I have been making monthly IRA contributions over the past 4 years. Due to the income level I am not able to claim the contributions as a tax deduction. If I chose to withdrawl the money what would be the Tax Implication?

You pay ordinary income tax on any gain in the IRA investment above your initial investment amount, and if you are under 59-1/2 years of age you must also pay a 10% penalty for early withdrawal (with some exceptions).

So If I lost money then the penalty would be 10%

Actually the 10% penalty only applies to any gain, so in your case it appears you don't owe any taxes at all. To be clear, however, I am assuming from your statement that this IRA account is the only IRA account you have - if there are other IRA accounts that include any deductible contributions thist will complicate matters somewhat, even if you are withdrawing funds only from the non-deductible IRA. Here's a pretty good web site that walks you through the implications:

How IRA Distributions Are Taxed (http://www.quicken.com/cms/viewers/article/taxes/33390)

If you withdraw ALL of your IRA(s) and the amount withdrawn is LESS than what was contributed, I believe the loss can be deducted as an itemized expenses under Miscellaneous Deductions.

1. The money in your Trad IRA is the one on which you did not pay any tax. So if you have a loss, you have less money for withdrawal. Only withdrawals are taxed.
2. Withdrawals before the age of 59½ is "Early withdrawal." “Early Withdrawal is subject to 10% penalty. Also the withdrawal will be taxed at your normal income tax rate. However, in some case there is no penalty on early withdrawals.
*If distributions are not more than your qualified higher education expenses, *You have unreimbursed medical expenses that are more than 7.5% of your adjusted gross income. The distributions are not more than the cost of your medical insurance. *You are disabled. *You are the beneficiary of a deceased IRA owner. *You are receiving distributions in the form of an annuity. *You use the distributions to buy, build, or rebuild a first home. *The distribution is due to an IRS levy of the qualified plan. *The distribution is a qualified reservist distribution.