When opening a Roth IRA account it is important to know the possible penalties that you may apply to you in the future. Roth IRA penalties can occur for a variety of different things but in this article we will be going through a few of the most common. It is always best to make sure that you discuss the penalties with your financial advisor before you make a final decision regarding opening a Roth IRA account.
Probably the most common penalty that you may run into is Roth IRA withdrawal penalties. If you make a withdrawal of investment gains before you reach the age of 59 1/2 years old then you will be subject to any early withdrawal penalty that is usually 10% of the amount that you take out. This means that while it is entirely possible for you to withdraw money before you reach retirement you will be penalised for doing so. Should you make an early withdrawal then the money you take that will also be subject to tax unless you are over the age of 59 1/2.
There are some circumstances that may allow you to withdraw from self directed Roth IRA accounts before this age without a penalty though. For example, you may be able to withdraw due to disability although the rules are quite strict in this regard. Should the owner of the IRA account die then it is also possible to withdraw the money without any sort of penalty. In some cases you may be able to withdraw money without any penalty to help pay for a home if it is your first buy.
There are also some Roth IRA conversion rules that you need to be aware of should you want to change from a traditional IRA. These work in a slightly different way to early withdrawal penalties though and should you wish to do so it is important to make sure that your financial adviser discusses it with you in a clear manner.
Roth IRA penalties are notoriously difficult to get your head around when you first start looking at them. Make sure you know the meanings of different terms such as investment gains and initial investment as the rules regarding early withdrawal these are not the same. It is often easier to hire a financial adviser to give you professional advice as to what possible Roth IRA penalties could be in the future.