ordinary income tax plus a 10% penalty under IRS Publication 590-B.

How the Five-Year Rule Works and Why It Applies to Earnings Only

The five-year rule starts on January 1 of the tax year for which you made your first Roth IRA contribution. If you made your first contribution in 2021, the five-year clock started January 1, 2021. That account satisfied the five-year rule on January 1, 2026.

The five-year rule only matters for earnings withdrawals. It has no bearing on contribution withdrawals.

Two conditions must both be true for earnings to come out tax-free and penalty-free. First, you must be age 59½ or older. Second, the account must have met the five-year requirement. If either condition fails, the earnings portion of any withdrawal is taxable and subject to the 10% penalty.

The IRS Ordering Rules, Step by Step

The IRS applies a four-tier ordering sequence to every Roth IRA withdrawal. Understanding this sequence tells you exactly which dollars you are pulling out and what they will cost.

The tiers, in order of withdrawal, are:

Regular annual contributions (tax-free, penalty-free, always)
Taxable conversion amounts, ordered from oldest to most recent (penalty-free if held five years, otherwise 10% penalty applies)
Nontaxable conversion amounts (tax-free, penalty-free)
Earnings on all contributions and conversions (income tax plus 10% penalty if conditions not met)

For most people with straightforward Roth IRA histories, only tiers one and four apply.

Worked Example 1: Withdrawal Entirely Within Contributions

A 38-year-old account holder has contributed $42,000 to a Roth IRA over nine years. The account has grown to $67,000. She needs $30,000 for a home purchase and withdraws that amount.

Under the ordering rules, the first $42,000 out is her contribution basis. Her $30,000 withdrawal sits entirely within that $42,000 contribution layer.

Federal income tax owed: $0. Penalty owed: $0. She reports the withdrawal on IRS Form 8606 but owes nothing.

Her remaining Roth IRA balance is $37,000, of which $12,000 is still contribution basis and $25,000 is earnings.

Worked Example 2: Withdrawal That Reaches Into Earnings

A 44-year-old account holder has contributed $35,000 over the years. His Roth IRA is now worth $58,000. He withdraws $45,000.

The first $35,000 of that withdrawal is his contribution basis. Tax: $0. Penalty: $0.

The remaining $10,000 comes from earnings. His federal marginal tax rate is 24%. The five-year rule is satisfied, but he is under age 59½, so the earnings are taxable and penalized.

Income tax on $10,000 earnings: $10,000 x 0.24 = $2,400. Early withdrawal penalty: $10,000 x 0.10 = $1,000. Total additional cost: $3,400.

He receives $45,000 but the IRS collects $3,400, leaving him a net of $41,600 after tax obligations are settled. He files IRS Form 5329 to calculate the penalty and IRS Form 8606 to report the nontaxable portion.

Qualified Exceptions That Eliminate the 10% Penalty on Earnings

The 10% early withdrawal penalty on Roth IRA earnings can be waived under specific IRS exceptions, even when the account holder is under 59½. Ordinary income tax still applies to the earnings, but the 10% penalty disappears.

The most commonly applicable exceptions are:

Total and permanent disability (IRS Publication 590-B, Section on Disability)
Substantially equal periodic payments under IRS Rule 72(t)
Qualified first-time home purchase, up to a $10,000 lifetime limit per IRS rules
Unreimbursed medical expenses exceeding 7.5% of adjusted gross income
Health insurance premiums paid during a period of unemployment
Qualified higher education expenses for the account holder or dependents

The first-time homebuyer exception deserves specific attention. The IRS defines "first-time buyer" as someone who has not owned a principal residence in the past two years. The $10,000 limit is a lifetime cap per individual, not per account or per year.

State Tax Adds a Layer Most Calculators Miss

Federal tax and the 10% penalty are only part of the picture. Most states tax Roth IRA earnings withdrawals as ordinary income at the state level. California taxes early Roth IRA earnings withdrawals at the state marginal rate, which reaches 13.3% at the top bracket. New York applies rates up to 10.9%.

States like Florida, Texas, and Nevada collect no state income tax, so residents there face only federal exposure.

Returning to the Worked Example 2 scenario: if that 44-year-old lives in California and earns enough to hit the 9.3% state bracket, add $930 in state tax to the $3,400 federal bill. Total cost on that $10,000 earnings withdrawal reaches $4,330.

How to Know Exactly How Much of Your Balance Is Contributions

The IRS requires Roth IRA owners to track their own contribution basis. Your brokerage statement shows total account value, not your contribution history. These are different numbers.

IRS Form 8606, Part III records your cumulative Roth IRA contribution basis each year you make a withdrawal or contribution. If you have never filed Form 8606, your tax returns and brokerage records from every contribution year are the source of truth.

Reconstruct your basis by summing every annual Roth IRA contribution you made, across all Roth IRA accounts at all custodians. The IRS aggregates all Roth IRAs under your Social Security number for ordering rule purposes.

Calculate Your Exact Withdrawal Cost Before You Act

The difference between a withdrawal that costs $0 and one that costs several thousand dollars is entirely a function of whether the dollars you pull come from contributions or earnings. That calculation takes three inputs: your total lifetime contribution basis, your current account balance, and the withdrawal amount.

The CalcMoney retirement calculator applies the IRS ordering rules to your specific numbers and shows the after-tax cost of a Roth IRA withdrawal before you submit the paperwork. Enter your contribution history, current balance, tax bracket, and state, and the calculator produces the exact federal and state tax exposure, the penalty amount if applicable, and the net dollars you actually receive.

Run your Roth IRA early withdrawal calculation now →

Results are estimates for informational purposes only. Consult a licensed financial professional before making financial decisions.

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