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This is how I thought it worked. The best part is that I don't have to figure out which dollar is principle and which one is earnings.

For example all of ROTH is invested in many stocks. I sell one stock to have free cash in ROTH then withdraw that cash. I can remove cash without penalty. I do not need to know if that one stock sold was profitable or not. That would have been a pain.

Yes, IRAs are like Vegas - What happens in the IRA stays in the IRA. Just keep in mind, when you do non-qualified distributions from a Roth IRA, you are setting yourself up for a small pain at tax time, since you have to document the withdrawals on a Form 8606. And then you have to keep that Form 8606 until you have to file another Form 8606, lather, rinse, repeat. (Form 8606 is also used to document non-deductible contributions to Traditional IRAs, recharacterizations of IRAs, and conversions from Traditional IRAs to Roth IRAs, so a non-qualified distribution isn't the only reason that you may have to file one.) Once your withdrawals are qualified distributions (most likely because you reach 59 1/2 and have had a Roth IRA for at least 5 tax years), you won't be required to file the Form 8606 for distributions any longer. You may still have to file one if, for instance, you are doing conversions.

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