Can I withdraw from my Roth IRA retirement account to fund a startup?
"Yes, it is possible to withdraw money from your Roth IRA before retirement (but I wouldn't necessarily advise you to do so.)  Here's the good news, and the bad news: The good news: Unlike a traditional IRA, money contributed to a Roth IRA is done so on an after-tax basis, meaning you don't benefit from a tax deduction on contributions. So, the money you withdraw from your Roth IRA will not be taxed entirely as ordinary income. In fact, you are allowed to withdraw the amount of your original contributions (also known as basis) without any taxes or penalties. Let's imagine you originally deposited $9000 of that current $10K total value – then in such a case, $9000 could be withdrawn tax and penalty free. The bad news: When it comes to the investment earnings – the other $1000 in my example –  it's a different story:  Since you wouldn't be age 59 1/2 at the time of withdrawal, any money taken out beyond your original contributions would be considered a non-qualified withdrawal and subject to both ordinary income taxes plus a 10% early withdrawal penalty.  Ouch! Perhaps you might want to restrict your withdrawal to your original contributions.  I would imagine if you've had the account for such a short period of time that much or all of your account value is original contributions anyway. A good article about the rules for early IRA withdrawals is About.com's Tax Penalty for Early Distribution of Retirement Funds. Note: If your Roth IRA funds were the result of a rollover from another account type, other rules may apply. See Roth IRA (Wikipedia) for more detail; search for ""rollover"". Regarding the withdrawal process itself and the timing, you should check with your account custodian on how to proceed." There are two methods of doing this Pulling out the money and paying the penalty if any, and going on your way. Having the Roth IRA own the business, and being an employee. If you go with the second choice, you should read more about it on this question. "Chris's answer is a great start. Keep in mind that when you withdraw from a Roth IRA, you ""shrink"" the size of the IRA (i.e. if the start up flourishes, you can't put the $10k you withdrew back, as you're limited to ~$5k in contributions per year). You may want to consider funding your startup with a credit card (ideally a balance transfer of $10k at 0% interest).  If you need to, you can always pay your card off with your Roth balance, but if the startup takes off, your IRA is unharmed. (On a side note, I wouldn't feel comfortable quitting my job to do a startup with only $10k in savings, but to each his own!)"
Yes sir, been there did that.  Now a Roth account is considered income if you it pull out. It is your money and you have to report if you pull it out. FYI, open a savings account, and put it in that so if you need it this will not happen. "1) Indeed, if referring to a Roth as the question is, you are right on. But - You can deposit to an Traditional IRA (TIRA). You just can't deduct it. You are then permitted to convert that to a Roth any time. Now, this would appear to negate income issues, right? Not so fast. When you convert, all TIRA accounts must be considered. In other words, when it comes to the TIRA, you only have One TIRA, the ""A"" actually standing for Arrangement, not account. That TIRA may then be spread over as many accounts as you have time to set up. So, if there is any pretax money and/or untaxed gain, it will be prorated and taxed based on your conversion amount. If any of this is not 110% clear, please comment and I will update the answer.  No 401(k) at work?  Note: I edited as my original wording misunderstood the response, and in turn, appeared a bit unkind. Not my intention." "One ""con"" I have not yet seen mentioned: retirement accounts are generally protected from creditors in a bankruptcy.  There are limits and exceptions, Roth has a 1.2 million dollar limit and can be split by a divorce QDRO for instance.  Link Since it seems you have no income this year, you may may be raiding your IRA for living expenses.   If there is a chance you may declare bankruptcy in the next year or so, consider doing that first and raid the IRA for seed money after." I think you're missing several key issues here. First for the facts: IRA contributions are $5500 a year maximum (currently, it changes with inflation), i.e.: you cannot deposit $10K in an IRA account in a single year. IRA withdrawals can only be made if you have something liquid in the IRA. You cannot withdraw from Lending Club IRA unless you manage to sell the notes currently held by you there. Roth IRA is funded with after-tax money, and you can withdraw your deposits in Roth IRA any time for any reason. No 10K limit there, only limited by what you deposited. However the main thing you're missing is this: You can withdraw up to $10K from your IRA for first home purchase without penalty. Pay attention: not without tax but without penalty. So what is the point in depositing $10k into IRA just to withdraw it the next year? Yes, it's possible to withdraw money without penalty but you have to do it in a special way. For example you have to withdraw the same amount every year until you retire: Tapping Your IRA Penalty-Free  as for unstable economy - you can trade many instruments in your IRA. you can do bonds, mutual funds, stocks, ETFs or just keep it in cash. Some do well in bad economy. I don't quite understand your thought process here.  First, in a tax-advantaged retirement account you are NOT allowed to engage in a transaction with yourself.   If you just want to run a business and be able to write off expenses, how is using the self-directed IRA relevant? You can either buy the condo using your tax-advantaged account and rent it out to regular tenants.  