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You generally cannot erase federal income tax that was due when a taxable amount was converted from a traditional IRA to a Roth IRA. The conversion itself is usually not subject to the 10% early-distribution additional tax, but a later withdrawal of that converted amount can trigger the 10% tax during the conversion’s separate five-year period.
The way to avoid an unexpected bill is to identify which Roth dollars are being withdrawn, match each conversion to its own five-year clock, test the distribution against the separate qualified-distribution rules, and document any statutory exception. The rules below are U.S. federal rules reflected in IRS 2025 guidance; verify the current tax-year forms and publication before filing.
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What taxes and penalties can apply?
“Penalty” is common shorthand, but the IRS calls the 10% charge an additional tax. Two different tax questions must be separated:
- Tax in the conversion year: The taxable part of a traditional-IRA-to-Roth conversion is generally included in gross income for the year of conversion. There is no general method to make that already-taxable conversion income disappear later.
- Tax on a later withdrawal: Roth ordering rules determine whether a distribution consists of contributions, converted amounts, or earnings. A withdrawal of a taxable converted amount inside that conversion’s five-year recapture period may incur the 10% additional tax unless an exception applies.
A properly completed conversion is generally not itself subject to the 10% early-distribution additional tax. That does not mean the taxable conversion was income-tax-free, and it does not make every later withdrawal penalty-free.
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State income-tax treatment can differ from federal treatment. This guide addresses federal rules and cannot determine an individual result without the taxpayer’s age, basis, conversion dates, distribution amount, and other facts.
How Roth IRA withdrawals are ordered
The IRS applies a mandatory order to the taxpayer’s combined Roth IRA history. The account selected for the withdrawal does not let the taxpayer choose a more favorable tax category, and the balance in one account does not override the aggregation rules.
| Distribution layer | Order | Typical federal income-tax treatment | Possible 10% additional tax |
|---|---|---|---|
| Regular Roth contributions | First | Returned contributions are generally not included in income. | Generally no additional tax on a return of regular contributions. |
| Conversion and rollover contributions | Second, oldest conversion first | The converted amount is not taxed again when distributed. Within each conversion, the taxable portion is treated as distributed before the nontaxable portion. | The taxable portion may incur the additional tax if withdrawn during that conversion’s five-year period and no exception applies. |
| Roth IRA earnings | Last | Earnings may be included in income if the distribution is not qualified. | The additional tax may also apply unless the distribution is qualified or an exception applies. |
This ordering means a withdrawal can reach a recent taxable conversion even when the taxpayer has not withdrawn any earnings. It also means moving money between Roth accounts or selecting a particular account does not change which dollars the law treats as distributed.
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Assume a taxpayer has no regular contributions remaining, a $20,000 taxable conversion from 2024, and earnings in the account. A $5,000 withdrawal in 2026 is treated as coming from the 2024 conversion before it reaches earnings. The $5,000 is not taxed again as ordinary income, but it may be subject to the 10% additional tax because the 2024 conversion has its own five-year period.
Track a separate five-year period for every conversion
For the early-distribution recapture rule, each conversion has its own clock. The period begins on January 1 of the tax year in which that conversion occurred, not on the date the money moved and not on the date the conversion was reported.
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| Conversion tax year | Clock begins | What an early withdrawal can do |
|---|---|---|
| 2024 conversion | January 1, 2024 | A taxable converted amount withdrawn during the 2024–2028 five-year period may incur the 10% additional tax unless an exception applies. |
| 2025 conversion | January 1, 2025 | The 2025 conversion has a separate period; it is not merged with the 2024 conversion’s clock. |
When several conversions exist, apply the Roth ordering rules first: older conversion and rollover contributions come out before newer ones. Then test the amount attributable to each conversion against that conversion’s period. The IRS warns that the additional tax is due in the year of the distribution even if the conversion or rollover contribution was included in income in an earlier year.
Why “wait five years” is incomplete advice
There are two different five-year concepts. Waiting for a conversion’s recapture period addresses the possible 10% additional tax on that conversion. It does not by itself make earnings tax-free, and it does not answer whether the overall Roth IRA has satisfied the qualified-distribution test.
