Roth Ordering Rules: How Roth Withdrawals Are Actually Taxed

The Roth ordering rules determine which dollars the IRS considers withdrawn first when money comes out of a Roth account. These rules are critical because they control whether a withdrawal is tax-free, taxable, or penalized—regardless of how much money you have in the account.

Roth accounts are often described as “tax-free,” but that is only true if withdrawals follow the ordering rules and eligibility requirements. The good news is that these rules are well-defined, consistent across time, and—importantly—unchanged by SECURE 2.0 and the 2026 updates. What has changed is how often people rely on Roth access, making understanding these rules more important than ever.

What Are Roth Ordering Rules?

Roth ordering rules are IRS-mandated rules that specify the sequence in which different types of Roth dollars are deemed to be withdrawn. You do not get to choose which dollars come out first. The IRS decides the order automatically.

These rules apply primarily to Roth IRAs. Roth 401(k)s follow different mechanics while funds remain inside the employer plan, but once rolled into a Roth IRA, Roth IRA ordering rules apply.

The Roth IRA Withdrawal Order (The Core Rule)

When money is withdrawn from a Roth IRA, the IRS treats distributions as coming out in the following order:

Regular Roth contributions
Converted amounts (in chronological order)
Earnings

This ordering is fixed and mandatory.

Step 1: Roth Contributions Come Out First

Your direct Roth IRA contributions are always considered withdrawn first. Because these contributions were made with after-tax dollars, they can be withdrawn at any time, for any reason, without taxes or penalties.

Key implications:

No age requirement
No five-year requirement
No penalties
No income tax

This is what gives Roth IRAs their reputation for flexibility and liquidity.

Step 2: Roth Conversions Come Out Second

After all direct contributions have been withdrawn, the IRS treats withdrawals as coming from Roth conversions. Conversions are tracked separately by year, and they come out on a first-in, first-out (FIFO) basis.

Each conversion has its own five-year clock for penalty purposes.

Important rules for conversions:

Converted principal is not taxed again (tax was paid at conversion)
Withdrawals within five years of conversion may trigger a 10% penalty
The five-year clock is per conversion, not per account
The penalty rule applies only if you are under age 59½

Once you are 59½ or older, converted amounts can be withdrawn without penalty, regardless of when the conversion occurred.

Step 3: Earnings Come Out Last

Only after all contributions and converted amounts have been withdrawn does the IRS treat distributions as coming from earnings.

Earnings are the most restricted Roth dollars.

To withdraw earnings tax-free, you must meet both of the following conditions:

Be at least age 59½
Have satisfied the five-year Roth IRA rule

The five-year clock starts with your first Roth IRA contribution or conversion, not each account or each contribution.

If either condition is not met, earnings may be:

Subject to income tax
Subject to a 10% penalty (unless an exception applies)

The Two Different Five-Year Rules (Often Confused)

One of the most common Roth misunderstandings is failing to distinguish between the two separate five-year rules.

There are:

A five-year rule for earnings
A five-year rule for conversions

They serve different purposes and operate independently.

In short:

The earnings five-year rule determines whether earnings are tax-free
The conversion five-year rule determines whether a penalty applies

SECURE 2.0 did not change either rule, and no changes are scheduled for 2026.

Roth IRA vs Roth 401(k) Ordering Rules

Roth ordering rules work most cleanly inside a Roth IRA. Roth 401(k)s behave differently while assets remain in the employer plan.

Key differences:

Roth 401(k) withdrawals are pro-rata between contributions and earnings
Roth IRAs follow strict ordering rules
Rolling a Roth 401(k) into a Roth IRA restores ordering flexibility
Roth IRAs offer superior withdrawal control

This is one reason many strategies treat the Roth IRA as the destination account.

Required Minimum Distributions and Ordering Rules

Roth IRAs are not subject to required minimum distributions during the owner’s lifetime. This rule remains unchanged under SECURE 2.0 and continues into 2026.

Because there are no forced withdrawals, Roth ordering rules allow:

Strategic access to contributions and conversions
Long-term tax-free compounding
Greater control over taxable income later in life

Beneficiaries follow different rules, but ordering principles still apply.

2026 Updates and Roth Ordering Rules

While contribution limits and catch-up rules change in 2026, Roth ordering rules themselves do not change.

Relevant 2026 context:

Mandatory Roth catch-ups increase the number of Roth dollars in the system
More conversions increase the importance of tracking conversion years
Roth IRAs remain exempt from RMDs
Ordering rules remain the same and continue to favor disciplined planners

In other words, 2026 makes Roth ordering rules more important, not different.

Common Roth Ordering Mistakes

Most Roth mistakes happen because people assume “Roth equals tax-free” without understanding sequencing.

Common errors include:

Withdrawing earnings too early
Confusing conversion clocks with earnings clocks
Assuming Roth 401(k)s follow IRA ordering rules
Losing ordering flexibility by not rolling to a Roth IRA
Poor record-keeping of conversion years

Why Roth Ordering Rules Matter Strategically

Roth ordering rules are what allow advanced strategies such as:

Early retirement funding
Roth conversion ladders
Tax-free bridge income
Managing ACA subsidies and tax brackets
Long-term legacy planning

Without understanding ordering rules, Roth accounts lose much of their strategic power.

Final Thoughts

Roth ordering rules are not loopholes. They are explicitly defined IRS rules that reward patience, discipline, and proper sequencing.

They have survived multiple tax acts, including SECURE 1.0, SECURE 2.0, and the 2026 updates, because they are foundational to how Roth accounts function.

The Roth is not just tax-free money.

It is ordered money.

And those who understand the order control the outcome.

Table 1: Roth IRA Ordering Rules (IRS-Mandated Sequence)

Withdrawal Order	Type of Roth Dollars	Tax Treatment	Penalty Exposure
1st	Direct Roth contributions	Tax-free	None
2nd	Roth conversions (FIFO by year)	Tax-free (already taxed)	Possible 10% if under 59½ and within 5 years
3rd	Earnings	Tax-free only if qualified	Tax + possible 10% if unqualified

Roth Conversion FIFO Tracking Example

Conversion Year	Amount Converted	Five-Year Clock Ends	Withdrawal Order
2021	$25,000	Jan 1, 2026	First
2022	$30,000	Jan 1, 2027	Second
2024	$20,000	Jan 1, 2029	Third

Conversions are always withdrawn oldest first, regardless of which account holds them.

Table 5: Roth IRA vs Roth 401(k) Ordering Rules

Feature	Roth IRA	Roth 401(k)
Ordering rules	Yes (contributions → conversions → earnings)	No
Withdrawal method	Ordered	Pro-rata
Contribution access	Flexible	Restricted
Earnings access	Controlled	Forced proportion
Best use	Destination account	Accumulation account