Early Withdrawal

Question: Put excess money in Roth IRA to trade, then withdraw before tax date?

It is my understanding that if you withdraw excess contributions on a Roth IRA before tax filing date, it is as if you never contributed those amounts. So, isn’t it true that theoretically speaking I can put in $15k in 2008 ($5k being the limit, i.e. $10k excess), invest for the year, and at the end of the year pull out $10k so that net net I contributed $5k for 2008, no penalties, no taxes? So, say I make 10% return a year, instead of having $5500 at the end of the year growing tax-free due to the limit, I now have $6500. Am I missing something?

Answer: You also have to withdraw any gains associated with the excess contributions. And then the total amount would be taxable. So you the only thing you gain is difficulty in computing the associated gains and taxes.

Self Directed IRAs Rollover and Conversion by James Smith Seminar Infomercial