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Use the separate qualified-distribution test
A Roth IRA distribution is generally qualified only when both requirements are met:
- The Roth IRA five-tax-year period has been satisfied.
- An additional qualifying condition applies, such as the taxpayer being at least 59½.
The qualified-distribution clock starts with the first tax year for which the taxpayer made a contribution to any Roth IRA. It is not restarted for each conversion. For example, if the first Roth contribution was for 2021, the five-tax-year period runs through 2025 and is generally satisfied beginning January 1, 2026. A later conversion does not create a new qualified-distribution clock, although it does create its own conversion recapture clock.
Other qualifying conditions can include death, disability, and certain first-home distributions. The exact statutory requirements matter. Satisfying the Roth five-tax-year period alone is not enough if no qualifying condition applies.
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Work through a withdrawal before taking it
Use this sequence for a prospective distribution. It helps distinguish an amount that is already basis from an amount that can create a new 10% liability.
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Outbyte PC Repair FREEClear out junk files and repair common Windows errorsFree Scan →Outbyte Driver Updater FREEScan for outdated or missing drivers - takes under a minuteDriver Scan →- Assemble the complete Roth history. List regular contributions, every conversion and rollover contribution, the tax year of each conversion, the taxable and nontaxable portions, and current earnings. Include all Roth IRAs, not only the account from which money will be withdrawn.
- Apply the mandatory ordering rules. Subtract remaining regular contributions first. Next apply conversion and rollover contributions in first-in, first-out order. For each conversion, count the taxable portion before the nontaxable portion. Treat earnings as the final layer.
- Identify the conversion year attached to the amount. For each taxable converted dollar reached by the distribution, determine whether its January 1-based five-year period is still open.
- Test for a qualified distribution. Check the overall Roth five-tax-year period and an additional qualifying condition. If the distribution is qualified, Roth earnings are generally not included in income and the 10% additional tax does not apply.
- Test every applicable exception. If the distribution is not qualified, determine whether a statutory exception removes the 10% additional tax. An exception can remove the additional tax without making the distribution tax-free.
- Prepare the reporting before filing. Use the applicable IRS forms and retain the records that support the calculation. Do not rely on the account custodian’s form alone to determine the final tax result.
Worked ordering example
Suppose all of a taxpayer’s regular contributions have been used, and the taxpayer has a $12,000 taxable conversion from 2023, a $7,000 nontaxable conversion portion from 2023, a $10,000 taxable conversion from 2025, and earnings. A $15,000 distribution in 2026 is allocated as follows:
- $12,000 from the taxable part of the 2023 conversion;
- $3,000 from the nontaxable part of the 2023 conversion.
The 2023 conversion’s five-year period is still relevant in 2026, so the $12,000 taxable converted amount may face the 10% additional tax unless an exception applies. The $3,000 nontaxable portion is not included in income and is not the taxable converted layer for that calculation. The 2025 conversion and earnings are not reached by this particular distribution.
Exceptions that may remove the 10% additional tax
Publication 590-B lists circumstances in which the 10% additional tax may not apply. Eligibility, dollar limits, certification requirements, and documentation differ by exception. Review the current IRS publication and Form 5329 instructions for the distribution year.
- Age 59½ or older: Reaching 59½ is a qualified-distribution condition and can also remove the additional tax.
- Total and permanent disability: The taxpayer must meet the statutory disability standard and retain appropriate evidence.
- Terminal illness certification: A qualifying terminal-illness certification may support an exception under current law.
- Death of the owner: Beneficiary distributions can qualify for an exception, although beneficiary distribution rules still apply.
- Certain first-home expenses: A qualifying first-home distribution may receive an exception subject to statutory limits and requirements.
- Substantially equal periodic payments: A qualifying series of substantially equal periodic payments can avoid the additional tax, but changing the series prematurely can have consequences.
- Unreimbursed medical expenses: The exception applies to qualifying expenses above the applicable threshold, which IRS 2025 guidance identifies as 7.5% of adjusted gross income.
