IRA distribution

My husband and I have been paying into an IRA for many years. However, we have never taken a tax deduction on the payments. In 2001, we withdrew a large amount to pay down personal debt. At that time, we withheld 10% for the anticipated penalty for withdrawing funds before we were 'authorized' to do so.

Do we have to pay taxes on this amount for 2001? We have already paid taxes on the entire fund.

Are you sure you paid into an IRA (not a Roth IRA) for many years and took no tax deduction? If so, why did you not take the deduction?

You might be able to avoid having to pay the tax on the amount you withdrew (but not the penalty) if you can prove that you made the contributions and that you did not take any deductions for the contributions.

However, before filing, see IRS Publication 590, INDIVIDUAL RETIREMENT ARRANGEMENTS (IRAS) , which you can download for free at the IRS site at: http://www.irs.ustreas.gov/forms_pubs/index.html

That publication has the rules you need to know.

Thank you very much for the publication number. I've been unable to find it anywhere and knew it had to exist.

I know for a fact that we never took a deduction for our IRA deposits. Our income has never been high enough to need deductions and I was raised in a household that taught me that I should pay my taxes now instead of waiting for retirement when I might or might not be able to afford the tax on the money. Anyway, whether or not it was a 'good' decision is debateable. I'm just hoping that I can manage to not have to pay taxes on the money again.

Thanks again for pointing me in the right direction.