Or you buy the condo yourself using your own money and then operate your business so you can deduct business expenses from doing so.  401k's allow you to take a loan out of it, so you can look into that as well. You can take out the contributions to your Roth tax and penalty free.  That's the good thing. Anything above the amount you contributed that you withdraw early will cost you ordinary income tax (which is higher than capital gains tax) plus a 10 percent penalty on that amount. So if you have $15,000 in the account and $5,000 is gains and you withdraw $11,000, then you owe tax and penalty on $1,000.  The penalty is 10% and your taxes (high taxes!) are added to that.  Pretty bad deal. If you kept it in a normal account and paid capital gains tax, you just pay 15% (or whatever) on your gains and you get to offset income tax with your losses via tax loss harvesting. So back to your question: your idea works even better than you suggested if you only withdraw up to the amount that you contributed (you pay no tax!).  Take out any of the gains and you will be penalized more than you would if you just paid capital gains on them.  Leave those in until you are old enough to take them out penalty and tax free. To me, contributing to a Roth, making a bunch of gains on it, and withdrawing only the contribution part whenever you want seems to make good sense. One thing to keep in mind is that with Roth accounts, there are different withdrawal considerations based on your contributions. For example, you can withdraw Roth IRA contributions whenever you want in the future.  However this really has nothing to do with your cost basis and purely to do with the contribution amount vs balance. "In a Roth IRA scenario, this $5,000 would be reduced to $3,750 if we assume a (nice and round) 25% tax rate. For the Traditional IRA, the full $5,000 would be invested. No, that's not how it works.  Taxes aren't removed from your Roth account.  You'll have $5,000 invested either way.  The difference is that you'll have a tax deduction if you invest in a traditional IRA, but not a Roth. So you'll ""save"" $1,250 in taxes up front if you invest in a traditional IRA versus a Roth. The flip side is when you withdraw the money.  Since you've already paid tax on the Roth investment, and it grows tax free, you'll pay no tax when you withdraw it.  But you'll pay tax on the investment and the gains when you withdraw from a traditional IRA.  Using your numbers, you'd pay tax on $2.2MM from the traditional IRA, but NO TAX on $2.2MM from the Roth. At that point, you've saved over $500,000 in taxes. Now if you invested the tax savings from the traditional IRA and it earned the same amount, then yes, you'd end up in the same place in the end, provided you have the same marginal tax rate.  But I suspect that most don't invest that savings, and if you withdraw significant amount, you'll likely move into higher tax brackets. In your example, suppose you only had $3,750 of ""discretionary"" income that you could put toward retirement.  You could put $5,000 in a traditional IRA (since you'll get a $1,250 tax deduction), or $3,750 in a Roth.  Then your math works out the same.  If you invest the same amount in either, though, the math on the Roth is a no-brainer." "IRA is a tax-deferred account. I.e.: you're not paying any taxes on the income within the account (as long as you don't withdraw it) and you can deduct the investment (with certain limitation on how much, depending on your total AGI). It is taxed when you withdraw it - at ordinary rates for the ""traditional"" IRA and with 0% rate for ROTH, as long as the withdrawal is qualified (if not qualified - you pay ordinary rate tax for ROTH and additional 10% tax for both on the taxable amounts). The details are a bit complicated (there's deductible IRA, non-deductible IRA, roll-overs, etc etc), but that's the basic. Regular investment accounts are taxed currently on any income, but you get the ""better"" capital gains rates on many things. So which one is better depends how long your investment is going to be, what is your tax situation now, and what you anticipate it to be later when you retire." "Your funds are in a retirement account.  Withdrawals from your IRA will be penalized if you withdraw before you turn 59.5 years old, and you appear to be decades away from that age. The general advice I would give you is to pick a ""target year fund"" that targets the year you turn 59.5.  The stock market is more volatile, but its average gains will protect you from inflation just eating your funds.  Bonds are in counterpoint to your stocks - more stable, and protecting you from the chance that stocks dip right before you want to withdraw. Target year funds start with higher amounts of stock, and gradually rebalance towards bonds over time.  Thus, you take your market risks earlier while you can benefit from the market's gains, and then have stability when you actually would want to retire and depend on the savings." If you don't pull the money out of an IRA or 401(k) until you hit retirement age, there are no tax consequences at all. No matter how you invest or ignore it, it won't affect your return. Same for a Roth IRA, unless you move money out of the account before age 59 ½ it's essentially invisible to the IRS. (Because some of a Roth has already had taxes paid, the rules are more complicated if you do pull out the money, whereas the others are just a straight tax penalty with few exceptions.) From what these people are saying, it is impossible for you to put $5,500 in if it were a Roth though, because the money has to be taxed. You are correct that this is wrong.  You can still put $5,500 in a Roth - the tax payment comes when you file, not when you make the investment.  