No. of Recommendations: 8
Sorry brwhiz, but your understanding of the IRA rules is not correct.

Take a look at Internal Revenue Code sections 408(a)(1), 408(b)(4), 219(b)(1)(A), and 219(b)(5)(A). After reading these, you will understand that there is a single limit for contributions to ALL types of IRA's. You can choose among the various types of IRA's as you see fit, and as other sections of the Code allow.

The penalty for excess contributions is 6% of the excess every year (IRC section 4973).

The IRA withdrawl ordering rules are also a bit different that what you have explained. You are correct for Roth IRA's. The first monies withdrawn are your contributions, which are not subject to tax or penalties. Then you withdraw any conversions. These are not taxable, but may have a penalty if they have not been in the account for 5 years or if you are not yet 59 1/2. Finally you withdraw the earnings in the account. These will be tax and penalty free only if the Roth has been open for 5 years AND you are 59 1/2.

Traditional IRAs are a bit different. You can't withdraw non-deductible contributions separately from earnings. EVERY withdrawl from your traditional IRA after you have made a non-deductible contribution must be partially a return of your contribution and partially earnings. The earnings are always taxable, and may be subject to penalty.

I hope this clears up some of the bad information posted on this thread.

--Peter
Print the post  

Announcements

The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement