Clearly there are emergencies and other situations that will deem it necessary for you to dip into your Roth IRA funds from time to time, but with the penalties that will be imposed upon the distribution you may be better off going to a traditional financial institution like your local bank or credit union to apply for an emergency loan. The government has put these penalties and fees in place for good reason. This is so will not be as easy to access your retirement money, so you may leave it in there for your golden years.
Another reason for such stiff penalties is that the contributions are made pretax out of payroll compensation, and the IRS clearly wants the income tax, that revenue has generated. As these guidelines change from year to year, you will want to consult with your financial planner, and/or income tax advisor before making a premature withdrawal from your IRA account. There are also penalties for rolling over or converting from a traditional IRA to a Roth IRA, and depending on the amounts and how the contributions were made, will dictate the overall penalties that the IRS will impose on this change.
There are early withdrawal situations that these penalties will not be applicable. As these definitions are very narrow in scope, and again employing the advice of a tax consultant, your CPA, and or your financial planner that assists in the management of your Roth IRA account. These early distribution withdrawals can be used for medical emergencies under certain guidelines, qualified expenses for college education, and the use of up to $10,000 to pay the cost of a first-time home purchase. The latter being a one-time distribution use for the purchase of a home.
You can also make an early withdrawal to reimburse the Internal Revenue Service after they placed a levy against your Roth IRA for back taxes. In summary, if you need medical emergency funds for surgery, cancer treatments, or other life-threatening medical issues, you first need to make sure that your needs fall within the guidelines of early withdrawal. Granted, the loss from penalties and administrative charges may not even be a thought, as when a family member’s life is at stake, the interest will not matter. The major downside to this type of transaction is that it took you years, or even decades to attain this type of growth in your account, and it can be wiped away in seconds.