A:

If you close the Roth IRA now and withdraw the balance, you will be taxed on the earnings unless the distribution is qualified. Furthermore, you will pay a 10% early distribution excise tax on the earnings unless you qualify for an exception.

The exceptions are listed on page 58 of IRS Publication 590. You will not owe any taxes on the principal.

If you are using the funds to contribute to another savings plan, find out whether your contribution is deductible. Some states allow a tax deduction for contributions made to such plans as prepaid college funds.

To learn more, read Taking Penalty-Free Withdrawals From Your IRA and Rules Regarding Substantially Equal Periodic Payment (SEPP).

This question was answered by Denise Appleby
(Contact Denise)

Hot Definitions
  1. Down Round

    A round of financing where investors purchase stock from a company at a lower valuation than the valuation placed upon the ...
  2. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  3. Portfolio Investment

    A holding of an asset in a portfolio. A portfolio investment is made with the expectation of earning a return on it. This ...
  4. Treynor Ratio

    A ratio developed by Jack Treynor that measures returns earned in excess of that which could have been earned on a riskless ...
  5. Buyback

    The repurchase of outstanding shares (repurchase) by a company in order to reduce the number of shares on the market. Companies ...
  6. Tax Refund

    A tax refund is a refund on taxes paid to an individual or household when the actual tax liability is less than the amount ...
Trading Center