Roth IRA Withdrawls treated as income?

[Guest Kwalla]

I didn't see this covered in any recent posts... I'm debating withdrawing some of the contributions I've made to my Roth IRA, but was told the following by Fidelity:

"Whatever dollar amount is not returned back in 60 days, then that money is taxable for that calendar year.

For example, you take out $5,000 from your IRA. You return $4,000 within the 60 day time frame. Then $1,000 is taxable for that year. You would report it as regular income. Also, you would be liable for any early withdrawal penalties on that $1,000."

Is this right? Hasn't the money I paid in already been taxed as income when I first earned it??

It was my understanding that I could withdrawl contributions at anytime with no penalty.

Thanks,

K

[Guest calluke]

I'm just about to start my first Roth, one of the reasons being, that whatever I took out was not taxed! So I'm very interested to see what others say about this.

My guess is that Fidelity made a mistake?

[John G]

You can withdraw Roth contributions at any time without penalty or tax. The key word is contributions. Earnings on those contributions are treated differently.

It is not uncommon for mis-information for any of the following reasons: nuances in the question or answer details, rep didn't hear the question and gave wrong answer, rep did not have enough training, answer was correct but you did not hear it, etc.

This "withdraw any time without penalty or tax" must be some kind of security mantra for many. Sure, you can do this.... but isn't the point of a Roth to use the common guy's tax shelter to maximum advantage. So, if you are tempted to take money out of a Roth - think twice. Money is cheap right now, its "on sale". Zero interest loans, zero interest credit card transfers, very low home equity loans, easy refinance terms, low brokerage margin rates - - all sources of cash for emergency use. And how about that internal family financing of offering your parents or grandparents a few points more than they are getting on their CD?

[Guest Kwalla]

Fidelity seems pretty darn sure I can't take out contributions without some sort of tax/penalty:

"To clarify, since you are under the age of 59 1/2 you will be subject to a 10% early withdrawal penalty if you do not return the money within 60 days. If you return a portion of it but not the full amount, the amount that was not returned will be subject to the 10% early withdrawal penalty. You would only be taxed on this if it were in a pre-tax retirement account rather than an after-tax retirement account such as a Roth IRA."

Perhaps the above applies to traditional IRAs?

Thanks!

[jevd]

That would apply to Traditional IRA's. The person at Fidelity is confused. (Not suprising) I'd ask to talk to their back office that handles IRA's however you can get the information you need in IRS Pub 590.

Here is Pub 590

[Guest Kwalla]

Jevd, you're right -- the info they were telling me applys to traditional IRAs.

Kinda scary that three out of four reps at Fidelity got it wrong.. the last (forth) me a reply last night saying "I apologize for the confusion. The information provided about tax liabilities would be true if the account were a Traditional IRA."

Thanks!

K