This is when the Roth is better than a Traditional IRA, when you can invest the max either way.  Yes you get the tax break for the Traditional investment, and if you invest the tax savings you'll be in the same spot, all else being equal. If you only have a certain amount (after taxes) to invest, say $3,000 in a 25% marginal tax bracket, then it works out the same either way.  You can either invest $3,000 in a Roth and let it grow tax free, or put $4,000 in a traditional IRA since you can deduct $1,000 (15%) from your taxes when you file. Then your tax-adjusted balance when you withdraw is the same, since you'll have a lot more (33% more in fact) in your traditional IRA but will have to pay tax on the withdrawals. You can't just move money out at will because of IRS rules for the account. However, you do seem to qualify for hardship.  &gt; I investigated a hardship withdrawal, the amount I would be allowed to withdraw was $75.00  You need to look into this more. Normally with a hardship withdrawl, you can pull out what you need. Ask your HR why it is you have a $75.00 limit. We really can't answer.  Also, this question is really for /r/personalfinance . This subreddit is about investing. There are a few incorrect assumptions in your question but the TL;DR version is: All, or most, of the withdrawal is taxable income that is reported on Lines 15a (total distribution) and 15b (taxable amount) of Form 1040. None of the distribution is given special treatment as Qualified Dividends or Capital Gains regardless of what happened inside the IRA, and none of the distribution is subject to the 3.8% Net Investment Income Tax that some high-income people need to compute on Form 8960. If the withdrawal is not a Qualified Distribution, it will be subject to a 10% excise tax (tax penalty on premature withdrawal). Not all contributions to Traditional IRAs are deductible from income for the year for which the contribution was made. People with high income and/or coverage by a workplace retirement plan (pension plan, 401(k) plan, 403(b) plan, etc) cannot deduct any contributions that they choose to make to a Traditional IRA. Such people can always make a contribution (subject to them having compensation (earned income such as salary or wages, self-employment income, commissions on sales, etc), but they don't get a tax deduction for it (just as contributions to Roth IRAs are not deductible). Whether it is wise to make such nondeductible contributions to a Traditional IRA is a question on which reasonable people can hold different opinions.  Be that as it may, nondeductible contributions to a Traditional IRA create (or add to) what is called the basis of an IRA. They are reported to the IRS on Form 8606 which is attached to the Federal Form 1040.  Note that the IRA custodian or trustee is not told that the contributions are not deductible. Earnings on the basis accumulate tax-deferred within the IRA just as do the earnings on the deductible contributions. Now, when you make a withdrawal from your Traditional IRA, no matter which of your various IRA accounts you take the money from, part of the money is deemed to be taken from the basis (and is not subject to income tax) while the rest is pure taxable income. That is, none of the rest is eligible for the reduced taxation rates for Qualified Dividends or Capital Gains and since it does not count as investment income, it is not subject to the 3.8% Net Investment Tax of Form 8960 either. Computation of how much of your withdrawal is nontaxable basis and how much is taxable income is done on Form 8606. Note that you don't get to withdraw your entire basis until such time as when you close all your Traditional IRA accounts. How is all this reported? Well, your IRA custodian(s) will send you Form 1099-R reporting the total amount of the withdrawal, what income tax, if any, was withheld, etc. The custodian(s) don't know what your basis is, and so Box 2b will say that the taxable amount is not determined. You need to fill out Form 8606 to figure out what the taxable amount is, and then report the taxable amount on Line 15b of Form 1040. (The total withdrawal is reported on Line 15a which is not included in the AGI computations). Note that as far as the IRS is concerned, you have only one Traditional IRA. The A in IRA stands for Arrangement, not Account as most everybody thinks, and your Traditional IRA can invest in many different things, stocks, bonds, mutual funds, etc with different custodians if you choose, but your basis is in the IRA, not the specific investment that you made with your nondeductible contribution. That's why the total IRA contribution is limited, not the per-account contribution, and why you need to look that the total value of your IRA in determining the taxable portion, not the specific account(s) from which you withdrew the money. So, how much basis did you withdraw?  Well, if you withdrew $W during 2016 and the total value of all your Traditional IRA accounts was $X at the end of 2016 and your total basis in your Traditional IRA is $B, then (assuming that you did not indulge in any Traditional-to-Roth rollovers for 2016), multiply W by B/(W+X) to get the amount of nontaxable basis in the withdrawal. B thus gets reduced for 2017 by amount of basis withdrawal. What if you never made a nondeductible contribution to your Traditional IRA, or you made some nondeductible contributions many years ago and have forgotten about them? Well, you could still fill out Form 8606 reporting a zero basis, but it will just tell you that your basis continues $0. Or, you could just enter the total amount of your withdrawal in Lines 15a and 15b, effectively saying that all of the withdrawal is taxable income to you. The IRS does not care if you choose to pay taxes on nontaxable income.