I am 34 and married. In 2005, I withdrew $14,000 from my Roth IRA ? I
needed these funds to buy my second home. After I bought the second
home and sold the first one, I deposited the money, $14,000, back to
my same Roth IRA account. I had taken the money out in Apr,2005 and
put it back in Aug,2005. I didn't think about tax implications at that
time, I thought there would be none as I deposited the money back in
the same year. But now I have received an IRA withdrawal form from my
investment company. How would I report this in my taxes? Would I be
penalized for just using the money?

Provided that you had contributed $14,000 to your Roth IRA at the time
of the withdrawal, you will not be taxed on that withdrawal.  If you
had not contributed $14,000, then the amount of the $14,000 exceeding
your contributions at that time is taxable and is subject to a 10%
additional tax penalty.

There is no provision for taking a loan from a Roth IRA.  Therefore,
the $14,000 you contributed in August of 2005 exceeded the maximum
contribution limit of $4000.  Depending upon your family's income,
your contribution limit could be lower than $4000.  The amount
exceeding your applicable contribution limit is subject to a 6% excise
tax per year if it is not removed from the Roth IRA.  Therefore, you
should take out the excess amount as soon as possible.  Any earnings
on the excess contribution are taxable. You can elect to apply some of
that amount to your 2006 contribution, again subject to the applicable
maximum contribution limit.  That would still leave you with at least
$6,000 that needs to be taken out by April 17, 2006 to avoid the
excise tax.

A good explanation of how to deal with excess Roth IRA contributions
can be found at: "Avoiding the Roth IRA 'excess contribution' tax" by
Dorothy Rosen, Bankrate.com (2006)
https://www.bankrate.com/brm/news/dollardiva/20020221a.asp

I suggest you contact your investment company, explain your situation,
and find out how to remove the excess amount and characterize some of
the amount as a 2006 contribution as soon as possible.

Additional sources:

"You do not include in your gross income qualified distributions or
distributions that are a return of your regular contributions from
your Roth IRA(s)."

"Unless one of the exceptions listed below applies, you must pay the
10% additional tax on the taxable part of any distributions that are
not qualified distributions. "

"A 6% excise tax per year will apply to any excess contribution not
withdrawn from the Roth IRA."

"If contributions to your Roth IRA for a year were more than the
limit, you can apply the excess contribution in one year to a later
year if the contributions for that later year are less than the
maximum allowed for that year."

"Roth IRAs" IRS http://www.irs.gov/publications/p590/ch02.html

"IRAs do not permit loans. Therefore, repaying a loan balance from one
plan by transferring the loan balance and making loan payments to your
IRA is not allowed. If you attempted this transaction, the loan would
be treated as a distribution at the time of the attempted rollover ."

"FAQs regarding IRAs" IRS
http://www.irs.gov/retirement/article/0,,id=111413,00.html#5

Search terms: excise tax IRA excess contribution; loan roth ira; Roth IRA

Unfortunately I can't find any rule that says you can withdraw money
and replace it the same tax year (it may exist, I just can't find it).

But this may help:

Since this is a ROTH IRA, any money that you put in has already been
taxed.  So you may withdraw all that money without tax or penalty.  So
if you contributed $10,000 into the ROTH IRA and the rest is interest,
then the first $10,000 you withdraw is tax/penalty free no matter
what.

Some bad news though:
That $14,000 that you put back into your ROTH may not be legal.  Your
maximum annual contributions are $4,000 each for a total of $8,000
(you + your spouse).  If you call whoever is in control of your IRA
(bank/mutual fund... whoever it is), I'm sure they can answer any and
all of your questions regarding it.

The previous commented left of the 10% penalty on the entire amount
you pulled out because you have not attained the age of 59(1/2)

Further, the additional funds you put in, in excess of $4000 (the
amount you can put in), will not be treated as having tax free growth.

You always have to think of IRAs in terms of taxes, thats what it is,
a provision of the tax code that makes it possible.

Ubiquity, you're not considering that this is a ROTH IRA.  They act
quite differently than traditional IRAs.  Unlike traditional IRAs, you
may withdraw your origional contributions without tax or penalty
because you have already paid tax on this amount.

"The rules for Roth IRAs permit you to do something that isn't allowed
for regular IRAs: withdraw the nontaxable part of your money first.
Distributions from regular IRAs come partly from earnings and partly
from contributions. But when you take money out of a Roth IRA, the
first dollars you take out are considered to be a return of your
non-rollover contributions. You don't have to meet any special tests
to receive those dollars free of tax. You can take them out any time,
for any reason, without paying tax or penalties."
--http://www.fairmark.com/rothira/taxfree.htm

As long as you're only withdrawing the amount you contributed (or
less) then there will be no taxes and no penalties... no matter what.

You're also not considering that a married couple can deposit 2 times
the maximum contribution (because it's 2 people) for a total of $8,000
(not the $4,000 that you mentioned).

Ubiquity, you're right that IRAs are all about taxes... but I do
recommend you study up on the ROTH, the rules are much different than
for the traditional IRA that you are familiar with.  ROTHs can be
extremely beneficial and flexible if used properly.

You are subject to income tax on the earnings. You are also subject to
a 10% penalty on the early withdrawal (10% of the earnings). Here's an
example from the Motley Fool website:

Example #1: Jim, age 30, made a Roth IRA contribution of $2,000 in
1998. In 2005, Jim's Roth IRA has a balance of $3,500. Jim decides to
close his Roth IRA in a non-qualified distribution that year. Since
the distribution is non-qualified, Jim will owe taxes on his Roth
earnings of $1,500, and will pay tax on this amount at his marginal
tax rate. In addition, since the distribution took place before Jim
reached age 59 1/2, and since Jim did not meet any of the exceptions,
Jim will also be assessed a 10% early withdrawal penalty on the
earnings. If we assume that Jim is in the 28% marginal tax bracket, he
will pay $420 in tax on the earnings, and will pay a penalty in the
amount of $150 on the early distribution. This is a very steep price
to pay.

Once again, notice that the tax is only on the amount greater than the
amount deposited into the ROTH IRA.
"[Jim] made a Roth IRA contribution of $2,000"
"Jim's Roth IRA has a balance of $3,500. Jim decides to close his Roth IRA"
"Jim will owe taxes [and the 10% penalty] on his Roth earnings of $1,500"

If you deposited $14,000+ and withdrew $14,000 then you will owe $0
tax and $0 penalty.