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The $4,310 which you were not able to deduct when you contributed to this IRA will not be subject to any taxes or penalties. However, the $690 pre tax portion of your contribution plus the $1,100 in earnings will both be subject to ordinary income taxes plus an additional 10% early withdrawal penalty if you are under the age of 59-1/2 when the funds are withdrawn.
There are some exceptions to the 10% early withdrawal penalty. You can avoid this penalty if the funds are used for one of the following reasons:
The early withdrawal penalty will not apply if you become disabled or die or if you use the money to:
Based on income of $130,000 a year for both you and your wife, your tax rate on this withdrawal would be taxed at 25%, plus the additional 10% penalty if one of the above exceptions does not apply.
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