Does Interest Earned on a Roth IRA Need to Be Reported on My Taxes?

Roth IRAs have only been around since 1997, but they’re a popular investment option for retirement planning and with good cause. In many cases, IRA distributions, or the money withdrawn from a Roth IRA, are tax-free, regardless of whether that money represents a return of contributions made or interest income the account earned.


  • Generally speaking, you will not have to report or pay taxes on earnings or interest generated within your Roth IRA if you withdraw the funds after you are 59 1/2 years old.

When to Report a Roth IRA on Taxes

The Internal Revenue Service wants you to save for retirement, so the tax code offers all sorts of perks to encourage you to do so. You lose those perks in most cases if you don’t leave the saved money and its earnings in place until retirement.

When you invest in a Roth IRA, you must leave your money there for at least five years. The five-year period begins on Jan. 1 of the year in which you open the account and make your first contribution. The account must be designated a Roth IRA, not a traditional IRA, when you set it up, and you can’t take tax-free withdrawals until you reach age 59 1/2.

When you do get around to taking withdrawals, the money you take out is first identified as return of the contributions you made to the account over the years. Technically, you would only be withdrawing interest after those principal amounts have been depleted.

Assuming you’re at least age 59 1/2 and you’ve held your Roth IRA for at least five years, you can take withdrawals tax-free and without reporting them on your tax return, both from the principal portion and, eventually, from the interest portion of the account. You don’t even have to meet these rules to take your contributions back tax-free. When you have reached the interest accumulation in the account, however, that’s an entirely different story. That money is taxable and reportable if you haven’t satisfied all of the regulations and rules associated with your IRA.

IRS Treatment of Roth IRAs

The IRS is so generous with Roth IRAs because it has already collected taxes on this money or at least on the principal. You can take tax deductions for contributions made to traditional IRAs in the year you make them, but this isn’t the case with Roth IRAs. When you open a Roth account, you do so with money that’s subject to income tax. When you make traditional IRA tax-deductible contributions, the IRS collects its tax at the other end when you withdraw the money in retirement.

If you dip into the interest portion of your Roth IRA before reaching age 59 1/2 or before you’ve held the account for at least five years, you have to report this income on your tax return. The money is taxable. Otherwise, Roth IRA interest is usually not taxable. Roth IRA dividends are also usually not taxable.

The key word here is “earnings”, which can also be thought of as the interest earned by the principal contributions. That’s the portion of the account that’s taxed. Withdrawals are typically withdrawn from your principal first, so you might have to take a significant withdrawal before you need to worry about reporting and paying taxes on the interest. If you do end up dipping into the interest portion of the account, it’s possible that you could also end up owing the IRS a 10-percent penalty.

Exceptions to the Rules

You can sometimes dodge taxes and the 10-percent penalty if you make withdrawals for certain reasons that are approved under the tax code. You’re permitted to take withdrawals if you become permanently disabled or to pay for higher education costs. You can take up to $10,000 to buy your first home if you’ve passed the five-year mark. The IRS says you’re a first-time homebuyer if you haven’t owned a home in the last two years. Just be sure to keep documentation to prove how you spent the money.

2018 Tax Law Changes

As of 2018, there aren't any significant changes to Roth IRA-related tax law. But federal taxes are generally lower for many income brackets, which may impact your decisions about what types of retirement accounts and other investment vehicles to use and whether or not to withdraw funds.

2017 Tax Law

Tax bracket marginal tax rates are generally higher in 2017 than in 2018, which may impact people's choices about what types of retirement accounts to contribute to or withdraw from in one year or another. Generally rules about contributions and distributions from retirement accounts are the same from 2017 to 2018.