Investing for retirement comes with no shortage of questions. From how much and how often you should invest, to what type of retirement account is best, it can be difficult to know which avenue is right for you. Many investors have found that a Roth IRA provides attractive tax benefits to individuals who meet specific income and contribution guidelines.
A major concern in investing in accounts earmarked for retirement is access to your money. Most tax-advantaged accounts carry steep fees and penalties for early withdrawals, and emergency money may be difficult to obtain. While you may be committed to saving for retirement, life can be unpredictable, and you may need access to your money.
Whether you are investing in an employer sponsored 401k plan, a traditional IRA, or a Roth IRA, the important thing to consider is your expected time frame for investing, as many of these tax-advantaged accounts have restrictions, fees and tax penalties placed on early withdrawals. If you will expect to need your money in less than five years, a Roth IRA may not be right for you.
While investing in your retirement account is crucial to secure your financial future, when it comes to withdrawing money, not all plans are created equal. A Roth IRA provides you with an excellent retirement vehicle, as well as offers the easiest method of withdrawing funds.
In order to better understand what a Roth IRA is about, as well as find out when can you cash out a Roth IRA, it is crucial to examine the aspects of the fund that make it unique.
When Can You Cash Out A Roth IRA? Terms And Conditions
As an added incentive to invest in Roth IRAs, the terms of this account allow for the withdrawal of contributions at any time. You will be allowed to withdrawal funds tax and penalty-free as long as you are retired or you become disabled, and the account has surpassed the five year “seasoning” period.
This is a great convenience for investors, as easy access to capital combined with tax benefits make Roth IRAs popular individual retirement accounts. Online brokerages dealing with Roth IRAs such as ETrade, make funding your account, and withdrawing money fast and easy, and are increasing in popularity.
By choosing a Roth IRA you elect to pay ordinary income-tax on contributions, up until a certain amount based on age, and then sit back and watch your investments grow tax-free. This is a major benefit if you expect to be in a higher tax-bracket upon retirement, or the funds are ear-marked for inheritances or charitable contributions.
A drawback to this type of fund is you do no realize an immediate tax-benefit for investing in your retirement account in the form of same-year tax deductions, as is seen in traditional 401ks and IRAs. Roth IRAs make excellent additions to existing tax-advantaged retirement accounts, and will basically serve as a hedge against future tax hikes, and political events.
What You Should Know Before Cashing Out Your Roth IRA
While Roth IRAs are great tools to grow and preserve wealth, there are restrictions placed on who can invest in this type of individual retirement account. If you are planning to invest in a Roth IRA, check and make sure you do not exceed maximum income requirements.
You should also be aware that if you are using funds for non-retirement or non-disability purposes, and/or have not exceeded the “seasoning” period of five years, you may still be subject to administrative fees and tax penalties.
Carefully consider both your financial needs and the possible financial ramifications of cashing out your Roth IRA.
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