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Are there penalties for contributing and withdrawing to a traditional IRA in the same year?

Earlier this year I contributed the maximum $8000 to a Traditional IRA for this tax year.  This was intended as a non-deductible IRA contribution.  I have had many years of non-deductible IRA contributions so I have filed form 8606 to track my basis.   Unfortunately, my circumstances have changed and I need to turn around and do a withdrawal for tens of thousands of dollars this year.  I am in my 60's.  I realize I will have to pay tax on the withdrawal (less the basis calculation from 8606) but do I have to worry about anything else like a penalty or withdrawing earnings on this year's contributions?

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7 Replies

Are there penalties for contributing and withdrawing to a traditional IRA in the same year?

No penalty, only tax at your marginal tax rate for pre tax contributions as you acknowledged. 

Are there penalties for contributing and withdrawing to a traditional IRA in the same year?

you should first  ask for a return of contribution ($8,000) so you will get that entire amount back.

 

@Chrisgmitchell 

Are there penalties for contributing and withdrawing to a traditional IRA in the same year?

I guess I don't understand the advantage of doing it that way.   If I contributed $8,000 but I'm going to withdraw $30,000 why break it up into pieces?  

Are there penalties for contributing and withdrawing to a traditional IRA in the same year?

I think the idea is that you can withdraw the $8,000 non deductible contribution without paying tax or penalty. 

Read page 30 correcting for year 2024. 

https://www.irs.gov/pub/irs-pdf/p590a.pdf

 

Are there penalties for contributing and withdrawing to a traditional IRA in the same year?

Interesting.  I'll look into that.  Not sure what happens to the earnings on that $8000 though.

Are there penalties for contributing and withdrawing to a traditional IRA in the same year?

You will also need to withdraw any earnings the money made while it was in the IRA. These earnings must be reported as ordinary income. 

Are there penalties for contributing and withdrawing to a traditional IRA in the same year?

I started the process today.  I was originally going to do the $8000 as a mostly taxable withdrawal but asking for a return of the 2024 contribution tax-free(and getting taxed on the small amount of earnings from it) is definitely the way to go for me.  THANKS!!! 

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