An Early Roth IRA Withdrawal Can Cost You Thousands – There Are Other Options

When faced with a financial crisis, many people turn to their Roth IRA as a source for quick and easy income. This option, however, can cost you thousands of dollars in penalties and taxes. Often there are other options you can utilize without having to close your Roth account.

A Roth IRA early withdrawal will automatically cost you a 10% penalty to the IRS. You will also pay taxes on the entire amount and any early withdrawal fees placed on the account by the holder. This can add up to a hefty sum and may not be worth the effort.

If you find your self in a financial bind, consider getting a loan against your IRA. When you get this type of loan you can borrow against your IRA for up to 90% of the value that you have deposited. This is not the money you have made from the account, only what you have deposited.

When you borrow money like this it is interest free. You are, in fact, borrowing from yourself, so no interest is charged. You can arrange with your account holder a repayment plan that suits your needs. Because the taxes were paid on this money already, there is no tax burden to worry about when using this type of program.

If you fail to repay yourself you will then be subject to the early withdrawal fines and penalties. If you do repay yourself you will be doing fine. This is a great way to pull yourself out of a financial situation without acquiring more debt or paying taxes and fees. You will need to contact your plan holder for all the specific details of the loan program that they offer. Most plans remain within these specific guidelines. Some plans may vary in percentage amounts of loans or repayment times.

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