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URL:  http://boards.fool.com/hi-all-hello-a-few-months-back-before-10441994.aspx

Subject:  Re: Roth Cash In? Date:  12/2/1998  11:36 AM
Author:  TMFTaxes Number:  6672 of 126494

[[Hi All,]]

Hello...

[[ A few months back (before I found this site) I opened a Roth IRA with $2,000. It's a high growth
international type of fund with 2.5% fees. The fees are obviously high based upon what I have read
@fool.com.]]

Sadly...true...

[[ I had heard on CNBC (take it easy, this was before I found fool.com) and someone there
mentioned that you could take out the original amount penalty free. But the company that the fund
is with says I have to pay a 10% penalty if I take it out before 5 years.]]

There is a difference between a contribution and a conversion to a Roth IRA. If you are talking about a contribution, then you are free to take back your original contributions (but NOT earnings) tax and penalty free at any time.

But if you are talking about a conversion, then the rules are a bit different.

[[ I have a student loan with 8.5% rate. I was thinking about cashing in the Roth to pay down on the
loan.

Is this a bad idea or a good one?]]

Again, if your Roth IRA was opened with a contribution (and NOT a conversion), you would be able to remove the initial $2k without penalty or tax. But any earnings would be subject to taxes and penalties.

But is this a good idea? Hard to tell with such limited information. The words "good", "better", and "best" are difficult to define in a specific situation. You really have to review your personal situation and see what would be best for you. And, when you are making your decision, don't forget that some of the interest that you pay on your student loan may be a deductible expense. Read more about this in the Taxes FAQ area (archives section).

[[ By the way the fund has lost money ever since opening the account, but it's close to what it was
when I purchased it.]]

Then, if we are talking about an original contribution (and NOT a conversion), it is very likely that your tax issues would be small.

TMF Taxes
Roy

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