Subscribe To This Site

IRA Withdrawal

Is making an early IRA withdrawal recommended? No, but it’s still a possibility. Although withdrawing money from your individual retirement account before retirement is not usually recommended, it is still allowed. Unless you are in a position of hardship, high penalties and taxes may be taken out of the money you withdraw. There are several rules and regulations regarding IRA withdrawal that should be considered before making a final decision. Once you withdraw the money from your IRA account, there’s no turning back.

Most retirement plans allow withdrawals without penalties in a small set of circumstances, and the IRA is not an exception. Called a ‘hardship withdrawal’, the circumstances can include high medical expenses, purchasing your primary residence, paying for college educations for yourself and your children, and preventing eviction or foreclosure from your current home. There are several clauses governing these withdrawals and some may be excluded from your particular account, so it’s important to thoroughly explore your options with your financial advisor and/or plan administrator before making a withdrawal.

If you happen to qualify for a hardship withdrawal, there are still many reasons not to take advantage of the hardship withdrawal clause. The money you have contributed to your IRA account grows quickly because the earnings create more earnings. A withdrawal may mean losing not just the money you have worked so hard to earn, but also the money that you could have earned if you had left the money in the account. Putting money in an IRA and leaving it invested is important in planning for retirement. Making a withdrawal from your IRA account may completely undermine your entire retirement plan and compromise the financial solvency of your later years.

If you do not qualify for a hardship withdrawal, the cost of your IRA withdrawal rises sharply from high to higher. In addition to losing any potential earnings and dividends, you will be forced to pay up to twenty percent in penalties and taxes as well as standard income taxes on these ‘earnings’. If you made a portion of your contributions from post-tax income, as in a Roth IRA, these will not be subject to income tax, but may still be cut by the penalties to about eighty percent. Altogether, most people find that they lose between thirty five and fifty percent when they make a traditional IRA withdrawal. Even in emergency situations, this kind of loss can have a devastating effect on your retirement and is rarely worth it.

In these unstable economic times, it’s easy to see how many people can find the money sitting in their IRA plan tempting. However, it’s a good idea to leave this money where it can make a positive contribution toward your future. If you are having a hard time making ends meet now, how difficult might it be when you are no longer able to work? Hard times come and go, but retirement is inevitable. Leaving your money where it can continue to earn more money for your future economic well being makes good sense for your future happiness and security.

IRA Withdrawal
Go Back To Salary Info Page