How do IRA's work?

Question

I have a retirement account with my old job and since I left I can no longer contribute to it, and there is a penalty for withdrawing from it early. Someone told me I could roll it over to an IRA then use the money if I wanted to put down on a house and there would be no penalty. Please let me know if this is true and if you know any other loop holes to where I can get the money and put it to good used w/o being penalized.

Answer 1

See the following web site for all you ever wanted to know about IRAs.

http://www.irs.gov/retirement/article/0,,id=136960,00.html

Answer 2

The best use of the money would be to leave it in a retirement account so you would have income when you retire.

there are different types of IRA's but since you have a 401K, it would be moved to a traditional IRA account since the money has not been taxed.

yes, you can roll it over to a IRA account, either at a broker like E-trade or Scottrade or at a mutual fund like Janus, Vanguard, T. Rowe Price, etc. Find a company that doesn't charge you to set up the IRA and doesn't charge you a yearly fee to maintain the account. some IRA's cost to remove the funds, so check that out too.

You cannot take funds out of a 401K to purchase a home without paying a 10% penalty plus income tax.

If you qualify, you can take money out of an IRA for first time home but will still pay income tax on the money.

here is a link to IRS Publication 590 to get info on first time home buyer, etc.

Answer 3

3 kinds, ROTH, SEP, and Traditional.

Seps are for self employed ppl, so i will skip it
with Roth's the money is taxed when you put it in not when you take it out. normally used if you think you will be in a higher tax bracket latter in life.

Traditional tax the money when it comes out so the money you put in is not taxed when you put it in, so many ppl use these to roll over there 401k's.