When Is a Roth IRA Withdrawal Worth It?

Taking a Roth IRA withdrawal is usually not in your best interest. However, there are certain situations when it might make sense. Here are a few things to consider about when to take a Roth IRA withdrawal.

Penalties

With a Roth IRA, you can withdraw the money that you directly invest in to the account at any time. However, if you withdraw any of the money that was made from investments, you will have to pay a 10 percent early distribution penalty. You will also have to pay taxes on that amount. Therefore, these penalties make it difficult to justify a withdrawal.

Emergencies

You should consider taking money out of your retirement account only if you are experiencing a dire emergency. Otherwise, you will not want to risk your future retirement money on current expenses. For example, if you need to pay for funeral expenses or necessary repairs to your primary residence, then you might consider taking out the money. In extreme situations, you can sometimes qualify for a hardship withdrawal and avoid the penalties.

Time Considerations

Something else to consider is the amount of time that you have before you will retire. If you are still young and have plenty of time to replenish the account, you can justify it much more easily than if you are getting close to retirement.

blog comments powered by Disqus