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Lets say I contribute $1000 into a Roth IRA, and that $1000 goes down to $100, due to a bad investment. If I then contribute $500 to my Roth and that grows to $1000, am I allowed to withdraw the now $1100 tax free because I technically had $1500 of contributions? Or would this be considered growth and I would owe taxes on the growth (assuming I'm younger than 59.5)?
The amount of your Roth contributions are the amount that goes into the Roth, the $1500 total that you state. If the value of those investments from those contributions has declined to $1100, you are able to take a distribution of the entire $1100 without penalty because that is less than the amount of your contributions. You don't keep track of the value of the various contribution amounts, just the total. The fact that the $500 grew to $1000 in the Roth, thus creating earnings, is irrelevant. Only the total contributions and the total distributions matter for that purpose.
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