If it’s been at least five years since you first funded a Roth IRA and you’re 59½ or older, your Roth IRA distribution is tax- and penalty-free. If you don’t meet both criteria, though, the taxation rules are a bit more complex.

Distributions from your Roth IRA are generally composed of one or more of the following sources:

(1) regular contributions,

(2) taxable conversions,

(3) non-taxable conversions and

(4) earnings.

Each source is subject to different tax rules. As a result, how your Roth IRA distribution is taxed depends on the source of the distribution.

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Roth IRA rules require you to distribute sources in the following order:

Regular contributions: Regular contributions can be distributed anytime without taxes or penalties.

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Taxable conversions (oldest first): Distributions of taxable conversions won’t be taxed but will be subject to the 10% early withdrawal penalty if it hasn’t been at least five years since the conversion, you're younger than 59½, and you don’t qualify for a penalty exception.

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Non-taxable conversions (oldest first): Distributions of non-taxable conversions are not subject to taxes or penalties.

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Earnings: If it’s been at least five years since you first funded a Roth IRA and the distribution is taken for one of the following reasons, distributions of earnings are tax- and penalty-free:

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You’re 59½ or older
You’re disabled
The distribution is for a qualified first-time home purchase (up to $10,000)
The original account owner died

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If you don’t meet those requirements, you can still avoid the 10% penalty if you qualify for another penalty exception, but the distribution will be subject to taxes.

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