Americans Using Roth Ira Rule Are Leaving Thousands On The Table

The Roth IRA is usually framed as a patient account, one that rewards savers for leaving it alone across a long career and collecting the reward decades later. Contributions go in with money that has already been taxed, and the vision is that everything inside grows and eventually comes out without the IRS taking another cut.

Typically, the mindset is to put money in and leave it there until age 59½, or expect a tax bill and a penalty for reaching in early. However, that belief is only half right, and each half costs retirement savers something. 

Some Americans leave a Roth untouched during an emergency because they assume it is off limits. Others, once they learn it is not, start treating the account as reachable without considering what the withdrawal takes with it.

In a video on his YouTube channel, Mark J. Kohler, a CPA, attorney, and bestselling author, ran through the beliefs he says most savers hold about the Roth and showed where each one falls short.

"They think it's locked up until they're 59 and a half," Kohler said, naming the misconception he says keeps savers from understanding what the account can actually do.

What the IRS rule on Roth IRA contributions actually says

Under the ordering rules in Section 408A(d)(4) of the tax code, explained in IRS Publication 590-B, money leaving a Roth IRA comes out in a fixed order: contributions first, then any converted amounts, then earnings. That order is what decides the tax treatment.

Contributions occupy the first layer because they were already taxed on the way in. They can be withdrawn at any age, without income tax and without the 10% early distribution penalty, and no qualifying reason is required. There is no hardship test and no exception to claim.

The layers underneath behave differently, and the logic makes sense once everything is properly separated. 

Each Roth conversion carries its own separate five-year clock, and pulling converted money inside that window can trigger the 10% penalty for a saver under 59½. Earnings are the layer to be especially mindful of. They come out tax-free only once the saver is 59½ or older and the account has been open at least five years.

As for the contribution layer, Kohler puts it in plainer terms.

"But if you follow the rules, the contributions can come out penalty-free and tax-free if you need them earlier in an emergency, maybe to go to college, to buy a new home or something if necessary," Kohler said.

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While he wants people to know this exists, Kohler does not present that access as a strategy. In the same breath, he tells savers what he would rather they do with it.

"Now, yes, we want to let that money ride as long as possible," Kohler said. "You've got to know that that option to get those contributions out if necessary is always there."

Both sides of this matter for Americans building their retirement nest egg. The access is real, and for a saver facing a genuine emergency it can be the cheapest money available. What the rule does not do is make the withdrawal entirely free, even if it feels that way.

What retirement savers give up by draining a Roth early

The first cost is structural and has nothing to do with markets or returns. Roth contribution room is annual, and it does not regenerate. The 2026 IRA limit is $7,500, with an additional $1,100 available to savers 50 and older, according to IRS Notice 2025-67. A saver who takes a contribution out cannot simply put it back the following month. The only restoration path is a 60-day rollover, and the IRS permits one IRA-to-IRA rollover per 12-month period across every IRA a taxpayer owns. Past that window, replacing the money counts as a fresh contribution against that year's cap. The room is gone for good, and so is everything it would have earned.

The second cost is the compounding, which is what Kohler emphasizes can leave thousands or more on the table.

"Do not underestimate the Roth because of the annual contribution limit and that it feels small," Kohler said. "The wealthy understand that tax-free compounding growth over time can become massive."

He ran the math to show how impactful seemingly small contributions, or in this case withdrawals, can be. Starting with $7,500 and adding $8,000 every January for 20 years at a 15% annual rate of return, he said, produces more than a million dollars tax-free. That assumed return runs well above long-run stock market averages, and a more conservative rate lands the figure considerably lower, but the argument survives either way. The contributions pulled out early are the ones that had the most time left to work.

"I don't mean you treat your Roth IRA like a checking account," Kohler said. "I just mean later in life when you follow the rules, this account can become a source of tax-free income. And just like an ATM, you can go get that tax-free money anytime you want. And it doesn't even show up on your tax return."

That last detail is what separates the account from everything else in a retirement income mix, since withdrawals from a traditional account, a rental property, or a small business all lift the figure a retiree reports.

"That Roth IRA can give you income without adding to your taxable income," Kohler said. "It can even affect your Medicare premiums and how you're going to cover your health insurance costs. It can affect how much of your social security is taxed."

None of that argues for leaving a Roth alone when the alternative is worse. A saver weighing a contribution withdrawal against high-interest debt or a missed housing payment is running a different calculation, and the access exists for exactly that reason. The distinction Kohler draws is between leveraging the rule and defaulting to it.

"And you're not going to drain it early because you're building an account that will give you the freedom and wealth that millions of Americans are now older and can only dream about," Kohler said.

Key takeaways on Roth IRA contribution withdrawals

• Roth contributions can come out at any age: Under the IRS ordering rules, contributions leave a Roth IRA first, without income tax and without the 10% early distribution penalty. No qualifying reason or hardship test is required.
• Earnings are the part that is actually locked: Money the account has generated comes out tax-free only once the saver is 59½ and the account has been open five years. Each Roth conversion also carries its own separate five-year clock.
• The contribution room does not come back: The 2026 IRA limit is $7,500, plus $1,100 for savers 50 and older, per IRS Notice 2025-67. A withdrawn contribution can only be restored through a 60-day rollover, and the IRS allows one IRA-to-IRA rollover per 12 months.
• Kohler's case rests on compounding, not the annual limit: Kohler said savers underestimate the Roth because the yearly contribution feels small, and that tax-free compounding over time is what makes the account powerful. His on-camera example assumed a 15% annual rate of return.
• The access exists for a reason: Kohler said savers should let the money ride as long as possible while knowing the option to pull contributions is always there. For someone facing a genuine emergency, the withdrawal can still be the right call.

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