If you with draw from a rollover IRA - I understand there is a 10% penalty -- but my question is; do you pay taxes on the withdraw and annual amount earned -- of the approximate 25% or after the itemized deductions reduce the earn amount - would you then be taxed on that lower amount?

If I withdraw 20k form my rollover IRA - how much time do I have to repay it back to not have to endure taxes - is that an option? I read somewhere it was within 60 days?

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IRAs and 401ls are different. Once you rollover to an IRA it doesn't matter that it was a rollover. If you take a premature withdrawal from an IRA then it becomes taxable income AND incurs a 10% penalty. You have 60 days to either rollover the funds into another IRA or return them.

The taxable income is added to your total taxable income. Deductions and credits are them applied to determine your actual tax liability.

However, the 10% penalty CANNOT be mitigated. You will pay that penalty even if deductions, exemptions and credits completely offset any income tax liability.

If you do pay the entire amount of the withdrawal back within 60 days (or roll it another IRA account in that tine), then the original withdrawal is not taxed, and no early withdrawal penalty is due either. However, you must pay the ENTIRE amount back, even the portion that is withheld for income taxes. For example: if you withdraw $10K, you will actually only receive a check for $8K (assuming that 20% is automatically withheld for taxes). To avoid actually owing any tax or penalty, you would have to redeposit the full $10K back into your account within the 60 day time limit. The $2K that was withheld isn't lost, of course - presumably you get it back as tax refund next April 2012 when you figure your 2011 taxes.