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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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I put $4000 into a ROTH IRA in 2006, as of right now, there

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I put $4000 into a ROTH IRA in 2006, as of right now, there is $3921 in my IRA. Because of the market ups and downs it has been fluctuating a little above and a little below $4000 for awhile now. Through my reading, it is my understanding that contributions can be returned at anytime without tax penalty. Is this correct? Also, if I liquidate 100% of my shares with the fund through which I have my IRA, does that simply dissolve my ROTH IRA?
Submitted: 3 years ago.
Category: Tax
Expert:  Lev replied 3 years ago.

LEV :

Hi and welcome to Just Answer!
Through my reading, it is my understanding that contributions can be returned at anytime without tax penalty. Is this correct?
Yes - that is correct. You might be only liable for taxes on earnings - since there is no earnings - you will not have any tax liability if you decide to take a distribution from the Roth IRA.
Also, if I liquidate 100% of my shares with the fund through which I have my IRA, does that simply dissolve my ROTH IRA?
You may sell shares but still keep funds in your Roth IRA account and roll funds over to a different Roth IRA account. If you want to liquidate your Roth IRA account - you need to transfer funds to a regular account and close your Roth IRA account.

Customer:

If I transfer the funds from my Roth IRA account into my checking account, how do I officially close my Roth IRA account?

LEV :

If you transfer ALL funds out of your Roth IRA account - your account will be closed. You may contact the administrator of your Roth IRA account and confirm.

Customer:

and I can withdraw my initial contribution before the 5 year holding period (it's my understanding the holding period is only for distributions for earnings). However, I actually might qualify for the 5 year holding period since I made the contribution in April 2007 but it was reported on my 2006 tax return.

Customer:

http://www.fairholmefunds.com/pdf/IRADistribution.pdf

Customer:

That link is to the application I need to fill out to withdraw my funds

Customer:

I don't know which box to check in section B and/or C

LEV :

Because you do not have any earnings - the 5 year holding period is irrelevant for your situation - All your distribution will not be taxable and will not be a subject of penalty.

Customer:

ok, thank you. Did you notice the link I posted with the application I need to complete?

LEV :

Yes - the form is very similar to those used by other administrators.
Please be aware that you may simply transfer funds to the bank CD and still keep them as Roth IRA account.

Customer:

I would like to just withdraw the money to pay off my credit card debt. I just graduated from physical therapy school and will be starting a 6 month residency where I will not be making much money. I figured better to pay off high interest credit cards now and begin another IRA when I start working with a decent salary next summer

LEV :

If you need these funds - that is a different situation - you may use them as you wish.

Customer:

Do you know which box I should check on that form in the "Type of Distribution" Section B and/or C?

LEV :

Please be aware that you can recognize the loss on your income tax return, but only when all the amounts in all of your Roth IRA accounts have been distributed to you and the total distributions are less than your unrecovered basis. Your basis is the total amount of contributions in your Roth IRAs.


You claim the loss as a miscellaneous itemized deduction, subject to the 2%-of-adjusted-gross-income limit that applies to certain miscellaneous itemized deductions on Schedule A, Form 1040.

LEV :

Do not check any boxes. The distribution will not be taxable for you any way.

Customer:

so I just skip that section?

LEV :

Yes - do not worry about these sections.

Customer:

wow, okay great

Customer:

you have been a big help!

LEV :

I am glad to be helpful.

Customer:

Have a good evening.

LEV :

Please be sure you accept the answer. Experts are only credited if the answer is accepted.
Please bookmark this page for future reference.

Customer:

of course

LEV :

You may come back later if you need any clarification or details. I might not be immediately available - but surely will reply.

Customer:

wonderful, thank you! good night!

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22849
Experience: Taxes, Immigration, Labor Relations
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Lev
Lev
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Taxes, Immigration, Labor Relations