[Foil]

I opened a Roth IRA in July and closed it 1 month later selling the mutual funds and taking the cash as an early distribution (I'm younger than 59) with a loss of about $260. How do I handle this on the IRS tax form 1040? Is the original contribution(~$3500)deductible on line 50? How much of the final amount I received is taxable (for lines 15a and 15b)? On the 1099-R it says taxable amount not determined, distribution code J (early distribution from Roth IRA no known exception).

[AtlantaTaxExpert]

The distribution itself is NOT taxable because you funded it with after-tax dollars.

However, you MAY be subject to an early withdrawal penalty. WHY did you close it so soon afer opening the Roth IRA.

[Foil]

Thanks for your response! I clicked "helpful"

The distribution itself is NOT taxable because you funded it with after-tax dollars.

Could you clarify? Does that mean if the distribution included a profit then that profit would be taxable?

In answer to your question

WHY did you close it so soon afer opening the Roth IRA.

I thought my money would grow more and more quickly in individual stocks rather than mutual funds. Granted, it was only near the minimum amount required for opening an IRA but the estimated annual income for that same amount invested in individual stocks was/is much higher. Thanks again for your answer.

[newacct]

You can treat a return of your contributions during the tax year that you withdraw before the deadline to file taxes to have not been contributed at all. The earnings would be subject to penalty, but you don't have any earnings. This is probably the simplest to do in this case. See the instructions for Form 8606 and Publication 590.

Alternately, you could consider it as contributing to a Roth IRA and then early-withdrawing it. The principal of direct contributions to a Roth IRA can always be withdrawn at any time without tax or penalty. So since you lost money, all of the withdrawal would be principal, and there cannot be any penalty.

[Foil]

Very helpful response! Thank you.

[Foil]

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[AtlantaTaxExpert]

The return of contribution option noted by NewAcct does seem to be the best course of action.