1

A couple of months ago, in this calendar year, I contributed $1,500 to my Roth IRA. I didn't invest it, so it still is worth only $1,500. I now need $1000 back, and so started to fill out a distribution (withdrawal) form.

screenshot of withdrawal process

I was afraid at first that I would have to pay 10% in taxes on the withdrawal, but I found a passage in the IRS Roth IRA publication that seems to exempt withdrawals in the same year as they were deposited from any taxes, unless income was earned on them.

If you withdraw contributions (including any net earnings on the contributions) by the due date of your return for the year in which you made the contribution, the contributions are treated as if you never made them. If you have an extension of time to file your return, you can withdraw the contributions and earnings by the extended due date. The withdrawal of contributions is tax free, but you must include the earnings on the contributions in income for the year in which you made the contributions.

However, I couldn't find any reference to this online, when looking up rules about IRA distributions. I was wondering that I did read this correctly, does it in fact mean I don't have to withhold anything for the Federal and if I would still have to withhold anything in MA.

Improve this question
2
  • 2
    Most likely you are trying to fill out (or have already filled out and submitted) the wrong form. You are not taking a distribution from your IRA but are withdrawing a contribution before the deadline. Call TD Ameritrade or use chat or whatever to get information about the correct form to use.
    – Dilip Sarwate
    Commented Jul 24, 2014 at 15:47
  • 1
    I called TD Ameritrade and they said I filled out the form fine. They said I wouldn't have to pay tax on it, but I would have to fill out some sort of form with my taxes to prove this wasn't a distribution, but only a transfer.
    – saul.shanabrook
    Commented Jul 24, 2014 at 18:19

1 Answer 1

Reset to default
4

Withdrawal of a contribution (plus earnings) before the tax filing deadline is penalty-free. (But withdrawing contributions on a Roth IRA is always tax-free and penalty-free anyway, so the only potential difference is perhaps the earnings, what little there may be. I don't understand why you feel like you would pay tax or penalty on the entire withdrawal in any situation.)

You still must pay income tax on the earnings just as if you had put the money in a regular taxable investment and withdrawn it after it has grown. This is what the last sentence means.

Improve this answer

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .