Roth ira withdrawal

Oh my. That's *not* an easy question to answer.

Since you are under age 59 1/2, your distribution is not "qualifying" -- so it may be subject to tax and 10% penalty. The trick is figuring out how much is subject to tax.

I'm going to simplify things a bit, and presume you only have one Roth account.

Let's pretend that you contributed $4000 to your Roth account a few years ago. When you left your job two years ago, you rolled $3000 from your 401(k) into your Roth (and paid taxes on the $3000 when you did so). Since then, you've been really lucky, and your Roth has grown to $8700. You now close the account. On the $4000 contribution, no tax or penalty. On the $3000 retirement rollover, no income tax, but 10% penalty applies. On the remaining $1700, regular income tax and 10% penalty applies. So you'd owe $470 in penalties, plus whatever your regular income tax would be on $1700.

A simpler and more realistic example: You've contributed $7000 to your Roth over the years. Recently, it lost everything it had made and more (bummer!). It's now worth $6800 and you close it out. Since your contributions are more than the total value of the account, you owe no tax and no penalty.

If that wasn't confusing enough, you can look over the Instructions for Form 5329 and Instructions for Form 8606 -- those are the two forms that are used with Roth distributions -- on the IRS website www.irs.gov