early retirement withdrawal http://www.wisebread.com/taxonomy/term/13946/all en-US Opening a Roth IRA for Your Kid http://www.wisebread.com/opening-a-roth-ira-for-your-kid <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/opening-a-roth-ira-for-your-kid" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/566087174_4b0055634f_z.jpg" alt="smiling mother daughter" title="smiling mother daughter" class="imagecache imagecache-250w" width="250" height="167" /></a> </div> </div> </div> <p>My parents have done a lot for me. But one of the things I am the most grateful for is that they opened up a Roth IRA for me when I was in high school, the first year that the account was available.</p> <p>Like many people, I didn't think much about long-term savings when I was younger. Most of my goals were relatively immediate, saving for things like a video camera, travel, or the security deposit for my first apartment. And I remained similarly short-sighted at my first couple of jobs post-college. Convinced I wouldn't be at my first job long enough for them to start matching my contributions, I&nbsp;passed on contributing to my 401(k). I felt extra sour about that particular company's retirement plan when I discovered that my holiday bonus &mdash; a deposit into my 401(k) &mdash; disappeared when&nbsp;I quit because I hadn't vested. So what did I do? I said &quot;screw it&quot; to retirement savings, and ignored the 403(b) at my next job, too.</p> <p>Flash forward to now &mdash; after several years of freelancing and learning about finances, I wish that I had the foresight to set up a 401(k) when I could have. But that also makes me extra thankful for the retirement account I do have, and have had since my teens &mdash; my Roth IRA. (See also: <a href="http://www.wisebread.com/why-roth-iras-are-ideal-for-young-professionals">Why&nbsp;Roth&nbsp;IRAs Are Ideal for Young Professionals</a>)</p> <h2>Some Roth IRA Benefits</h2> <p>Anyone who has earned income can set up a Roth IRA, and the accounts are generally very easy to open.</p> <p>Roth IRA account holders can withdraw any funds they contributed to their account, tax-free, at any time. While I don't think it's good practice to encourage people to tap into their retirement savings early, this can be helpful. For example, I once removed a couple thousand dollars from my Roth IRA so that I could buy an inexpensive used car without resorting to a loan.</p> <p>Even some Roth IRA earnings can be withdrawn before retirement time under certain circumstances, such as when you're <a href="http://www.wisebread.com/what-it-really-costs-to-own-a-home">buying your first home</a>.</p> <h2>Setting Up Roth IRAs for Kids</h2> <p>As I mentioned above, who has earned income can set up a Roth IRA. You can't pay your kid to do work, but if he has a summer or part-time job, he's eligible. Even cash jobs like babysitting can count. According to Janet Bodnar at <a href="http://www.kiplinger.com/columns/drt/archive/2008/dt080130.html">Kiplinger's</a>, if your child mows lawns for the summer, you just need to &quot;keep careful records of each job...And it would make a stronger case if he mowed lawns not just for you but for other customers as well.&quot;</p> <p>If your child has spent part (or, well, all) of her money, you can also kick in cash on her behalf &mdash; but the maximum contribution is $5,000 or the total of your child's earned income, whichever is smaller.</p> <p>Bodnar also notes in her piece that some companies will not open accounts for children under 18. Others, do, however; just know you might have to search around a little bit to find one.</p> <p>Did you set up a Roth&nbsp;IRA for your child? If so, what was your experience?</p> <p><em>The post is part of the </em><a href="http://www.goodfinancialcents.com/roth-ira-account-movement/"><em>Roth IRA Movement</em></a><em>.</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/meg-favreau">Meg Favreau</a> of <a href="http://www.wisebread.com/opening-a-roth-ira-for-your-kid">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-reasons-why-a-roth-ira-may-be-better-than-your-401k">4 Reasons Why a Roth IRA May be Better Than Your 401(k)</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-set-up-an-ira-to-build-wealth">How to Set Up an IRA to Build Wealth</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-surprising-facts-about-roth-iras">7 Surprising Facts About Roth IRAs</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/tax-penalties-for-early-retirement-withdrawals">Tax Penalties for Early Retirement Withdrawals</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/step-by-step-guide-to-rolling-over-your-old-401k">Step-By-Step Guide to Rolling Over Your Old 401(k)</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment Retirement children and money early retirement withdrawal investing for kids Roth IRA Tue, 27 Mar 2012 10:00:32 +0000 Meg Favreau 913196 at http://www.wisebread.com Tax Penalties for Early Retirement Withdrawals http://www.wisebread.com/tax-penalties-for-early-retirement-withdrawals <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/tax-penalties-for-early-retirement-withdrawals" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/empty_pocket.jpg" alt="Man with empty pocket" title="Man with empty pocket" class="imagecache imagecache-250w" width="250" height="164" /></a> </div> </div> </div> <p>There are many different types of funds and plan options that allow you to save for retirement. Many plans are provided by an employer as a benefit. The following are examples of some of the common retirement plan options:</p> <ul> <li><strong>401(k)</strong> &mdash; This is a retirement savings plan funded by employee contributions and typically matched by employer contributions. These plans are tax free until they are converted or collected.