An Individual Retirement Arrangement, also known as an IRA, is a great way for many people to make sure they have money at retirement. However, many people are tempted to take withdrawals when looking for large amounts of cash.
Here are three reasons that is not a good idea.
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1. Penalties, Penalties, Penalties
If you are not 59 ½, the IRS will automatically take 10 percent
as a penalty. In an IRA, you do not pay taxes on the money invested, lowering your yearly income tax responsibility. That is great until you try to take the money early. Then the penalty is triggered. Before you take a withdrawal consider this penalty.
2. Your Money is Not There to Grow
The temptation to use the money from an IRA for a penalty-free withdrawal in a situation like a first time home purchase should be considered cautiously, Charles Schwab adviser Carrie Schwab-Pomerantz said
. While education, medical emergencies, and first time home purchases will generally not face the penalties, they will still deplete the account, leaving less money there to grow into a healthy retirement savings.
3. There are Still Taxes to Pay
Even if your withdrawal qualifies to be “penalty free,” it will still be considered income that will have to be taxed. Schwab-Pomerantz advised that in a traditional IRA (not a Roth IRA), the money was not taxed going into the account. It will be taxed coming out. Finding the right timing and amounts on your withdrawals is important, Fidelity said
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