Originally Posted By: stockrex
I opened an IRA in my little girls name few years back and funded it.
But my accountant elected not to file it as a deduction.
money has been sitting it for few years.
Is it ok to withdraw money out of it or close it? no penalties correct?
Simply put - no, it is not OK to withdraw it.
Once the money is in there, it's in an IRA. The company with whom you have invested (in her name), will generate a 1099 (one copy to you, one to the IRS) if you withdraw it. Then she will have to pay both income tax and penalties (10%) unless, as mentioned, she's 59 1/2, or disabled and unable to work, or is buying a first home.
Whether or not you, or she, filed for the deduction, it's still an IRA. It's still subject to the rules. IF she didn't take a deduction, that's fine, but you'll have to keep track of this contribution on every subsequent tax return, likely by filing IRS form 8606 for non-deductible IRAs. That form establishes the "basis" for the IRA, and she'll be taxed in the future on the difference between the basis and the account's value at withdrawal.
This is not a simple situation, and you should consult a tax professional to be certain of how the rules apply to you.