is there a penalty for touching roth ira contributions.

[Guest ari]

If a traditional ira was recharacterized in 1998 and this is the last year we are paying the tax on it. Is that money that we put in a roth ira considered contributions and are we able to touch some of it without tax or penalty, since we have been paying the tax on it anyway.

[Guest ari]

I SEE THAT NOONE HAS ANSWERED MY QUESTION. WE OWN A CONDO FULLY THAT WE WANT TO RENT OUT, BUT THEN WE DON'T HAVE 20% TO PUT DOWN ON THE NEW HOME. WE DON'T WANT TO PAY PMI, SO I WAS THINKING OF TOUCHING MY ROTH IRA CONTRIBUTIONS. I AM RETHINKING THAT BECAUSE MY ACCT. IS DOWN SO MUCH. SO INSTEAD WE ARE PROBABLY GOING WITH A HOME EQUITY LOAN ON THE CONDO JUST TO GET 20% DOWN. ANY ADVICE ANYONE HAS WOULD BE APPRECIATED. THANKS

[txdd]

If you have made any regular Roth contributions, you can withdraw those without tax or penalty. After that, withdrawal of your 1998 conversion would be subject to the 10% early distribution penalty since 5 years has not elapsed. Also, you still must report the last quarter of the 1998 conversion in 2001 income.

[John G]

Another way to look at "penalty" is to consider the opportunity cost of a Roth withdrawal. The Roth is a tax shelter and there are qualifications to participate and limitations on how much you can shelter. If you withdraw funds from a Roth, you a busting up one of the best tax shelters the average citizen can use. If you were retiring next year, the damage would be less than if you have many decades of asset growth before you might withdraw.

So the IRS 10% is not the only negative.

Spend it now, spend it later. That is the tradeoff you are considering. Perhaps there are other options such as changing the timing. Or, internal family financing? Your mom and dad might appreciate a return above the current CD rates, which might beat the home equity loan you are considering.

You might want to consider rent vs own on the second home. There seems to be lots of second home owners that need the extra income to justify #2 dwelling.