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Subject:  Re: roth problem, no earned income, advice? Date:  2/7/2007  5:24 PM
Author:  TMFPMarti Number:  91858 of 132643

In my ROTH there were gains on the 4000, in the neighborhood of 6.5% over the year. I suppose paying the 6% penalty, $240, makes it a wash, probably better and easier than going through the act of withdrawing funds, declaring the income and paying a penalty. I will have earned income in 2007, so I suppose leaving it alone makes the most sense.

I agree. In addition to what you mention, the earnings would add to your taxable income.

In my wife's account the 4000 bought Johnson and Johnson's which for the year showed a slight loss. At first glance I thought it made sense to withdraw, pay the under 59 penalty and start fresh this year, BUT, $400, the 10% penalty, would be higher than the 6% excess contribution penalty.

This one you should withdraw. Remember that the contribution has no effect on your taxes going in, so it has no effect on your taxes coming out. Since the account has decreased in value you actually take out less than $4,000 with zero effect on your taxes.

Note that both these scenarios assume that the 2006 contributions were the only thing in these accounts. The actual method of calculating gains involves the entire account. I think it's explained in Pub 590.


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