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IRA early withdrawl penalties?

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holden j caufield

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Little late on contributing to my IRA but the last few years I've put 5k in an IRA. I've put in 20k total and currently it sits at 23.5k. The return is good but there is another opportunity that could go up 1000%. So I'd like to withdraw but I'm not even close to the withdrawl age. What can I take out without too much penalty. Can I withdraw just the principal without too much of a hit. Do I pay regular taxes plus 10% on top for any withdrawl amount or just on the earnings (3.5k)

Edit: Not Roth, regular IRA
 
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Is it a Roth or Traditional IRA? If it's a Roth you can withdraw your principal tax free since you already paid taxes on it.

A word of caution, no investment is guaranteed and it's generally a bad idea to play with retirement money. It's much better to take out a loan for stuff like this.
 
Rule of thumb, don't ever withdraw from your 401k/retirement. Borrowing from it is not too smart either.

1000% "opportunity" sounds sketchy.

But if you are so sure, take out 0% Balance transfer for 18 months (just make sure you can actually pay it off). 2% Transfer fee is not bad.

If you own a house, it might be a good idea to refinance (if you can go down 1% interest or so, this varies for everyone so be careful) and cash out some equity in the process.....you do own a house....right?

DO NOT take out 2nd mortgage or Equity loan though (big mistake).

In general, I would not risk taking on debt for an investment. You should only invest money that you can save/budget for while still being able to live/save for other things in the process.

And if you do gamble it, don't put all your eggs into one basket!
 
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Thanks for the advice, yeah I know it's not a traditional or smart thing to do. But I've got time on my side if it doesn't pan out and honestly 20k isn't going to to change my life if I lose it. Yes it'll hurt but it's not going to change anything, but 1000+% would.

Don't you ever wish looking back that you might have taken more chances in your younger days in some game changer, however minute the chance might be.
 
What is this 1000% return? If its is a nigerian prince who needs help, or a nigerian oil rig don't believe it.
 
holden j caufield said:
Thanks for the advice, yeah I know it's not a traditional or smart thing to do. But I've got time on my side if it doesn't pan out and honestly 20k isn't going to to change my life if I lose it. Yes it'll hurt but it's not going to change anything, but 1000+% would.

Don't you ever wish looking back that you might have taken more chances in your younger days in some game changer, however minute the chance might be.
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for 20k, you cant find another way of borrowing? house loan, car loan, bank loan, personal loan, family, etc.. should be plenty of ways to find 20k. 23.5k penalty on traditional ira is going to be your marginal tax rate on the whole thing + 10%. so if you are in the 25% bracket, you'll lose 35% of 23.5k only yielding you 15.275k back.

20k today in 35 years at 7% is like 213k. sure not game changing but may be worth a year or two of retirement.
 
You shouldn't withdraw from an IRA, but in case you do, then know the rules:
https://www.fidelity.com/retirement-planning/learn-about-iras/ira-withdrawal

As someone else mentioned, it's better to have a ROTH IRA since you can withdraw the principal without penalty. But there is a 5 year ROTH aging requirement that you should ask your IRA Brokerage advisor about to see how it fits into your profile.

For future reference, look into filling out a ROTH Conversion Form to move your money into a ROTH for more flexibility....that is, if you're OK with paying the taxes up front.....
 
sounds like a terrible idea, but yeah, since its a normal IRA you pay taxes on it like income, and then a 10% early withdrawal penalty.
 
dr150 said:
You shouldn't withdraw from an IRA, but in case you do, then know the rules:
https://www.fidelity.com/retirement-planning/learn-about-iras/ira-withdrawal

As someone else mentioned, it's better to have a ROTH IRA since you can withdraw the principal without penalty. But there is a 5 year ROTH aging requirement that you should ask your IRA Brokerage advisor about to see how it fits into your profile.

For future reference, look into filling out a ROTH Conversion Form to move your money into a ROTH for more flexibility....that is, if you're OK with paying the taxes up front.....
Click to expand...


thx, I'll look into this
 
holden j caufield said:
Thanks for the advice, yeah I know it's not a traditional or smart thing to do. But I've got time on my side if it doesn't pan out and honestly 20k isn't going to to change my life if I lose it. Yes it'll hurt but it's not going to change anything, but 1000+% would.

Don't you ever wish looking back that you might have taken more chances in your younger days in some game changer, however minute the chance might be.
Click to expand...

The future value of $20,000 at a 10% interest rate for 30 years is almost $350,000.

Your opportunity cost is not $20,000. You are potentially giving up $350,000.

Assume that after taxes, you have $12,000 left from the $20,000 IRA. If it takes one year to make you 1000% investment and the likelihood of success is 20%, there are two outcomes. 80% of the time you end up with nothing. 20% of the time you end up with $120,000. From that you would also subtract taxes so let's call the one year net $80,000. You would then invest that at 10% for 29 years. The future value of that would be almost $1,270,000. However your chance of success is only .2, so your expected value of the investment is $254,000. So in this case, you're comparing a high risk investment with a EV of $254,000 to a very low risk investment of $350,000.

You can play with the numbers however you want. If it will take 5 years for the 1000% return but the likelihood of success is .5, then the EV would be about $433,000. So here the EV of the risky investment is better than the IRA. But one is high risk and one is low risk. You should take that into account.
 
holden j caufield said:
Thanks for the advice, yeah I know it's not a traditional or smart thing to do. But I've got time on my side if it doesn't pan out and honestly 20k isn't going to to change my life if I lose it. Yes it'll hurt but it's not going to change anything, but 1000+% would.

Don't you ever wish looking back that you might have taken more chances in your younger days in some game changer, however minute the chance might be.
Click to expand...

You don't sound too sharp so which scam artist is going to take your money?
 
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