<br /> &nbsp;</li> <li><a title="Why Roth IRAs Are Ideal for Young Professionals" href="http://www.wisebread.com/why-roth-iras-are-ideal-for-young-professionals"><strong>Individual Retirement Account</strong></a><strong> (IRA)</strong> &mdash; This is a plan that allows you to contribute a certain amount during your working years and defers the taxes on the earned interest until the plan is cashed in.<br /> &nbsp;</li> <li><strong>Pension Plan</strong> &mdash; A savings account that is arranged to be funded in part or full by your employer on your behalf.</li> </ul> <p>Best of all, most retirement savings plans are tax-deferred until the time when you begin collecting on them after retirement. Encouraging saving for the golden years was the idea behind retirement savings, and thus early withdrawal from a retirement account comes with heavy consequences. (See also: <a href="http://www.wisebread.com/the-10-step-staircase-to-a-comfortable-retirement" title="The 10-Step Staircase to a Comfortable Retirement">The 10-Step Staircase to a Comfortable Retirement</a>)</p> <h2>The Consequences of Withdrawals</h2> <p>Withdrawing from a retirement fund before retirement age is tempting, especially if an unforeseen situation puts you in financial hardship. But there are heavy penalties that come along with early retirement withdrawals. Consider every option before resorting to borrowing from your retirement savings.</p> <p>The <a title="Can You Settle Your Old IRS Debts" href="http://www.wisebread.com/can-you-settle-your-old-irs-debts">Internal Revenue Service</a> (IRS) governs the tax-related fees and penalties associated with early withdrawal from your retirement plan. All plan distributors must follow the IRS rules. In addition to the IRS penalties, specific retirement plan administrators may impose additional penalties for early withdrawal &mdash; some heavier than others. Many of these penalties add up and end up being very costly.</p> <p>The following penalties are common among most retirement plans:</p> <ul> <li>Being penalized for borrowing from a plan prior to the age of 59-1/2 or before formal retirement occurs.<br /> &nbsp;</li> <li>The amount borrowed becoming a part of your yearly taxable income.<br /> &nbsp;</li> <li>A 10% tax placed on early withdrawals unless you can qualify for an exception with the IRS by meeting certain criteria.<br /> &nbsp;</li> <li>The loss of the potential tax relief from having the money in a structured retirement fund.<br /> &nbsp;</li> <li>The loss of the potential gains from having the money invested in stocks or bonds. By withdrawing funds, you lose the opportunity to gain on the investments you could have earned from that money.<br /> &nbsp;</li> <li>In addition to the taxes you must pay on the money, many plans impose an additional penalty for early withdrawal.</li> </ul> <p>These are just a few of the consequences of borrowing from your retirement funds. This is not an all-inclusive list, but rather a general idea of some of the common penalties imposed on those who borrow from a retirement savings plan.</p> <h2>Alternatives to Taking an Early Retirement Withdrawal</h2> <p>Due to the financial consequences of taking money out of a retirement account early, you should consider alternatives before resorting to the withdrawal.</p> <h3>401(k) Loan</h3> <p>If you have a 401(k) retirement plan, you may be able to take a loan from the account rather than a hardship withdrawal. When you borrow money in the form of a 401(k) loan, it is not taxable as income unless you fail to pay it back. When you pay back your loan, you are paying yourself back.</p> <h3>Roth IRA</h3> <p>If you have a Roth IRA, you are making contributions with after-tax money. This means you can take withdrawals from a Roth IRA at any time without penalty or having to pay income tax. For that reason, if you have more than one type of retirement account, it is always advisable to withdraw from the Roth IRA before any other retirement fund.</p> <h3>Bankruptcy</h3> <p>If you are in an extreme hardship, you may want to consider bankruptcy instead of pulling money from your retirement plan. Money in an employer-sponsored retirement plan or an IRA is excluded from bankruptcy &mdash; meaning a creditor cannot take from a retirement account to satisfy your debts.</p> <p>The best advice is to consider every alternative before making an early withdrawal from any retirement fund. The financial consequences that come along with early withdrawal can be so heavy that making an <a href="http://www.wisebread.com/retirement-accounts-and-money-to-spend">early withdrawal from any retirement investment</a> is almost never a sound financial decision &mdash; or a good way to invest in your future.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/debbie-dragon">Debbie Dragon</a> of <a href="http://www.wisebread.com/tax-penalties-for-early-retirement-withdrawals">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-15"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/should-you-choose-a-roth-401k-or-a-regular-401k">Should You Choose a Roth 401k or a Regular 401k?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/opening-a-roth-ira-for-your-kid">Opening a Roth IRA for Your Kid</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-important-things-to-know-about-your-401k-and-ira-in-2016">5 Important Things to Know About Your 401K and IRA in 2016</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/did-your-parents-give-you-a-whole-life-insurance-policy-heres-what-to-do-with-it">Did Your Parents Give You a Whole Life Insurance Policy? Here&#039;s What to Do With It.</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-reasons-why-a-roth-ira-may-be-better-than-your-401k">4 Reasons Why a Roth IRA May be Better Than Your 401(k)</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment Retirement Taxes early retirement withdrawal retirement and taxes tax penalties Thu, 18 Aug 2011 09:48:14 +0000 Debbie Dragon 550551 at http://www.wisebread.com