ROTH IRA Question

You can, but you can't carry that forward to the next tax year - if you take out money now you can put it back this year only. The yearly limit is a net contribution limit each year.

Example - if you take out $1000 this year then you can contribute it back this same year to get back to zero net. But this has no impact on next year's contributions - you can't contribute an extra grand next year over the limit instead.

ETA: That said, it's still better than stashing the money in a savings account instead b/c that would be like never contributing that to the Roth to start with anyway.

The two posts above seems contradictory. Foshizzle says the net contribution per year is $5500. In that case, under your scenario, I should be able to withdraw $20,000 this year and then put back in $25,500 in the same year for a net contribution amount of $5,500.

Not contradictory, just a different set of underlying facts. In my scenario, I assume you had already maxed out contributions for this year, and would be removing them as part of the $20,000.

I suppose I could be more specific.

Let's say you have $94,500 in your Roth. You're a bit of a gunner, so on January 1 of this year, you maxed out and bumped yourself up to $100,000. Today, you decide that you need the money for a downpayment on a house. You take out $40,000, including the $5,500 you had invested on January 1, leaving you with $60,000 in your Roth. A couple of months later, you inherit $40,000. You can only invest $5,500 of that inheritance in your Roth, bringing you to $65,500 this year. You cannot replace the entire $40,000 you withdrew.