I have two roth ira's, one for myself and one for my wife. I contributed in 2002 but have not been able to do so since as my income is over the limit. I want to take the money out and put it in my kids 529 plan. It is my impression that the earnings will be subject to tax and the 10% penalty. Is this correct? The second parf of the question has to do with the 10% penalty. Is the penalty on the earnings or the amount of the account? Each account is valued at about 4,000, so there is about 1000 in earnings.

Thanks for your help.

Jim

The penalty is on the earnings. You can withdraw your original investment and pay no taxes or penalty.

Why not just leave the funds in the Roth. If you need them for the children's education there will be no tax or penalty on the contributions you made and only tax, no penalty, on the earnings if used for education. If money not needed for education than it is still in your Roth.

Good point James. In the Roth IRA, there is a guarantee that the earnings will be tax and penalty free (if distributions are qualified), while in the 529 Plan earnings could be taxed if the assets are used for reasons other than eligible education expenses, which could happen if the beneficiary decides not to attend an eligible education institution. Also, in the 529 plan, investment options are usually limited, while investments in a Roth can be self-directed.