Three Drawbacks of Roth IRA Withdrawal
One of the greatest inventions for an individual’s retirement is the Roth IRA. Any distributions made after age 59 1/2 are tax free. Should you decide to take a distribution prior to this time there are three major drawbacks of Roth IRA withdrawal.
The first drawback is the ten percent IRS tax penalty. You need to make sure that you really need the funds before you make any withdrawal to avoid a Roth IRA withdrawal penalty. You cannot put the funds back after you’ve removed them. There are some approved withdrawals that are exempt from this tax penalty. However, any withdrawal you make whether or approved or not will result in the decrease of your Roth account.
The second drawback is the income tax charged by IRS for the removal of funds. This is different from the tax penalty as that is a standard ten percent. You pay taxes based upon your income tax rate. Any additional income that you might incur can cause an increase and raise you towards a higher tax bracket. If you needed the funds for a specific purpose you might end up using some of your Roth withdrawal towards your income tax. This will defeat the purpose of your withdrawal in the first place.
The third drawback of a Roth IRA withdrawal is the loss of future retirement growth. Time is not on your side. You can never recoup time or the financial benefit of the money that you remove. If you only have a few years left before you can actually retire your actions can be extremely detrimental. If might even push out when you can retire as you might not have enough funds to live on.
As you can see a Roth IRA withdrawal can prove to be harmful towards your financial retirement future. You want to make sure that any decision that you make shouldn’t be taken lightly. The IRS tax penalty, income taxes paid and loss of future earnings are the drawbacks that you can receive if you make a Roth IRA withdrawal.
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