Roth IRA same year withdrawal

[Guest pangelo]

I put in $4000 in 2005, never bought any securities, then withdrew $4000 later in 2005 for an emergency.

Using tax software it is telling me that I need to pay $1800 tax but I don't think that's the case. My understanding is that this is a Unqualified distribution but it is also originally contributed funds so I'm ok.

What is complicating things more than they already are is that the 1099-R I received from my broker doesn't explicitly say everything related to the background for the distribution (of course).

What should I do? Do I use the software or print it out and send in with some notes? I know that to ignore the 1099-R would send a flag since its being sent to the IRA also.

If anyone has any ideas on how to proceed, please let me know.

[John G]

Clarification please: was this a contributory regular IRA or Roth IRA ?

[stephen]

I'm guessing since the poster included ROTH in the title of their post that this is referring to a Roth IRA...

[Bird]

If it's a Roth IRA there is no tax on the withdrawal.

If this helps - I did my daughter's taxes on TurboTax a couple of weeks ago, and she had made a Roth IRA withdrawal. The first time through, it said the distribution was taxable...they would probably say I used the software incorrectly, but I thought I answered all the questions accurately. I knew it was wrong, and kept digging - unfortunately I don't remember exactly how I fixed it - maybe I went to the "Forms" section and then found a worksheet that let me put in the basis; honestly I don't recall, but I got it to do it right (without taxation). For something that it fairly common, it was, IMO, poorly laid out.

[John G]

Contributions to a Roth IRA can be withdrawn at any time without taxation or penalty. If your tax software has an 800 number or email Q&A site, you may want to contact them. They should distinguish between various kinds of withdrawals from retirement accounts.

Both you and your daughter raided you Roths? That is unfortunate. There are many sources of funds (home equity loan, signature line of credit, margin borrowing, refinancing, relatives, etc.) for short term needs that should be considered before tapping a Roth. The average citizen has few tax shelters, so you generally want to use the ones you can.

[Bird]

John G, FWIW, my daughter intentionally used the Roth as a parking place for some summer earnings with the intent of pulling it out...and I wasn't the original poster who made the withdrawal.

[Appleby]

Check the instructions for Form 8606- that should resolve the issue