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I put $2,000 into my IRA in April and would now like to withdraw it (before December). May I do this without penalty?

Before we get into options, please stop and think about whether you absotively need this money now. No matter what you do, you're going to pay a high price for getting this money. Isn't there something else you could do?

I assume here that we're talking about a year 2001 contribution. If not, ignore the rest of this and advise.

I wouldn't bet your next paycheck on it, but I think that any distribution from a traditional IRA will be subject to the 10% penalty, based on the taxable amount of the distribution. This includes a return of current year's contributions. You can check this out in the penalty section of IRS Publication 590.

Another option would be to treat the contribution as a nondeductible contribution when you file your 2001 return. This would reduce your taxable distribution and, thus, the penalty. See Part I of Form 8606.

Yet another option would be to recharacterize the contribution as a Roth contribution and withdraw from the Roth. This assumes your AGI allows a Roth contribution. You can withdraw a Roth contribution at any time without penalty. Information about recharacterizations and nonqualified Roth withdrawals is in Publication 590. Be aware, though, that your custodian may charge fees that are more than the penalty would be.

Phil Marti
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