Roth IRA Distribution

[Guest BSR]

I made a $2000 contribution for me and $2000 for my husband to a Roth IRA on December 26, 2000. Now I find out that the contribution was ineligible because my husband and I filed our federal tax return with the status of married filing separately. I can go back and amend our returns with the status of married filing jointly but will take a big hit on taxes that I will end up paying at the state level.

If I take out the contribution now (after deadline of filing my 2000 tax return, what are my penalties? I understand I will have to pay 6% of the excess ($4000 x 6% = $240) but do I also have to pay a 10% penalty on top of that?

[Appleby]

No. Distribution of amounts that represent Roth IRA participant contributions are not subjected to the 10% early withdrawal penalty

[BPickerCPA]

But the distribution of any applicable income IS subject to both income tax and the early withdrawal penalty.

Barry

[txdd]

It seems like the best action is to recharacterize your Roth contributions (with earnings) as traditional IRA contributions before the 10/15 deadline. You would then file amended returns showing your (probably) non-deductible contributions on Form 8606.

I think that this would relieve you of any tax or penalty.