Say a person has a Roth IRA account. Now the money in the Roth IRA account is already post-tax contributions. However, say the person has made a significant capital gains on their Roth IRA investments.

If the person decides to withdraw this amount pre-maturely (i.e. before turning 59+1/2), then are there any tax liabilities and penalties the person is liable for? Will the person have to pay taxes on all the capital gains they have made?

For reference let's consider this scenario: The person had post-tax amount of $10,000 in his/her roth-IRA account. Say with capital gains, this amount has now increased to $30,000. Now the person decides to withdraw $20,000 prematurely from Roth-IRA account. What is the tax/penalty situation here?

  • Note Roth-IRA distribution is 'premature' (and the earnings subject to tax and penalty) unless (1) you are at least 59.5 or disabled or dead or a first-time homebuyer AND (2) it's at least the 5th year after the year you first contributed (or after a conversion, as noted in Craig's answer). For most people (1) is more of an issue than (2), but both can matter. Also to be clear all earnings count the same: capital gains, dividends, interest, rent, royalty, whatever, and whether reinvested in the same thing, in something different, or kept in cash. Commented Jun 9, 2021 at 3:58

1 Answer 1


Roth IRA distributions come out according to ordering rules: contributions, then conversions/rollovers, then earnings. The first $10,000 are contributions and can be withdrawn immediately without tax or penalty. The next $10,000 is earnings, which would be taxed at regular income rates plus a 10% early withdrawal penalty. (For completion, although your example doesn't involve conversions/rollovers, the taxable portion withdrawn in the first 5 years incurs the 10% early withdrawal penalty, but no regular income tax. The non-taxable portion incurs no penalty or tax.)

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .