With a traditional IRA, you may be able to claim a tax deduction on your contribution if you are not covered by a retirement plan at work or if your income is low enough. Otherwise there is no deduction. Whether you get a deduction or not, the money inside the IRA grows tax-deferred. But it is taxed on withdrawal. And, unless a specific exemption applies, there is a 10% penalty for money withdrawn before the taxpayer is 59 1/2.

With a Roth IRA, you never can claim a tax deduction. The money, however, can be withdrawn completely tax free if the account has been open at least 5 years and you are at least 59 1/2 or the withdrawal is because of disability, death, or a first-time home purchase ($10,000 limit).

And any money withdrawn, at any time and for any purpose, is considered to be principal or contribution first. Therefore, it is not subject to any tax or penalty because you never got a deduction for putting it into the Roth IRA in the first place.

A traditional IRA may convert it into a ROTH IRA without penalty and include the taxable amount in that year’s income as though it were a distribution. The law created a loophole. You could covert a traditional IRA to a Roth IRA before age 59 1/2, pay taxes but no penalty, then claim the resulting Roth IRA was all "principal" and take everything out immediately, with no penalty. To keep taxpayers from doing that there is a 10% penalty on withdrawals from a Roth IRA within 5 years of a conversion.