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Russ asks:

I have a Traditional IRA that has been totally funded with after-tax money (ie, I didn't take any deduction for the contributions). Since this account is way down this year, and gains over my original contribution are small, I am considering withdrawing that money from the IRA and putting it in Vanguard's Tax Managed S&P500 Index Fund, VTGIX.

I'm quite sure that if I make this move, I will have to pay taxes on capital gains, and not the original money I contributed, because I've already paid the taxes.

But, what about the 10% penalty for being under 59.5 years of age? Does that penalty apply for the full amount of the distribution, or only that part for which tax has not been paid previously?

If you have a gain in the account, then you will pay both ordinary income taxes and the early withdrawal excise tax of 10% on that gain. Your original after-tax contributions will not be taxed or penalized.

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