Read This Before You Take an Early IRA Withdrawal
If you're saving for retirement in an IRA, you're already doing something smart for your future. But what happens when you're hit with a financial emergency and don't have enough money in savings to cover the cost? Or what if you just plain need money to cover some extra expenses and figure you might as well tap the funds sitting in your IRA? Tempting as it may be to take an early IRA withdrawal, it's actually a move that could hurt you in many ways. Here's why.
In case you need a refresher, here's the deal with IRAs and withdrawals. If you're saving in a traditional IRA and are therefore getting an immediate tax break every time you contribute, you're required to leave that money alone until you reach 59 1/2. If you have a Roth IRA that you're funding with after-tax dollars, the rules are more flexible in that you're allowed to withdraw funds at any time, provided you only touch the principal portion of your account. If you put in $10,000 of your own money, and your investments bring the balance up to $12,000, the initial $10,000 is yours to withdraw, but you could be penalized if you remove that $2,000 in gains.
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Source: Fool.com
