Message Font: Serif | Sans-Serif
No. of Recommendations: 1
The net effect was that my effective tax rate was higher as a result of a Roth distribution that is purportedly tax free.

I think you still don't understand.

Suppose I tell you I'll give you 10% off of a car I'm selling worth $1000. I'm going to give you $100 discount becuase I like you. You give me $900, and now you have the car that is worth $1000. You feel like you have saved $100, because you now have a car worth $1000 and only paid $900.

But the next day you realize you don't want a car. And I, being nice, agree to take back the car. In addition, I give you back the $900 you paid me. Did you just "lose" $100? No way! Would you demand that I give you $1000 for the car, even though you paid $900? No.

The point is, that 10% discount came AS A RESULT of buying the car. No car purchase, no discount. After returning the car, you are back where you started. No more, no less.

It's the same with your ROTH. After undoing the Roth contribution, you are back to where you had started. There is no "penalty". You just gave up your right to use a "discount" of sorts that you would have received with the ROTH contribution.

I'm no tax expert, but the people on this board who ARE, are doing their best to explain the rules to you. They have no ulterior motives. They are presenting the facts to the best of their knowlegde, which is extensive. There is no reason to get indignant or rude. They are trying to clarify a misunderstanding you have, and to point out that the ROTH contribution you withdrew was indeed tax-free, according to the details you have provided.

As you say in your post "the bottom line is what matters". That's exactly what everyone has been telling you. You received money in the past that was a credit due to a ROTH contribution. You withdrew that contribution, thus giving up the right to claim the credit, and must give it back. The bottom line is that you are no worse than before your contribution.

Do I have this right, tax guys and gals?
Print the post  


In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
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.
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.