Hi,

The scenario:

I'm 40 years old and I have put $2000 per year in my Roth IRA the last 2 years ($4000 worth of principal).

At this point in time the value of the Roth IRA is $4500.

What are the penalties and/or taxes if I withdraw:

(A) $4000

(B) $4100

Thanks, Terry Shaw

According to the IRS, contributions to a Roth IRA can be taken at any time- tax and penalty free because no deduction was allowed for the contribution. In addition, the IRS established what is referred to as 'ordering rules'. These ordering rules sate that distributions from Roth IRS are taken in the following order
-Contributions
-Conversions and then
-Earnings.

if you withdraws $4,000 it will be taxed and penalty free.
If you take a distrbution of $4,100, of this amount $4,000 will be tax and penalty free. However, the $100 will be assesed as follows:
1. 10 % penalty because your are under the age of 59 1/2 ( unless you have an exception such as permanent disability, buying a first home, ext. The exceptions are listed in IRA publication 590 which can be found at http://www.IRS.gov.

2 You will be paying ordinary income taxes on the $100 because you have not held the Roth IRA for five years.