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I have a question, maybe someone here can help me out?
I began contributing to a Roth IRA three years ago, after many friends and family suggested I do it. Problem is, I had a lot of credit card debt, and didn't understand that paying that debt off should be my first priority. I recently withdrew the six thousand I have placed into the Roth, and used these funds to pay off all my c.c. debt. Along with the 6 grand, I also removed the meager earnings from the last three years, which came to a couple hundred bucks.

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.

Any help would be appreciated!

Jason
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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.

TMF ExRO
Phil Marti
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Overall, I think it is good that you wiped out that debt.
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And, it's a good lesson in doing your homework and ensuring you understand the basis for your investment (and its appropriateness for your financial situation) before plunking your money into something. I've made several investment mistakes because I got advice from family/friends or read something in Money magazine and jumped on the bandwagon before I really understood what I was doing! Oh well, hopefully we at least learn something from such foolish forays!

-Blue
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Thanks for the info! I appreciate it.
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