Contributions to a IRA are made with after-tax dollars, so they are not taxable when withdrawn. Earnings on investments inside the Roth IRA are tax deferred, meaning they have the potential to grow while avoiding taxation. When the money is withdrawn however, those earnings become subject to taxes. To avoid this tax penalty, one must make sure that all withdrawals from the IRA are qualified distributions, meaning you must wait 5 years from when you first deposited funds into the account and be older than 59 ½ to withdraw without penalty.