Taking Money Out of Your IRA
An IRA help employees save up for retirement. When you put money into an IRA you can write it off from your taxes letting you save tax free money. But when you do eventually retire you will have to pay taxes on the money to make up for it. But what happens if you want or need to get money out of your account early?
Well you if you are under the age of 59 ½ you may be able to take money out from your account by taking a simply IRA withdraw. But the IRA withdrawal regulations make you pay taxes on the money that you take out and a early withdrawal fee.
All these fees can really add up and force an investor have to take even more money from their account in order to pay these added fees. And it can also be harmful for your future. The more money you take out now the less you will have when you retire.
However the IRA account rules do let you borrow money from your account if you only need is a short term loan. This is done by creating a IRA rollover strategy.
In order to do an IRA rollover you must either have 2 IRA accounts or a 401k and an IRA. In a rollover you are transferring money from one account to a new account. You receive a check for the amount in the old account and have 60 days to deposit it into the new account.
During those 60 days you can use the money to pay bills or whatever, just as long as you do invest the full amount into the account at the end of that time period. Any money that you do not deposit into the new IRA account will be treated as a withdraw.
There is also one other big disadvantage to using this strategy. And that is 20% of the money you are rolling over will be withheld for a while in order to pay for potential bills such as taxes. I you do not want to get hit with the penalty not only would you have to pay back the money you borrowed, but you would have to put extra money into your account. That makes it look like a loan with a huge interest payment, but you are paying it to yourself.
Remember IRA accounts are built to be long term investment vehicles, so taking money out early is only justified if you have no other option.