Contributing after withdrawal? Please help me understand!

[Guest revtheo]

I am in my 20's and have had a Roth IRA for several years. The first few years I put a little into the Roth whenever I could. It was never much...maybe $3000 total. Then, when I went to seminary, I really needed some money to pay for living expenses and I withdrew all but about $40. Now I'm out of school, and I want to start contributing again. My account is still active....there's just nothing in it.

Here's my question. If I contribute now to my Roth IRA, will my future contributions be affected in any way by my previous early withdrawal? Will there be any sort of tax penalty when I'm older and start withdrawing? I did list the early withdrawal on my taxes, but since I had so little in my account it didn't cost me much at that point.

Thanks for any advice you might have!

[John G]

Whoa nellie.... you need to know more about your Roth. At least I am assuming that you really are talking about a Roth and not a standard IRA.

Roth contributions can be withdrawn at any time without penalty. However, you may have taxes and/or penalties if you withdraw the earnings on those contributions. So, you may have been paying taxes when no taxes were due. Uncle Sam thanks you... you may want to file a corrected return.

Future: future contributions to a Roth will not be affected by what you have previously done.

I highly recommend that you get a copy of IRS Publication 590 and any material from your custodian and spend perhaps two hours getting to know the Roth rules.

[Guest revtheo]

Whoa nellie.... you need to know more about your Roth. At least I am assuming that you really are talking about a Roth and not a standard IRA.

Roth contributions can be withdrawn at any time without penalty. However, you may have taxes and/or penalties if you withdraw the earnings on those contributions. So, you may have been paying taxes when no taxes were due. Uncle Sam thanks you... you may want to file a corrected return.

Future: future contributions to a Roth will not be affected by what you have previously done.

I highly recommend that you get a copy of IRS Publication 590 and any material from your custodian and spend perhaps two hours getting to know the Roth rules.

While I appreciate your response, I didn't need the insinuation that I'm a total idiot when it comes to the Roth. I paid the small amount of taxes which I did because the person preparing my taxes said I needed to do so. As far as reading regulations...I'm not an accountant...those are like Greek to me. I came on this site looking for some help on a level a layperson could understand...not a lecture.

[Guest Pensions in Paradise]

Revtheo - you have a lot of growing up to do. Anyway, John G gave you good advice. If you were to look at IRS Publication 590 you would find that it is written for the layperson. If you don't like the free advice then go hire an accountant.

[Bird]

Revtheo-

I doubt you need to read anything or hire an accountant. The prior withdrawals won't hurt you in the future. As noted, Roth contributions may be withdrawn at any time without tax or penalty; you may or may not have to pay tax and/or penalties on the earnings if you withdraw them. You noted that you paid a small amount which is consistent with the facts you gave, so I doubt there was any problem. Go ahead and add to it.

[david rigby]

I doubt you need to read anything or hire an accountant.

Maybe not. JohnG and PIP gave good advice w/r/t IRS Publication 590. You can see it here http://www.irs.gov/formspubs/lists/0,,id=97819,00.html

or order your own copy by calling 1-800-TAX-FORM.

[John G]

Whoa nellie....

I try to be a little colorful in my responses to make this site an easier read, and my responses are aimed not just at the original author but subsequent readers. I apologize for the "tone". When you dash off a response (I was traveling, with limited internet access time) you often come across as too abrupt.

Two points:

(1) you may have paid taxes on withdrawals that did not need to be taxed. You can check this by adding up all your contributions. Contributions come out first. That was the amount you could withdraw tax free. Only if you go beyond contributions do you have a tax obligation.

(2) you should not assume that your tax prepared got it right. As someone in their 20s, you probably had a simple return and the tax pro assigned to these would not neccessarily know the Roth rules. In the early Roth years, not all accountants knew these details and certainly we continue to see posts now about custodians that wrongly cite the IRS rules.

It can be costly to assume that "experts" always know the rules. This is why I suggested you get a copy of Pub 590... it is about a close to layperson's language the IRS can get. I urge ALL folks who post/visit here to spend time learning about Roth rules, mutual funds, investing, etc. There is a lot at stake in a lifelong Roth investment program. I would think two hours a month is a reasonable committment even if you have no strong interest. The best guardian of your money and your future starts with you.

[Bird]

And let me add that my general recollection is that John G. has consistently given good advice in the past and I meant no disrespect to his with my reply. It IS a good idea to read the IRS publication. But if we just look at the question posed it's pretty simple and I think our poster has his answer.