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 You are correct for Roth IRA's. The first monies withdrawn are your contributions, which are not subject to tax or penalties.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.

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