An early withdrawal from a Roth IRA is any distribution that is not a qualified distribution, and it is not automatically taxable. A statutory ordering rule decides which layer of the account the money came out of, and only the layers that carry income can be taxed or hit with the 10 percent additional tax.
That order is the whole subject. Ask which layer was reached before asking what the tax is, because a withdrawal that never reaches past the contribution layer produces neither.
Early Means Not Qualified, and Nothing Else
The Code defines the good outcome and leaves everything else in the residual class. Any qualified distribution from a Roth IRA is not includible in gross income (26 U.S.C. 408A(d)(1)). A qualified distribution means a payment or distribution made on or after the date on which the individual attains age 59 1/2, made to a beneficiary or to the estate of the individual on or after the death of the individual, attributable to the individual’s being disabled within the meaning of section 72(m)(7), or which is a qualified special purpose distribution (26 U.S.C. 408A(d)(2)(A)).
The four events are not the whole test. A payment or distribution from a Roth IRA shall not be treated as a qualified distribution under subparagraph (A) if it is made within the 5-taxable year period beginning with the first taxable year for which the individual made a contribution to a Roth IRA, or for which that individual’s spouse, or an employer in the case of a simple retirement account or a simplified employee pension, made a contribution to a Roth IRA established for that individual (26 U.S.C. 408A(d)(2)(B)). The clock is a second condition stacked on top of the four events, and the split between the deduction end and the withdrawal end of these accounts is set out in tax-advantaged account.
There is also a carve-out worth keeping. The term qualified distribution shall not include any distribution of any contribution described in section 408(d)(4) and any net income allocable to the contribution (26 U.S.C. 408A(d)(2)(C)). That is the returned excess contribution, which travels under its own rule rather than this one.
The Ordering Rule Decides What Came Out
Money does not leave a Roth IRA proportionally. For purposes of applying this section and section 72 to any distribution from a Roth IRA, the distribution shall be treated as made from contributions to the extent that the amount of the distribution, when added to all previous distributions from the Roth IRA, does not exceed the aggregate contributions to the Roth IRA (26 U.S.C. 408A(d)(4)(B)(i)).
Within the contribution layer the statute sets a sequence: contributions other than qualified rollover contributions to which paragraph (3) applies come first, then qualified rollover contributions to which paragraph (3) applies on a first-in, first-out basis, and any distribution allocated to a qualified rollover contribution under clause (ii)(II) shall be allocated first to the portion of that contribution required to be included in gross income (26 U.S.C. 408A(d)(4)(B)(ii)).
The IRS renders the same sequence as a numbered list with earnings last: regular contributions, then conversion and rollover contributions on a first-in, first-out basis with the taxable portion taken first and the nontaxable portion after it, then earnings on contributions (IRS, Publication 590-B (2025)).
The practical consequence is the one clients get wrong. Regular contributions were already taxed going in, so a withdrawal that stays inside that layer produces no income and no additional tax, whatever the account holder’s age and however new the account is.
The Ten Percent Additional Tax Reaches the Includible Part Only
If any taxpayer receives any amount from a qualified retirement plan as defined in section 4974(c), the taxpayer’s tax under this chapter for the taxable year in which the amount is received shall be increased by an amount equal to 10 percent of the portion of the amount which is includible in gross income (26 U.S.C. 72(t)(1)). That definition is written for purposes of section 4974, and its list includes an individual retirement account described in section 408(a) and an individual retirement annuity described in section 408(b) (26 U.S.C. 4974(c)). A Roth IRA is reached because, except as provided in this section, a Roth IRA shall be treated for purposes of this title in the same manner as an individual retirement plan (26 U.S.C. 408A(a)).
Read the base of that charge carefully. It is 10 percent of the includible portion, not 10 percent of the withdrawal, so the ordering rule above does most of the work before the rate is ever applied.
The IRS states the same result from the other direction: if you receive a distribution that isn’t a qualified distribution, you may have to pay the 10% additional tax on early distributions, and unless one of the exceptions that publication lists applies you must pay the 10% additional tax on the taxable part of any distributions that aren’t qualified distributions (IRS, Publication 590-B (2025)).
The Exceptions, and the Limbs Inside Them
Except as provided in paragraphs (3) and (4), the additional tax does not apply to a listed set of distributions (26 U.S.C. 72(t)(2)). Several of the better known ones carry conditions that get dropped in summary.
The homebuyer exception is capped and timed. A qualified first-time homebuyer distribution means any payment or distribution used by the individual before the close of the 120th day after the day on which the payment or distribution is received to pay qualified acquisition costs with respect to a principal residence of a first-time homebuyer who is that individual, the spouse of that individual, or any child, grandchild, or ancestor of that individual or the individual’s spouse (26 U.S.C. 72(t)(8)(A)). The aggregate amount that may be treated this way for any taxable year shall not exceed the excess, if any, of $10,000 over the aggregate amounts treated as qualified first-time homebuyer distributions with respect to that individual for all prior taxable years (26 U.S.C. 72(t)(8)(B)). The definition of first-time homebuyer has two limbs, not one. The term means any individual if that individual, and if married that individual’s spouse, had no present ownership interest in a principal residence during the 2-year period ending on the date of acquisition of the principal residence to which the paragraph applies, and if subsection (h) or (k) of section 1034, as in effect on the day before the date of the enactment of that paragraph, did not suspend the running of any period of time specified in section 1034, as so in effect, with respect to that individual on the day before the date the distribution is applied under subparagraph (A) (26 U.S.C. 72(t)(8)(D)(i)).
The health insurance exception has three conditions and an expiry. It reaches distributions from an individual retirement plan to an individual after separation from employment if that individual has received unemployment compensation for 12 consecutive weeks under any Federal or State unemployment compensation law by reason of the separation, if the distributions are made during any taxable year during which that unemployment compensation is paid or the succeeding taxable year, and to the extent the distributions do not exceed the amount paid during the taxable year for the insurance described in section 213(d)(1)(D) for the individual and the individual’s spouse and dependents (26 U.S.C. 72(t)(2)(D)(i)). Clause (i) shall not apply to any distribution made after the individual has been employed for at least 60 days after the separation from employment to which clause (i) applies (26 U.S.C. 72(t)(2)(D)(ii)).
Two of the exceptions do not reach an IRA at all. The list includes distributions made to an employee after separation from service after attainment of age 55 (26 U.S.C. 72(t)(2)(A)(v)) and any distribution to an alternate payee pursuant to a qualified domestic relations order within the meaning of section 414(p)(1) (26 U.S.C. 72(t)(2)(C)). A later paragraph withdraws both from this class of account: subparagraphs (A)(v) and (C) of paragraph (2) shall not apply to distributions from an individual retirement plan (26 U.S.C. 72(t)(3)(A)). Clients arrive having read the age 55 exception without that limitation.
A Converted Amount Runs Its Own Clock
A conversion carries a second five-year period that is separate from the one in the qualified distribution test. If any portion of a distribution from a Roth IRA is properly allocable to a qualified rollover contribution described in this paragraph, meaning the rollover paragraph the citation names, and the distribution is made within the 5-taxable year period beginning with the taxable year in which that contribution was made, then section 72(t) shall be applied as if that portion were includible in gross income (26 U.S.C. 408A(d)(3)(F)(i)). That treatment applies only to the extent of the amount of the qualified rollover contribution includible in gross income under subparagraph (A)(i) (26 U.S.C. 408A(d)(3)(F)(ii)).
The IRS is explicit that these are two different clocks. The 5-year period used for determining whether the 10% additional tax on early distributions applies to a distribution from a conversion or rollover contribution is separately determined for each conversion and rollover, and isn’t necessarily the same as the 5-year period used for determining whether a distribution is a qualified distribution (IRS, Publication 590-B (2025)).
Two more limbs from the same passage are the ones that catch preparers. A separate 5-year period applies to each conversion and rollover, and the additional tax is paid in the year of the distribution even if the conversion or rollover contribution was included in income in an earlier year (IRS, Publication 590-B (2025)).
Common Questions
Not to withdraw regular contributions. The five-year period in the qualified distribution test governs whether a distribution is qualified (26 U.S.C. 408A(d)(2)(B)), while the ordering rule sends regular contributions out first (26 U.S.C. 408A(d)(4)(B)). Contributions that were never deductible carry no income to tax when they come back.
No, and the ordering rule is the reason. Regular contributions were taxed before they went in and are treated as distributed first, so they are not taxed again on the way out (26 U.S.C. 408A(d)(4)(B)(i)). What can be taxed is the earnings layer, and the additional tax reaches only the portion includible in gross income (26 U.S.C. 72(t)(1)). The distinction between a contribution’s basis and the earnings it generates is worked through in after-tax contributions.
The designation, and where the rules sit. The term Roth IRA means an individual retirement plan as defined in section 7701(a)(37) which is designated at the time of establishment of the plan as a Roth IRA (26 U.S.C. 408A(b)). An employer arrangement earns its status a different way, set out in qualified retirement plans.
At reconciliation rather than at data entry. The distribution form reports what left the account, not which layer it came from, so the preparer has to rebuild the contribution history to apply the ordering rule and to identify any conversion still inside its own five-year window. Where that history is missing, the layer cannot be evidenced, and a layer nobody can evidence is one the return cannot safely treat as basis.
Accountably places trained offshore accountants and tax preparers inside US CPA and EA firms, and a firm can run a real block of its own return preparation and reconciliation work through a trial task before anything client facing depends on it.
