1. If I had a choice of opening a reg or ira acct and make withdrawals from the ira acct knowing that I was going to have to pay taxes on early withdrawl plus a 10% penalty tax. And let's assume that I could make 12% in whatever acct. how much above 12% would I need to make it worth my while to keep it in a ira and at the same time be able to take out some.
2 and if your putting money in let's say 3000 and you made 1000 how do they know if I took out 1500 what is taxabel and what isn't. Once you putoney in is that automatically taxed 10% if pulled out the next day/

Thanks

This can be a complicated analysis. The answer to your first question will depend on whether this is a Roth or traditional IRA, and whether the withdrawal is used for either higher education or a 1st time home buy (in which case the penalty can be avoided), or if it's a Roth held for more than 5 years. The math will also depend on how many years the IRA is allowed to grow before you make the withdrawal and your marginal tax rate. For example, if you are in a 33% bracket, a standard 12% return account will yield 8% to you after taxes. You would need a return of 31.7% in a traditional IRA to achieve the same thing if you kept the money in the IRA for only 1 year before withdrawing it. But if you kept the money in the IRA for 10 years before the early withdrawal, you would need a return of "only" 12.4% to match the 12% return of the standard taxable account.

Heres' some information on tax consequences of early withdrawals:

IRS rules for early withdrawal of IRA money (Page 1 of 2) (http://www.bankrate.com/brm/itax/tips/20030410a1.asp)

To answer your second question, when making a withdrawal from an IRA the IRS assumes that the order of withdrawal is first your after-tax contribution, then roll-over money, then earnings. So in your example the 1500 would be assumed to be your own contribution, and hence there's no income tax due (other than possible the 10% early distribution penalty).

Enlist a financial consultant for help before you do anything with your IRA. Hidden penalties and secret fees can put a major dent in your funds, even if you think you know what you're doing. Let the pros handle it.