Early Withdrawal for a ROTH IRA that never made money in 10

Submitted by Heather b on Tue, 2009-01-27 18:28

Hello all,

Sorry, I do not have IRA experience and trusted someone at Dean Witter years ago with $2000. I know not much, but its money.

So I have a ROTH IRA. Started it in 1998 with $2000. It NEVER went over $2000 in over 10 years. It is around $1889 now. My “account specialist” at citi barney (bought dean witter) said that they could cut me a check, they have no penalty, but I would have to consult my accountant to ask if there was a tax penalty. He said its not invested in anything but a cash reserve right now, earning little money. (obviously!) We’ll I’m my own accountant, so he suggested the internet.

I looked on the internet and it looks as if they only tax the gains on it (mine is $0) when you withdrawal. Some say that I will get a 10% tax penalty if I cash out before I am 60, some say since I didn’t make anything on the money, I wont get an early withdrawal fee because the money I used in the ROTH Ira was already taxed money.

I’m so confused. I just want to cash it out, even if I get charged $190 (the 10% early withdrawal fee). I just want it away from them and close that stupid account. Its been the biggest waste of an investment decade.

Suggestions welcome. Again, I tried to cruise the internet best I could – how I found you guys.
Thanks thanks thanks!
HB



Submitted by Alan Spross on Tue, 2009-01-27 18:48

There is never a tax or penalty for the return of your regular Roth contributions. Since you have a loss, there are no earnings and your full distribution of the balance will be tax and penalty free.

You also may qualify for a misc itemized deduction for your loss of $111, but since this deduction is subject to a floor of 2% of your AGI, you will not be able to use it unless you have other such misc deductions that will use up the 2% of AGI. You also must be able to itemized your deductions, ie they must be greater than your standard deduction.

Even though tax free, you would still need to report the distribution on Form 8606.

That said, if you do not need the money, you should probably reconsider cashing it in. If you pay a small account fee, you might want to roll it over or transfer it to a different IRA custodian that does not charge a fee. This account is too small for a brokerage firm like Smith Barney, so annual fees are likely more than the account would earn at currently low interest rates.

Submitted by Heather b on Tue, 2009-01-27 19:04

I really appreciate your response. I was confused if it would count against me like income or a lottery tax or something. I work on commissions and end up owing most years (even though I do take extra deductions).

I need the money to travel. However, I do have another seperate traditional IRA with Fidelity that is through my employer.

Again, really appreciate the response. I should have went to school for accounting instead of biology. LOL

Have a great week! Happy Investing
HB

[quote=”[email protected]“]There is never a tax or penalty for the return of your regular Roth contributions. Since you have a loss, there are no earnings and your full distribution of the balance will be tax and penalty free.

You also may qualify for a misc itemized deduction for your loss of $111, but since this deduction is subject to a floor of 2% of your AGI, you will not be able to use it unless you have other such misc deductions that will use up the 2% of AGI. You also must be able to itemized your deductions, ie they must be greater than your standard deduction.

Even though tax free, you would still need to report the distribution on Form 8606.

That said, if you do not need the money, you should probably reconsider cashing it in. If you pay a small account fee, you might want to roll it over or transfer it to a different IRA custodian that does not charge a fee. This account is too small for a brokerage firm like Smith Barney, so annual fees are likely more than the account would earn at currently low interest rates.[/quote]

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