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Withdrawing Your Roth IRA Contributions (Followup)

Written by Nickel - 3 Comments

As a followup to my post about withdrawing contributions from your Roth IRA without paying taxes or penalties, I wanted to point out a small(ish) glitch that was brough to my attention by a reader…

Withdrawals from your Roth IRA may make you ineligible to take the extra “saver’s credit” on future contributions. The way it’s figured, you need to subtract withdrawals made in the past few years from the current year’s contributions. In other words, if you took $2000 out two years ago, and put $3000 back in this year, the saver’s credit calculation says you only deserve a credit based on $1000. And you are punished for the withdrawals in this way for several years. So it’s true that you don’t pay taxes or penalties for taking out Roth contributions, but it can still cost you.

Click here for an article on the saver’s credit.

Thanks to reader EC for the tip.

Published on May 19th, 2006
Modified on February 19th, 2008 - 3 Comments
Filed under: Retirement, Saving & Investing, Taxes

About the author: is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

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3 Responses to “Withdrawing Your Roth IRA Contributions (Followup)”

  1. 1
    Flexo Says:

    This is good to know. Thanks EC and nickel for passing this along!

  2. 2
    GaryP Says:

    Had to google “Savers-Credit IRA” to find out what you were talking about. Guess my joint income has been over $50k for the last couple years so it never came up in my radar.

  3. 3
    Jim D Says:

    Great information. My understanding is that ordinary income tax and penalty would be applied to the gain only since it was withdrawn before age 59.5 or in a non qualified fashion. So example would be 15K cost basis and current value of 16,500, tax at ordinary tax rate for that individual as well as 10% penalty would be assessed. If that is not correct, kindly correct me!

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