- Health-insurance premiums during unemployment: Specific unemployment and coverage conditions apply.
- Qualified higher-education expenses: The expenses and recipient must satisfy the statutory rules.
- Qualified reservist distributions: Certain reservists called to active duty may qualify.
- Qualified birth or adoption distributions: A qualifying birth or adoption event and the applicable limits and repayment rules matter.
- Qualified disaster recovery distributions: The disaster, date, amount, and other statutory conditions must fit the applicable provision.
- Domestic-abuse-victim distributions: The distribution must meet the current statutory definition and requirements.
- Certain emergency personal expenses: Current law provides an exception subject to its definition and limits.
These exceptions address the 10% additional tax only. They do not automatically turn Roth earnings into qualified, tax-free distributions, and they do not reverse income tax that was imposed when a taxable conversion occurred.
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Report the distribution correctly
Form 8606, Part III
IRS guidance directs taxpayers to Form 8606, Part III, to calculate the taxable portion of a nonqualified Roth IRA distribution. The form applies the ordering rules and helps distinguish contributions, conversion amounts, and earnings. Prior-year Forms 8606 can be essential evidence of basis and conversion history.
Form 5329
Form 5329 is used to calculate and report applicable additional taxes and to claim an exception when required. The form instructions explain which exception code and supporting information apply to the taxpayer’s situation.
Form 1099-R and personal records
A custodian generally reports an IRA distribution on Form 1099-R, but the form does not replace the taxpayer’s Roth ordering calculation. Preserve:
- Every prior Form 8606;
- Forms 1099-R for conversions and distributions;
- Statements showing regular Roth contributions;
- The tax year and taxable amount of each conversion;
- Documentation for any claimed exception; and
- Evidence supporting disability, medical, education, unemployment, disaster, birth, adoption, domestic-abuse, emergency, or other exception facts when applicable.
Reporting depends on the facts and the tax year. A tax professional or tax-preparation program can help with the forms, but neither changes the statutory ordering rules or guarantees that a distribution is tax-free.
Common mistakes that create avoidable tax
Calling a conversion a contribution
Regular contributions and conversion contributions occupy different layers. A taxpayer who assumes all Roth money is interchangeable can overlook the conversion’s five-year recapture period.
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Using the withdrawal date instead of the tax year
The conversion clock starts January 1 of the conversion tax year. Counting five years from the transaction date can produce the wrong answer.
Tracking only one Roth account
The ordering rules aggregate Roth IRAs. Reviewing just the account that will issue the check can misclassify the distribution.
Assuming an exception makes everything tax-free
An exception generally removes the 10% additional tax. It does not automatically make earnings qualified or erase conversion-year income.
Ignoring the nontaxable portion of a conversion
Within a conversion, the taxable portion is treated as distributed before the nontaxable portion. The distinction must be documented rather than guessed from the current account balance.
Discarding old Forms 8606
Without prior forms and statements, proving contribution basis and conversion amounts can be difficult. Keep the records with the rest of the tax file.
When professional review is especially important
Consider an enrolled agent, certified public accountant, or tax attorney when several conversions occurred in different years, Form 8606 is missing, a large distribution is planned, a substantially equal payment series is involved, an exception depends on medical or disability evidence, or state tax treatment could change the result. Bring the full chronology rather than only the latest brokerage statement.
The IRS materials cited here are federal guidance for 2025. Forms, thresholds, and statutory exceptions can change, and state rules may not follow the federal result. Check the current tax-year edition before filing or distributing money.
Quick Recap
A concise decision checklist
- Have all Roth IRAs and all prior contributions been included?
- Which layer will the withdrawal reach under the mandatory order?
- For each conversion reached, what was the tax year and taxable amount?
- Is that conversion still inside its separate five-year period?
- Has the overall Roth five-tax-year period been met?
- Does an additional qualifying condition make the distribution qualified?
- If it is not qualified, does a specific statutory exception remove the 10% additional tax?
- Are Form 8606, Form 5329, Form 1099-R, and supporting records ready?
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