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Now what I decided to do is withdraw the amount ($2000) and am aware that any earnings from that will too get deducted and also I will pay a 10% penalty on withdraw of earning. (ex. $2000 contribution for 2006, earnings was $400 and penalty will be $40 so I should get from them $2360)

Not quite. The IRA custodian will give you the full amount of your excess contribution and earnings - $2400 in your example. You need to include the $400 of earnings on your 2006 tax return. The tax and penalty will be calculated and submitted with your 2006 tax return.

Question, do I get anything from mutual fund to apply for this year's taxes (1099-R???) this is what I am not clear on. If I am to get something and have to wait to receive to update my taxes.

You will, but not for another year. About a year from now, you will get a 1099-R showing the withdrawal. That is because the withdrawal happens in 2007. But it will be coded to show it as a withdrawal of excess 2006 contributions and earnings. You will not report this at all on your 2007 tax return.

So you need to pay attention to the documentation that comes with the withdrawal and report the correct amounts on your 2006 return on your own.

Also to throw a twist, I am also withdrawing my contributions from this yr ($100). Again, do I get anything for that?

Yep. A 2007 1099-R, this time coded to show it as a withdrawal of excess 2007 contributions and earnings.

--Peter
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