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

[Chrisgmitchell]

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?

[Bsch4477]

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

[fanfare]

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

@Chrisgmitchell 

[Chrisgmitchell]

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?  

[Bsch4477]

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

[Chrisgmitchell]

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

[Bsch4477]

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. 

[Chrisgmitchell]

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!!!