Suppose I put in 2k for 1999, 2000, 2001. I trade this 6k to 16k. Now, in 2002, I'm buying a first new home. I read you can take out 10k for a first new home. So can I take out 16k and only pay taxes on my 10k gain with any penalties? Is there something specific I need to do to let the IRS know I took it out for a new home? I should be able to take out my original 6k with no problems, right? Thanks!
Here is my understanding of the tax consequences you may encounter. The withdrawl from the Roth IRA must meet a 5 year holding period and satisfy the first time home-buyer exemption. If it does not you get hit with the 10% penalty. Your first contribution was in 1999, the 5 year holding period would end in 2004. If you withdraw the money in 2004 you pay no taxes. Anytime before that and you would pay taxes on the 4K in gains and the 10% penalty on the entire 10K.
Here is a link to the IRS site. One of the pubs in the link has some good examples of how the withdrawal work, if you poke around a little you should be able to find one that fits your situation. http://www.irs.gov/contact/display/0,,i1=45&genericId=16220,00.html
I found this neat chart about distributions in case anyone else wanted to know: http://www.rothira.com/disttax.htm I still have 1 question. Supposed I put in 6k for 3 years contribution. Then I turn it into 16k. Can I just take out my original 6k and leave my 10k gains and not get taxed or penalized? How do I explain when I get the distribution that it was my original contribution?
I'm not a pro, so I suppose I shouldn't answer, but I am 90% sure that you may withdraw the contribution amount of a Roth without penalty. Keep in mind that your Roth contribution was taxed, thus you've already paid the IRS on the original investment.
look like you can take out your original contribution any time but for the earning amount you have to pay tax on it unless it have been 5 years and you are qualify as first time home buyer http://www.fairmark.com/rothira/taxable.htm