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The Roth IRA is a unique type of investment account that offers every future retiree’s dream — the prospect of tax-free income after reaching retirement age.
Like any retirement account, however — and really, anything that has to do with the Internal Revenue Service (IRS) — there are rules that dictate who can contribute, how much money can be sheltered, and when those tax-free distributions can actually begin. To break it down:
- Contribution limits for Roth IRAs are $7,000 in 2025.
- The Roth IRA five-year rule says you cannot withdraw earnings tax-free until it’s been at least five years since you first contributed to a Roth IRA account.
- This five-year rule applies to everyone who contributes to a Roth IRA, whether they’re 59 ½ or 105 years old.
The Roth IRA five-year rule
The five-year rule could foil your withdrawal plans if you don’t know about it ahead of time.
This rule for Roth IRA distributions stipulates that five years must pass after the tax year of your first Roth IRA contribution before you can withdraw the earnings from the account tax-free.
Keep in mind that the five-year clock begins ticking on Jan. 1 of the year you made your first contribution to the account. That means even if you made your first contribution on Dec. 31 of a given year, you get to count the full year toward the five-year rule. In fact, contributions as late as the tax deadline for that year can count. For example, you could make a contribution as late as April 15, 2026, that counts toward the 2025 tax year.
- Inherited Roth IRAs have their own clock, but it starts with the original account owner and when they made their first contributions — not when it was inherited.
- Roth IRA conversions also have their own five-year clock, but that rule determines whether the conversion principal will avoid tax penalties.
Roth IRA income and contribution limits
The concept behind the Roth IRA is simple. Investors who meet income guidelines can deposit money into this account on an after-tax basis and receive tax-free distributions once they reach retirement, defined as after age 59 ½.
In 2025, individuals up to certain income caps can contribute up to $7,000 to a Roth IRA account. Those age 50 and older can contribute up to $8,000 for the year, using what is known as a “catch-up contribution.”
You can pull in a healthy income and still contribute to a Roth IRA, but income caps could put the brakes on your contributions if you are an especially high earner.
| Filing status | Max income for full Roth IRA contribution | Phases out at |
|---|---|---|
| Individual, head of household | $150,000 | $165,000 |
| Married, filing jointly | $236,000 | $246,000 |
Keep in mind, however, that your ability to contribute to a Roth IRA is based on your modified adjusted gross income, or MAGI, not your salary. However, those with any level of income can still use a backdoor Roth IRA to contribute.
Roth IRA early withdrawal taxes and penalties
Since we’re talking about contributions, it’s important to note that anyone (of any age) who contributes to a Roth IRA can withdraw their contributions at any time without penalty. The key word here is contributions, though, since you cannot normally withdraw your earnings prior to age 59 ½ without paying a 10 percent early withdrawal penalty. Earnings can generally be withdrawn without penalties after age 59 ½, provided you meet the five-year rule.
Savers don’t need to do anything special to ensure that only the contributions are withdrawn since the IRS has rules dictating which funds are removed from the account first. Per the IRS, Roth IRA distributions are taken in this order:
- Contributions
- Conversions or rollover contributions
- Earnings on investments
These rules make it easier to withdraw your contributions without taxes or penalties.
Qualified vs. non-qualified distributions
Contributing to a Roth IRA is the easy part, but there’s a learning curve to understanding which distributions are qualified, which ones are non-qualified, and when exactly exceptions can be made.
When can you withdraw earnings from a Roth IRA without penalty?
Pull your earnings out of a Roth IRA account too early and you may be subject to income taxes on those amounts, as well as face a penalty amounting to another 10 percent, except in certain situations. We already mentioned how you can take up to $10,000 out of a Roth IRA account without penalty early for the purchase of your first home, if you become disabled, or if the distribution is made to your estate after you pass away.
You can also avoid the 10 percent penalty (but not the taxes) for an early withdrawal if:
- You’re using the funds to pay qualified higher education expenses for yourself or eligible family members.
- You’re using the funds to reimburse yourself for medical expenses that exceed 7.5 percent of your adjusted gross income.
- You need to use the funds to cover health insurance premiums in the event you become unemployed.
- You agree to accept substantially equal periodic payments for five years or until you turn age 59 ½, whichever happens last.
- An IRS levy has been made against your plan.
Those are the main exceptions, but the IRS offers additional ways to avoid the penalty.
Bottom line
Roth IRAs can be absolute magic for future retirees who contribute often and follow the rules, including the five-year rule on distributions. Before you start investing with a Roth, make sure you know the rules that dictate how much you can save and when you can get your money. While the five-year rule may not have been on your radar before, you now know how it works — and how to start the clock ticking.
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