Are There Penalties for Withdrawing From a Roth IRA? The Rules for High-Income Families

By Kevin Luu, Co-Founder and Chief Learning Officer. Reviewed on 2026-09-30.

There is no penalty for withdrawing the money you contributed to a Roth IRA. Your regular contributions come out first, at any age and at any time, with no income tax and no 10% early-withdrawal tax. The penalty reaches only two things: earnings you take out before age 59½ (unless an exception applies), and converted money that was taxable when you converted it, if you withdraw it before 59½ and within five years of that conversion.

For a dual-income family earning $750,000 or more, that second rule matters more than most people expect. Your income has been above the Roth limit for years, so most of your Roth IRA money probably arrived through backdoor conversions, rollovers or a mega backdoor Roth. Which bucket you draw from decides whether a withdrawal costs nothing or costs 10% plus tax. This guide explains the order the IRS uses, the two five-year clocks, and a worked example for a Bay Area couple.

The IRS withdrawal order decides whether you owe anything

A Roth IRA withdrawal that is not “qualified” is not taxed all at once. IRS Publication 590-B sets a fixed order in which money is treated as leaving the account, across all of your Roth IRAs added together (IRS Pub. 590-B, Ordering Rules for Distributions):

1. Regular contributions. Always tax-free and penalty-free.
2. Conversion and rollover contributions, oldest year first. Within each year, the part that was taxable at conversion comes out before the part that was not.
3. Earnings. Last out. This is the only bucket that can be taxed as income.

You cannot choose a different order, and your custodian does not track it for you. You report it on Form 8606 in the year you withdraw, which is why the records you keep (more on that below) matter.

The two five-year clocks, and why high earners trip on the second

People often say “the five-year rule” as if there is one. There are two, and they measure different things.

Clock 1: the account clock (for tax-free earnings)

Earnings come out completely tax-free only in a qualified distribution. That requires both of the following (Pub. 590-B, What Are Qualified Distributions):

• Five years have passed since January 1 of the first tax year you contributed to any Roth IRA, and
• You are 59½ or older, disabled, deceased (the payment goes to a beneficiary), or using up to $10,000 (lifetime) for a first home.

This clock runs once. If you opened a Roth IRA in residency or your first job, it may have started long ago.

Clock 2: a separate clock for each conversion (for the 10% penalty)

Every conversion from a traditional IRA, and every rollover from a workplace plan such as a 401(k) into a Roth IRA, starts its own five-year period, beginning January 1 of the year of the conversion or rollover. A rollover from one Roth IRA to another does not start a new clock. If you are under 59½ and withdraw the part of a conversion that was taxable when you converted it before its five years end, the 10% additional tax applies to that part, even though you already paid income tax on it (Pub. 590-B, Additional Tax on Early Distributions). The rule exists so nobody can convert a pre-tax IRA and pull the cash out right away to dodge the early-withdrawal penalty.

The useful detail for backdoor Roth households: the penalty attaches only to the part of a conversion that was taxable. In a clean backdoor Roth, you contribute after-tax money to a traditional IRA and convert it, so almost nothing is taxable. That converted basis can come out penalty-free even inside five years. Only the small amount of growth you converted (if any) is exposed.

Worked example: a $1.1 million Bay Area household

Assumptions (illustrative): Maya, 41, is a scientist at a South San Francisco biotech. Her husband, Ben, 42, is a physician. Combined W-2 income is about $1.1 million, they file jointly, and they have two children, ages 4 and 7. Maya’s Roth IRA holds $160,000:

They want $60,000 toward a home renovation. Here is how the withdrawal is treated for 2026:

• The first $30,000 is regular contributions: no tax, no penalty.
• The next $30,000 comes from the backdoor conversions, oldest first. Because those conversions were not taxable, there is no 10% additional tax, even on the 2025 conversion that is still inside its five-year window.
• Earnings are untouched. Total cost of the withdrawal: $0 in tax and penalty.

Contrast 1: a recent taxable conversion

Now suppose Ben converted a $100,000 pre-tax rollover IRA to Roth in 2024 and paid the income tax then. That conversion’s clock runs from January 1, 2024 to the end of 2028. Assume Ben has no regular contributions or older conversions in his Roth IRAs, so a withdrawal comes straight from this conversion. If he withdraws that money in 2026 at age 42, he owes the 10% federal additional tax on it: $10,000 (derived: 10% × $100,000), unless one of the exceptions below applies. California also imposes its own 2&frac12% additional tax on early distributions included in income (FTB 3805P instructions); ask your preparer how it applies to conversion amounts on your return.

Contrast 2: dipping into earnings

If they needed more than the $82,000 of contributions and conversions, the next dollar is earnings, which is taxable income and penalized before 59½. On $20,000 of earnings, at their income (assume their federal and California taxable income are both about $1.05 million after deductions, so these dollars fall in the top federal bracket and above California’s $1,000,000 threshold for the 1% Behavioral Health Services Tax):

That is the real decision. The first $82,000 costs nothing. The next $20,000 costs $12,360. A short-term line of credit, cash from an RSU sale already planned, or simply waiting may be cheaper than touching earnings.

