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Author: them Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121335  
Subject: ESOP to IRA Nondeductible Contributions? Date: 3/29/2000 7:00 PM
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Greetings Foolish Tax-Payers!

While wrapping up our taxes (procrastinator? Me?), I had a thought that could potentially save us some $$$, but I thought I'd ask about it here before attempting the IRS phone lines.

My understanding, which may be flawed, is that if one makes an early withdrawal from an IRA, the 10% penalty is waived - or at least mitigated - if the funds were from a Non-Deductible contribution. True?

If true, then it gets interesting.. well, more complicated anyhow.

My wife was laid off several years ago when the company she worked for was bought out. A consequence of the buyout was the original company having to assign a "real" value to the shares of stock in a heretofore private company - she'd been participating in an ESOP program - which she gave me to understand wasn't supposed to be worth anything until retirement. A consequence of being laid off, was that the value equivalent to her "shares" was put into an IRA account for her.

Given that it was considerably more than the $2000 (like 20 times more) one can contribute in a year, does that mean it was a non-deductible contribution - and given THAT - was the early withdrawal we had to take last year indeed subject to the 10% penalty?

Many thanks - in advance - for any light anyone can shed on this!

Cheers,
Patrick & Chris
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