Roth IRA Withdrawal

Roth IRA withdrawal might seem like a consideration that you aren't all that worried about right now, especially if you're still a couple of decades away from reaching the age of retirement. However, as you're making plans for the days in which you'll be retired, it's important to not only think about how you're going to make the deposits into your new IRA accounts that can help you reach your financial goals in the future, but also what you're going to do with that money once that future time has arrived. Planning for your future withdrawal times is well worth considering.

Following the Roth Rules

There aren't a lot of things you have to remember when it's time to make your Roth IRA withdrawal for the first time. Although some other types of accounts that allow you to save for the days when you'll no longer be working will force you to have to follow a variety of rules in regards to when you must begin the process of making that first withdrawal, a Roth account doesn't fit within those guidelines. This can make this type of account designed for long term savings a really smart choice. However, it really depends on your overall financial situation as to how big of an advantage this will be.

The rules state that your first Roth IRA withdrawal doesn't have to come at any point during your retirement years. Although you'll find within a traditional IRA that you must begin to make your first withdrawal by the age of 70 1/2, you won't have such restrictions to deal with in a Roth IRA. In addition, you will have no specific amounts that you must collect in a Roth IRA withdrawal once you begin deducting money from the account. This isn't the case with traditional IRAs or 401 (k) accounts, which require that you make specific regular deductions from the accounts once you retire.

The ability to not have to make a Roth IRA withdrawal and to allow your money to continue to grow is a huge advantage of this type of account that is used by those who have retired. For example, if you have chosen to use your Roth IRA account as a way to provide an inheritance to your family members, you can just leave the money in the brokerage or bank until you've passed away, at which time your heirs can inherit the entire amount. If you don't need this money to fund your non-working years, this is a nice option to allow it to continue growing.

In addition, it can be really beneficial to use this Roth IRA as a future hedge against your total portfolio that you've saved to use in the years while you're retired. For example, because you must make regular withdrawals from a 401 (k) or traditional IRA account after you've reached age 70 1/2, you can drain that account in your early years of retirement. You'll then allow the money in the Roth to continue to grow tax free, where it hopefully will even result in a larger amount that you can use in your later years, long after your retiring date.

Considering an Early Withdrawal

One other aspect of undertaking a Roth IRA withdrawal involves removing money from the account well before your retirement date. If you choose to make a withdrawal from this type of account that has some tax free benefits before the time that the rules say that you can, you'll end up having to pay a 10% penalty on the deducted amount that represents any of the gains that you've made in the money that's been invested. You might have to pay income tax on the gains, too, although the tax rate on these gains depends on your income situation.

If you have a Roth IRA withdrawal amount that's larger than whatever the gains are that you've had in the account, you'll actually end up deducting money from the account that was part of your initial deposits. Because you've already paid taxes on the amount that you initially deposited, you don't have to pay any penalties on these funds, which is a nice feature. However, that doesn't mean you should undertake an early Roth IRA withdrawal without very careful consideration, as this move will cost you penalties as well as throwing your future financial goals off track.

There certainly will be some situations where you've suffered a significant change in your financial lifestyle that necessitates an early Roth IRA withdrawal. The federal government realizes that circumstances beyond your control can force you to make a withdrawal from the account that you normally night not want to make. That's why some exceptions to the penalty amount are allowed, such as with a first time home purchase or with exceptionally high medical bills..

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