Withdrawal from Roth IRA

[Guest rayinla]

I have a Roth IRA which I opened 3 years ago. Due to losses in the market, the total value of the account is less than the total of contributions I have made. If I withdraw part of the money in the Roth, are my deductions subjet to income tax and penalties. I heard a seminar that, since I have already paid the tax on this money, I can take out any amount less than my total contributions with no tax and penalties even though the withdrawal is not a qualified withdrawal.

Does anyone know if I can really do this?

[papogi]

Yes, you can take out amounts that represent regular, yearly contributions. Even though the market is down, this won't last forever. Your money has to be in the market to participate in the eventual turnaround, so think carefully before removing the money. Remember, when you go to replenish the account some day, you will have to deal with the annual maximums each year. Depending how much you take out, it could take several years of contributions and missed earnings before you are even back to where you once were.

[Guest bobc]

I think the question included the possibility of the 10% penalty being assessed? Unless the recent tax law changes affected IRC sect 72(t)(2)(B), then YES THE 10% PENALTY WILL BE APPLIED TO THE WITHDRAWAL. My non-attorney, non-CPA understanding of this IRC section is that the account must have been opened (in existance) for 5 years (a specific definition of 5yrs, which may be less than 5 calendar years from the first deposit).

Not to hijack the thread, but I would like to expand the discussion to include the next step:

Is there a provision that allows the replacement of prior contributions initially made in a timely manner then subsequently withdrawn (with or without a 10% penalty)? E.G.: over 4 years, $8,000 was contributed and then $8,000 was withdrawn. The Roth IRA is still in existance and is holding the earnings on the origninal $8,000 of contributions. In the year subsequent to the withdrawal can $11,000 ($3,000 for current year + replacing $8,000 of prior contributions withdrawn) be deposited to the Roth? What would be the reporting on the 1040 tax return?

Thanks, Bob

[JAMES PATRICK]

Withdrawals of contributions can be made at any time, tax AND penalty free.

It is conversions,each with its own 5 year time period, and earnings that MAY be subject to the 10% penalty.

Withdrawals from a Roth must be returned (rolled over) within 60 days or they would be considered an excess contribution.

Go to irs.gov and download Publication 590.

[Guest bobc]

Understood, Thanks, Bob