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Posted by Ernie Klein on March 30, 2007, 5:01 am
> Andrew Koenig wrote:
> >
> >
> >>You deposit (or convert) to a Roth.
> >>The clock starts and a withdrawal must be on deposits that have aged 5
> >>years or you will incur a penalty. If after 5 years, there is no penalty,
> >>just the fact that you have depleted a retirement account.
> >
> >
> > Are you sure? My impression was that you must have held the account for 5
> > years, *and* be greater than age 59.5, but that they do not track
> > individual
> > deposit ages.
I thought that also -- that the intent of an IRA was for *retirement*
and not to be a substitute bank, thus the 10% penalty for *any*
withdrawal before 59 1/2 (or one of the few exceptions).
In addition Topic 558 from the IRS site says in part:
http://www.irs.gov/taxtopics/tc558.html
[quote]
Topic 558 - Tax on Early Distributions from Retirement Plans
To discourage the use of pension funds for purposes other than normal
retirement, the law imposes an additional 10% tax on certain early
distributions of these funds. Early distributions are those you receive
from a qualified retirement plan or deferred annuity contract before
reaching age 59 1/2...
[end quote]
>
> I find the wording on some sites to be a bit ambiguous, but ever the fan
> of Fairmark, I read this;
>
> http://www.fairmark.com/rothira/distrib.htm
>
> which I read to mean I am correct, with the extra warning that it's only
> the deposits that come back out tax/penalty free pre-59-1/2, the
> earnings are taxed/penalized. Please take a look and let me know if I am
> misinterpreting their explanation.
I have read here and in different threads that you can always withdraw
your contributions at any time and any age without penalty but I fail to
find anything in PUB 590 or other IRS instructions to back that up.
(I know you can withdraw your contribution without penalty in the same
*tax year* that it was made but that isn't what is being questioned).
Page 63 of Pub 590 says that you never have to include your
contributions in your income, but that does not eliminate the 10% early
withdrawal penalty, that I can see.
It goes on to say (also on page 63-65 and fig 2-1 on page 64) that
"qualified distributions" are not subject to the 10% penalty but to be
"qualified" you must be 59 1/2 or meet one of the exceptions like being
disabled or buying a 1st home.
Every IRS publication, topic and FAC that I have read leads me to
believe that if you are under 59 1/2 you are always subject to the 10%
penalty if an execption does not apply.
So where does it say (in IRS publications) that you can withdraw your
previous contribution for any reason other than one of the few
exceptions while under the age of 59 1/2 and not have to pay a 10%
penalty on the entire amount that you withdrew?
--
-Ernie-
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