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.
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.