Same year contribution and withdrawal (traditional IRA), Penalty and *replacement* contribution issues Options

[Soma]

I deposited $5000 earlier this year (2008) in a traditional IRA (a 2008 contribution). I have since cashed in the entire IRA account (understanding that I do face early withdrawal penalties and taxes). I have two questions: 1) Will I face an early withdrawal penalty on this 2008 contribution? (obviously I'll face a penalty on earlier contributions), and; 2) Can I make another 2008 traditional IRA contribution since I effectively deposited and shortly thereafter withdrew my the 2008 contribution?

Thanks in advance for any insights.

[masteff]

I'd suggest reading IRS Publication 590 and the instructions for IRS Form 5329.

http://www.irs.gov/pub/irs-pdf/p590.pdf
http://www.irs.gov/pub/irs-pdf/i5329.pdf

[Soma]

Thanks, masteff.

Found what I was looking for on Page 33 of p590 (Contributions Returned Before Due Date of Return). In a nutshell, you can withdraw the contribution tax free (and I assume, penalty free) so long as you didn't take a deduction for it and you withdraw any interest or income earned on the contribution.

This seems to clear the way for a new 2008 contribution, should I choose to make one before April 15, 2009.

I'd suggest reading IRS Publication 590 and the instructions for IRS Form 5329.

http://www.irs.gov/pub/irs-pdf/p590.pdf
http://www.irs.gov/pub/irs-pdf/i5329.pdf