[mg0121]

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?

[ebaines]

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).

[mg0121]

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

[ebaines]

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

[AtlantaTaxExpert]

If you withdraw ALL of your IRA(s) and the amount withdrawn is LESS than what was contributed, I believe the loss can be deducted as an itemized expenses under Miscellaneous Deductions.

[MukatA]

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.