Please help early roth ira withdrawl

[Guest gemski]

I hope someone can help me. I opened a roth ira in 01. I am only 22. I contributed a total of $4000.00, this year I withdrew it early and recieved $3932.00. Am I going to get any penalties or taxes for this since I received less than I contributed?

Thanks for any help

Gemski

[John G]

None. You can always withdraw contributions to a Roth without a tax event. You actually have a slight loss, but claiming a loss is complicated and is probably not going to work for you.

I am curious why you withdrew the Roth funds. Normally, you want to keep you tax shelters for as long as possible with as much inside as possible.

It looks like you invested too "aggresively" as after four years you are modestly down. Stock markets due flucuate, but most broad based equity investments are up slightly over this time period.

[Guest gemski]

Thank you so much for your respone to my question. The main reason I took it out is because I needed to pay off medical bills from a car accident. But I have 401k so I figured I would be better off to take the roth ira because that was my money where the 401k is both mine and my employer contributes. I also was pushed into a roth ira by my financial advisor. She actually told me I could never touch that money no matter what after I put it in. Then I found out I could touch my money and when I withdrew it she told me I was going to get all these penalties and stuff like that. Needless to say she is no long my financial advisor! But, thanks for the help my mind is at ease

[ElGuapo]

That's funny about the advisor. It's a really common misunderstanding. I bet if I polled the team of brokers I used to work with half of them would say there's a penalty for withdrawing Roth contributions. My guess is this wasn't really an "advisor" at all, but a salesperson for certain products. Hope you switched to a direct no-load type of investment--as you can see there's often not much to be gained by working with a face-to-face contact anyway.

[John G]

Advisor? Sure sounded like someone that missed basic training classes on Roths. You made a wise decision to drop her. Way to many folks that work the counters at brokerages and banks have minimal training - do not count on them for advice on regulations, taxes or investments. It is helpful to have a second or confirming source on info.... IRS Publication 590 on Roths/IRAs is not exactly stimulating reading, but it is a useful source.

Note to all: Roths, regular IRAs, and conversion Roths all have different rules associated with early withdrawals.

[Demosthenes]

Unfortunately, many brokers are correct about penalties for withdrawing money from ROTHS.

They just "forget" to mention one little detail, these aren't IRS penalties, they are back end loads on the crappy funds they stuck you in.