Back in 2008, I opened a Roth IRA, but then I closed it in 2009 without realizing the full consequences. As a result, I was penalized for almost $2k on a $5K account. Now, I receive a letter from the state saying that because I under-reported my income in 2009, meaning I did not report the withdrawal amount of that Roth IRA which was about $5K, that I need to pay about $650 back to the state. This includes the interest that has accumulated until now. My thought was, since the money used to open Roth IRA was after tax. How can they tax me again as a source of income? I had already paid a huge penalty, but now the state wants more. Do I have legal ground to protest this, and how? Thanks for you opinion!