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My problem is that since 1999 tax year, I have contributed nondeductible $6,000 to my IRA (for tax years 1999, 2000, 2001. Now, unexpectedly, we have an opportunity to buy adjoining land to our residence and the only place I have $ is in IRA's and Roth IRA's that are now worth about 2/3 of the taxed money we contributed... loss only, no gains at all!

Can I get out of these with no penalty?

There's one piece of information missing: have you converted any of your traditional IRA to Roth?

There's enough information to deal with your traditional. Any taxable amount that you withdraw from your traditional is subject to the 10% penalty. As Bob noted, if you withdraw only a portion, you prorate it between taxable and nontaxable, using Part I of Form 8606. I assume that your traditional is worth more than the sum of the nondeductible contributions, so there's no loss issue to deal with on it.

Not that you asked, but have you considered financing the purchase with an addon or second on your home? Remember that if you withdraw IRA funds for this purchase, you can't replace them later. Although some of your investments have declined in value, I assume you think they'll be gainers in the long run.

If you provide the additional information about the Roth, we can tell you the tax and penalty issues there. Also, if there was a conversion, we need to know if it was a 1998 conversion spread over 4 years.

Phil Marti
VITA Volunteer
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