Hello,

I worked overseas for 6 years and contributed to an employer sponsored IRA (American company). Now I have returned to the US and have a different employer. Since I'm not yet 59.5, if I withdrew the money and invested elsewhere, I would pay the 10% early withdrawal penalty... but would I also have to pay income tax on the withdrawn amount? It was earned while overseas so I thought would qualify as part of the foreign income exclusion... is this correct?

Thanks!
Mark

QUOTE," but would I also have to pay income tax on the withdrawn amount? "----Yes;The withdrawal is considered income, and regular income tax is due at your personal tax bracket.Gross income,early withdrawal , for federal tax purposes is usually considered the same for state tax purposes.
"I thought would qualify as part of the foreign income exclusion... is this correct"---No;you may(must) have already claimed your FITE on your past return(s).

Instead of withdrawing the money, you can do a custodian-to-custodian transfer to a rollover IRA, allowing you direct control of the money for investment purposes without paying ANY taxes.

QUOTE,"you can do a custodian-to-custodian transfer to a rollover IRA, allowing you direct control of the money for investment purposes without paying ANY taxes."---- Right! If you instruct the trustee of your IRA plan to transfer assets, acumulated funds(contribution and profits added) to the trustee of another IRA plan, then threr are no current year tax consequences for the transaction, rollover, I mean.