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Now the question - do I have to pay the 10% early withdrawal penalty/tax on all the money, or just the earnings? I figure I was already taxed on the initial six thousand I invested, so I can't see why there would be a penalty to remove that portion. I am hoping I only have to pay tax and penalties on the earnings, which would be relatively minor.

You are correct. You pay tax and the 10% penalty only on the earnings. You'll do this calculation on Form 8606, Part III.

Phil Marti
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