California and Washington treat these withdrawals differently

In California, the taxable part of an early withdrawal is taxed as ordinary income (California has no lower rate for capital gains or retirement money) and the state adds its 2&frac12% additional tax on top of the federal 10%. California generally follows the federal Roth rules, so a qualified distribution, or a return of your regular contributions, is not taxed by the state either. California does not follow every federal exception to its 2&frac12% additional tax, so check the state side separately (FTB 3805P instructions).

In Washington, there is no individual income tax for 2026 (WA DOR), and the state capital gains tax exempts retirement accounts. A family in Seattle or Bellevue taking the same $20,000 of earnings would owe the federal $9,400 and no state tax for 2026. Washington has enacted a 9.9% income tax on individuals and joint filers with AGI over $1,000,000, starting January 1, 2028 (details still await state guidance), so a Washington household near that line should not assume early Roth earnings will stay state-tax-free in later years.

Penalty exceptions that matter for parents of young children

Even when a withdrawal is taxable, several exceptions remove the 10% federal additional tax (income tax on earnings still applies). The ones most relevant to a family with kids under 12 (IRS: exceptions to tax on early distributions):

• Birth or adoption: up to $5,000 per child for qualified birth or adoption expenses.
• Higher education: qualified college and graduate school expenses. This does not cover K-12 private school tuition.
• First home: up to $10,000 lifetime. Few families at this income qualify as first-time buyers, but the rule exists.
• Emergency personal expense: one distribution a year of up to $1,000.
• Disability, unreimbursed medical costs over 7.5% of AGI, and a series of substantially equal payments.

Can you borrow from a Roth IRA without penalty?

Not as a loan. IRS rules list borrowing money from your IRA as a prohibited transaction (Pub. 590-B, Prohibited Transactions). What people usually mean is a 60-day rollover: you withdraw, then put the full amount back into a Roth IRA within 60 days, and it is treated as if it never left. You can do this only once in any 12-month period across your IRAs (IRS Pub. 590-A). Miss the deadline and it becomes an ordinary withdrawal under the ordering rules above. With contributions available tax-free anyway, the 60-day route is rarely worth the risk.

Common mistakes we see at this income level

• Losing the basis records. Without old Form 8606s showing nondeductible contributions and conversions, it can be hard to show that a withdrawal came from basis, and an undocumented withdrawal may be treated as taxable.
• Treating a Roth 401(k) like a Roth IRA. Withdrawals from a Roth 401(k) or the Roth side of a mega backdoor plan follow different rules. See our guide to mega backdoor Roth withdrawal rules.
• Converting a large pre-tax IRA right before a planned withdrawal. The new conversion starts its own five-year clock.
• Assuming a broker transfer resets the clock. It does not. Our article on moving a Roth IRA to another broker covers why.

What to write down for the family

Keep one page per Roth IRA with three running totals: regular contributions, each conversion by year (taxable and non-taxable parts), and the year each conversion’s five-year period ends. Attach the Form 8606s. A spouse, a trustee or an adult child who inherits the account will need it, and it turns a confusing tax question into a two-minute lookup. It is also a chance to record why you chose to protect this money for decades instead of spending it. As Kevin Luu, Co-Founder and Chief Learning Officer of Bright Advisers, puts it: “Your kids don’t need to inherit your portfolio. They need to inherit your decision-making process.”

Frequently asked questions

At what age can I withdraw from a Roth IRA without penalty?

Your regular contributions can come out at any age without penalty. Earnings are tax-free and penalty-free once you are 59½ and at least five years have passed since January 1 of the first year you contributed to any Roth IRA. Before 59½, earnings are taxable and usually face the 10% additional tax unless an exception such as disability or birth or adoption applies.

Are Roth IRA withdrawals tax-free?

Withdrawals of regular contributions are always tax-free. Withdrawals of converted amounts are free of income tax because you paid the tax at conversion, though if you are under 59½, the 10% penalty can apply to the taxable part of a conversion withdrawn within five years. Earnings are tax-free only in a qualified distribution. For a California household in the top brackets, non-qualified earnings can cost about 62 cents per dollar.

Does a backdoor Roth have a five-year rule?

Yes. Each backdoor conversion starts its own five-year period. But the 10% penalty applies only to the part of the conversion that was taxable. In a clean backdoor Roth, that part is usually small or zero, so the converted contribution can typically come out penalty-free even within five years. Keep Form 8606 to show it.

Next step

Pull your Form 8606s for every year you made a nondeductible IRA contribution or a conversion, and total the three buckets for each spouse before you need the money. If you would like help reconstructing the history or deciding whether a withdrawal is the cheapest source of cash, our tax management and retirement and employee benefits teams can work through it with you as part of a Tax & Wealth Assessment. For how backdoor contributions get into the account in the first place, see our backdoor Roth IRA guide, and for the broader timing questions, when you can withdraw from a Roth IRA.

This is general education, not individual tax advice. The right move depends on your family’s full picture.

Written by

Kevin Luu

Co-Founder and Chief Learning Officer, Bright Advisers

Kevin has advised high-income W-2 tech and biotech families since 2015, and leads the education-first Age Five Family Office from Brea, California.

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