Will Roth IRA Withdrawals Be Taxed in the Future?

How 2022 Legislation Might Affect Roth IRA Conversions

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Roth IRAs have long been a popular retirement investment strategy, due to their many tax advantages. Investments held within a Roth can grow tax-free, and taxpayers aren’t forced to begin taking required minimum distributions (RMDs) before they want or need the money. But federal legislators periodically take aim at Roth accounts’ advantages, particularly as they apply to wealthier taxpayers. 

More changes potentially are afoot in 2022. Will your retirement plan be affected?  

Key Takeaways

  • Legislation is pending in Congress that could affect your ability to convert traditional IRA retirement savings into a Roth IRA. 
  • Roth IRA contributions aren’t tax-deductible, but you can withdraw the money tax-free in retirement.
  • Earnings on Roth IRA contributions can be tax-free, too, if the distributions are considered “qualified.”
  • Penalty taxes can apply if you contribute too much or take early distributions from a Roth IRA.

Tax Benefits of Roth IRAs

Roth IRAs might not seem so great at first glance. You can claim a tax deduction for retirement savings contributions you make to a traditional IRA, but not to a Roth account. You must pay taxes on the money you contribute in the year you save it. But this earns you some nice tax perks further down the line. 

You can take that money back tax-free in retirement because you’ve already paid income tax on it when you made the contributions. Better yet, all the growth and income resulting from that money can be tax-free as well, if you meet certain rules that aren’t that prohibitive. You don’t have to begin taking out the money and paying taxes on it when you reach a certain age, as is the case with traditional IRAs. The IRS already has all the money it’s going to be able to collect on your savings, at least for most taxpayers. 

When Do You Pay Taxes on Roth IRA Withdrawals? 

The Internal Revenue Code does include a good many rules and limits that can affect the tax-free treatment of Roth IRA earnings. First, those withdrawals must be “qualified” in order to escape taxation. 

The Tax on Nonqualified Withdrawals  

A withdrawal is considered qualified if at least five years have passed since you first contributed to your Roth IRA. And at least one more circumstance must exist: You take the money after you’ve reached age 59½, you withdraw up to $10,000 for a first-time home purchase, you’ve become disabled, or the money passes to a beneficiary in the event of your death.


Roth IRA earnings are taxable if they’re nonqualified because these rules aren’t met, although the money that represents your original contributions is not. 

You’ll also be charged a 10% tax penalty on the amount of the withdrawal if you’re younger than age 59½ unless you meet at least one of several other circumstances, several of which can also apply to ordinary taxation of the Roth IRA’s earnings:

  • The distribution is taken in equal payments spread out over the course of your life expectancy.
  • You’ve been receiving unemployment compensation for at least 12 consecutive weeks and you use the money to pay for health insurance premiums.
  • You use the money for qualified higher education expenses.
  • The distribution is taken due to your disability or death or
  • You take up to $10,000 for a qualified first-time home purchase. That amount is a lifetime limit. 
  • Withdrawals that qualify as reservist distributions can dodge this tax penalty bullet as well. 


Always speak with a tax professional before taking a withdrawal before age 59½. These rules can be complicated and they don’t cover every possible scenario. 

The Excise Penalty Tax on Excess Contributions  

A 6% tax penalty will apply if you contribute more money to your IRAs than you’re entitled to save during any tax year. Contribution limits are $6,000 per year as of 2022, or $7,000 if you’re over age 50. These limits apply to all your IRA contributions added together if you contribute to more than one account in the same year.

You have a short window of time to correct the situation if this happens to you. You can withdraw the money and any earnings on the contribution by the due date for your tax return for that year. This deadline includes any extensions of time you might ask for to file your return.

Could Other Roth IRA Withdrawals Be Taxed in the Future?

Another limit applies to contributing to Roth IRAs. Your modified adjusted gross income (MAGI) must be below certain thresholds to contribute that full $6,000 or $7,000 to your accounts annually. These thresholds are set by filing status. 

You’re limited to a MAGI of less than $129,000 in 2022 if you’re single, head of household, or a married taxpayer filing a separate return, provided that you didn’t live with your spouse at any time during the tax year. You can contribute a lesser portion if your income falls between $129,000 and $143,999. You can’t contribute at all if your MAGI is $144,000 or more. 

These limits increase if you’re married and filing a joint return, or if you’re a qualifying widow(er). They decrease to $10,000 if you’re married and filing a separate return and you lived with your spouse at any time during the tax year.


The IRS provides a chart showing how the thresholds for contributions break down for each filing status.

“Backdoor” Roth IRAs work around this problem. You can make a nondeductible contribution to a traditional IRA that isn’t subject to any income limits, then transfer or convert that money into a Roth account even if you earn more than the Roth IRA MAGI limit for your filing status. This earns you those Roth IRA tax perks on your money and its growth when you take distributions, although you would have to pay income tax on any earnings realized between the time you make the initial contribution to a traditional IRA and the date of the conversion.

Congress lifted the income restrictions for Roth IRA conversions in 2010, although they still apply to contributions. The Tax Cuts and Jobs Act (TCJA) continued to allow this workaround when that law went into effect in 2018. But the Build Back Better Act, introduced in 2021, proposes to eliminate this strategy from the tax code.

The Bottom Line

The Build Back Better Act has passed the U.S. House of Representatives, but it was effectively stalled as of time of publication. No action has been taken on the act since Nov. 19, 2021. But the legislation remains pending and could affect taxpayers in the future. These changes would have impact only on future savings and conversions, however. They would not affect you if you’ve already saved in a Roth IRA or converted funds to one. 

Frequently Asked Questions (FAQs) 

How do you pay taxes on a Roth IRA?

The additional 10% tax penalty for early Roth IRA withdrawals is reported on IRS Form 5329 and on Schedule 2, both of which must accompany your tax return. The 6% penalty on excess contributions is also reportable on Form 5329. Roth IRA contributions and qualified distributions aren’t otherwise tax-deductible or taxable, so you would not have to report those transactions to the IRS on your returns. 

Can you claim any Roth IRA contributions on your taxes?

Contributions made to a Roth IRA are eligible for the Saver’s Tax Credit, even though they’re not tax-deductible at the time you make them. The credit is equal to 10%, 20%, or 50% of the amount of your contributions, depending on your adjusted gross income. Income limits for the Saver’s Credit are relatively low, ranging from $20,500 to $34,000 in tax year 2022 if you’re single or you're married and filing a separate return and $30,750 to $51,000 for heads of household. Married taxpayers filing jointly can make $41,000 to $68,000.

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  1. IRS. “Roth IRAs.”

  2. U.S. Treasury Department. “Summary of Key Roth IRA Features.

  3. IRS. “Retirement Topics - IRA Contribution Limits.”

  4. IRS. “Amount of Roth IRA Contributions That You Can Make for 2022.”

  5. MNCPA. “Backdoor Roths Aren't Just for IRAs.”

  6. National Association of Plan Advisors. “Case of the Week: Is Congress Closing the Backdoor to a Roth IRA?

  7. 117th U.S. Congress. “H.R.5376 - Build Back Better Act.”

  8. IRS. “Topic No. 557 Additional Tax on Early Distributions From Traditional and Roth IRAs.”

  9. IRS. “Instructions for Form 5329 (2021).”

  10. IRS. “Retirement Savings Contributions Credit (Saver’s Credit).”

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