When you opened your Roth IRA, you likely assumed that every dollar coming out would always be tax-free. It’s a common belief — but unfortunately, not always true.

While Roth IRAs offer incredible long-term tax advantages, not all withdrawals are treated equally. Understanding how and when you take money out can mean the difference between keeping your income tax-free or facing an unexpected bill from the IRS.

Why It Matters

Whether you’re already retired or planning ahead for your future income, knowing the rules behind Roth IRA distributions can help you make smarter, more strategic decisions.

Each withdrawal can include a mix of:

• Contributions (what you put in)
• Converted funds (money moved from a Traditional IRA)
• Earnings (growth on your investments)

And the order you withdraw them — plus your age and how long the account has been open — determines how that money is taxed.

Ed Slott’s 5-Step Guide

According to Ed Slott & Company, a nationally recognized IRA education and training organization, the IRS uses specific “ordering rules” to decide what type of money comes out first. Here’s a simplified overview of the process:

1. Contributions come out first — always tax- and penalty-free.
2. Converted funds come out next — not taxable, but possibly subject to the 10% early-withdrawal penalty if you’re under 59½ and the funds have been in the Roth for less than five years.
3. Earnings come out last — and they’re tax-free only if you’ve had any Roth IRA for at least five years and you’re 59½ or older.

If not, those earnings could be taxable — and potentially penalized — depending on your situation.

Protecting Your Tax-Free Advantage

The good news? With careful planning, most people can avoid unnecessary taxes or penalties. The key is understanding which funds you’re withdrawing and timing them correctly.

To dive deeper, we recommend downloading Ed Slott’s whitepaper:
👉 Determining Tax on Roth IRA Distributions in 5 Easy Steps

It offers a straightforward breakdown of how Roth IRA withdrawals are treated — helping you make informed decisions about when and how to take distributions.

How We Can Help

Coordinating your Roth IRA strategy with the rest of your retirement plan — including income, investments, taxes, healthcare, and legacy — can help you maximize what you keep. These are the five pillars of our FearLESS Financial Approach, designed to help you live confidently into and beyond retirement.

Our advisors are proud members of Ed Slott & Company’s Master Elite IRA Advisor Group℠, a network of financial professionals committed to ongoing advanced IRA education and training. This means we stay current on complex retirement and tax-planning rules so you can make informed decisions about your financial future.

If you’d like to talk through how your Roth distributions fit into your broader plan, our team would be happy to help. Schedule a complimentary 20-minute visit to explore whether it makes sense to take a deeper look together.

This post draws on educational material from Ed Slott & Company, LLC. Used with permission. Richmond Brothers, Inc. is an independent Registered Investment Adviser. This content is for informational purposes only and should not be construed as personalized tax or investment advice. Consult your tax professional for guidance specific to your situation.