when buying & selling stocks is it better to have an ira account even when i take some out to pay bills?

Question

trying to understand if i'm better off tax wise to not have a ira account due to early withdrawal penalty taxes

Answer 1

The only benefit for having an IRA that you expect to use prior to retirement is if you take out $10,000 for a first time home purchase, or you use it for qualified higher education (tuition, fees, books, expenses). In that case, the IRA withdrawal, although it will be taxed as income, it will not incur the 10% penalty. Why is this better than a taxable account? Because all the while you are deducting the contribution from your income AND the earnings are growing tax deferred. Plus, if it turns out you do NOT need the money, it can stay safely in the IRA until retirement. I certainly wouldn't put in money that I was planning on using for a car or vacation...but if you want an emergency fund that is hard to touch (prevents temptation) and could be kept for retirement, and IRA is hard to beat.

A Roth IRA is another good choice. You can always pull out money you put into the Roth without any taxes or penalties as long as you don't touch the earnings.

But, if you want an account to pay bills, neither account is better than a simple checking or savings account. If the amount of money you keep in there is substantial, look around for a good interest rate. Otherwise, look for low fees.

Answer 2

Better to have both IRA and non IRA accounts. The money earned withing the account can acculuate tax free until such time as you withdraw it. Try not to touch it early due to the penalty. Have a non IRA account for purposes of using the money otherwise.

Answer 3

Not by a long stretch. I would recommend you invest in a good book that covers financial planning. There's a lot more to financial security than just investing, and buying and selling stocks unless you have more than $100K to invest AND a firm and disciplined investing strategy is not investing, it is gambling. Financial security involves a lot of things including - getting rid of your debt - debt is one of the worst things you can have except perhaps a mortgage. Since you don't have a family or home, you can delay life insurance, but at some point you will need it and a FP book will help you figure out when. Next steps - Set up a ROTH IRA for yourself with a good, no-load mutual fund like something from T Rowe Price, Vanguard or Selected American. Use payroll deductions to invest every month and really try to put away the $3K a year you can. Once you establish that discipline, you will likely keep it up, but starting early is best because time will compound the growth of your investments. Time is your best friend. Other than that, keep in mind that HIGH risk usually doesn't mean better returns. This is too short a space to explain why but as you learn you'll get it. Invest in something moderately risky at this point like a good balanced fund (meaning a combination of different kinds of stocks). Bonds are not a good choice for someone saving for the long term. When you begin to accumulate more money or your life gets more complicated, seek out a good financial advisor. At this point, if you'll invest the time you won't need one, but once you start a family it will be a good time to ask for objective advice. Best of luck

Answer 4

If you are older than 59 1/2 and you are not holding the stocks for more than a year, it is a great idea because the only tax liability is on what you withdraw. This means that you can reinvest your capital gains tax deferred - they will be taxed as ordinary income when you withdraw. I do this pretty frequently.

Early withdrawals from an IRA are usually a bad idea due to the 10% tax penalty. See this link for exceptions. http://www.irs.gov/publications/p17/index.html
If you are younger than 59 1/2 it is a bad idea

Answer 5

The idea of an Individual Retirement Account (IRA) is to segregate retirement investment money from normal money (see link 1). You can't touch this stuff except in an emergency, major emergency, and even then you have penalties (see link 3). If you put money into an IRA, kiss it good by until you are ready to take it out during your retirement (see link 2).

Think of it like making really risky speculations or gambling--set aside only that which you can afford to lose. The beauty of an IRA is that, unless you invest in stuff like Enron and WorldCom, you don't lose this money, it is there when you are ready to retire.

Answer 6

If you are going to take money out, it is better to get a money market account or something. Taking money out of and IRA is taxable income and 10% penalty. Try mutual funds or money markets.