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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 25242  
Subject: Re: IRA Mistake Date: 9/13/2011 2:26 PM
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In order to maintain the tax free status of the transfer, it must be transferred to another IRA account. But that account can be at a discount broker allowing you to buy and sell stocks or mutual funds at will.

If the funds are transferred to a regular account, first they will take withholding, and you will pay income taxes on your gains and pay a 10% penalty. That is the expensive way. Keep it in an IRA.

Transfer to a regular account counts as a distribution. Partial distributions will be credited with a portion of the non-deductible contribution. A full distribution will be credits with all of it. But you will still pay a 10% penalty on the distribution.

If the account investments are worth less than your contribution, there may be a way to cancel the original contribution. For information on that aspect ask on the Tax Strategies board. They are the experts.
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