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Subject:  Re: IRA or Savings Date:  12/3/2003  12:35 PM
Author:  pauleckler Number:  38033 of 102453

You might be able to reverse an IRA contribution in the same year you made it, but the idea you will be able to withdraw principal tax free in the future is incorrect.

When you take a distribution from your IRA, you will pay a 10% penalty if prior to age 59-1/2 (or not according to exceptions to the rules) and the portion of your distribution that is refund of principal and therefore tax free is calculated on Form 8606 when you file your income taxes. The IRS decides how much; not you.

If you think you will need the funds in 7-8 years, you would be best off to put that portion into taxable investments and invest them LTBH (long term buy and hold). That way you pay income taxes only at capital gains rates and then only when you sell. There are no penalties to deal with.

The rest of your funds would best be invested in a Roth IRA (which has no incomes taxes due in retirement) if you qualify.
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