IRA from a previous employer "tax ?"

[respro]

Hey everyone, as the title suggests I have an IRA from an old job. It's only a few thousand dollars and I want It to start working a little harder. I Have a Scottrade account that I will be rolling this money into. I want to use this money to buy stocks, mutual funds, ETFs etc. I want to know how much of a penalty I am going to have to pay for breaking this IRA up and investing in different things. I know that if I get them to just send me a check I'll have to pay some kind of penalty. I just don't know how much and if it will be any different than investing in stocks etc.
Also, I do plan on taking profits from these investements and putting them in my pocket long before retirement!
Thanks a bunch, Respro

 

[Frixxxx]

Hey everyone, as the title suggests I have an IRA from an old job. It's only a few thousand dollars and I want It to start working a little harder. I Have a Scottrade account that I will be rolling this money into. I want to use this money to buy stocks, mutual funds, ETFs etc. I want to know how much of a penalty I am going to have to pay for breaking this IRA up and investing in different things. I know that if I get them to just send me a check I'll have to pay some kind of penalty. I just don't know how much and if it will be any different than investing in stocks etc.
Also, I do plan on taking profits from these investements and putting them in my pocket long before retirement!
Thanks a bunch, Respro

If it is only a few thousand dollars, I wouldn't take a penalty at all. Move it to another form of IRA, maybe self-directed. If you want to get in the stock trading aspect, I'd save $$ a pay period (like a christmas fund) and then deposit that into a working account. You said you want to use the money before retirement so I don't know what your goal is specifically. Are you trying to develop a revenue stream?

 

[respro]

If it is only a few thousand dollars, I wouldn't take a penalty at all. Move it to another form of IRA, maybe self-directed. If you want to get in the stock trading aspect, I'd save $$ a pay period (like a christmas fund) and then deposit that into a working account. You said you want to use the money before retirement so I don't know what your goal is specifically. Are you trying to develop a revenue stream?

Hi Frixxxx, This will be my "spending money account", and my "learn to trade account". I don't have much of an option to start taking money out of my paycheck to fund this account. If I did I would just put the extra contributions into my TSP. I plan to be very aggressive after I learn a lot more. The money is basically sleeping right now and I want it to start working. I have done some reseach and it looks like I will be penalized 10% for early withdrawal. Thats about $360.00. Yeah that stings but the money is bassically sitting there. I was thinking that I will just eat the penalty and start the account up and then buy some stocks with dividends and slowly make that $360.00 back. As I go along when I get overtime, tax refunds, etc. I will put that money straight into the account. Oh, when I say "spending money acount" I know that It will take a pretty good amount of time before the account starts returning enough to qualify as a 'revenue stream". Thats even If I make some fantastic trading decisions! And when I say aggressive I mean "Buy Low+, Sell High", "Shorting," etc. I understand that shorting is extremely risky though.

 

[Frixxxx]

Respo,

Remember that you may have to pay taxes on that cash this year (or it is considered taxable), not just the penalty. If you are using this as a learning experience, I recommend that you focus on dividend paying stocks if you can. They are great foundation stocks to start with. Plus with rollover dividends, they add up to your balance over time. Remember when you say "aggressive" you are talking about stocks that take risk at a level that is higher than most. I point back to dividend paying stocks as a foundation. So, if you have time, patience, and can focus on it, then you will recoup your initial loss in a year if the market performs. Then start to look at stocks that interest you and can perform at the levels that get you the returns you desire.

I'm not a certified broker, trader, or finacial planner, but I highly recommend one (mainly CFP)to walk through your goals and set expectations. Cover your bases so that no matter what decisions you make and portfolio ebb & flows, you are structured in a way that you can recover from if you find yourself down hard on your investments.

Good Luck!

Maybe share on your decision and let us know if you learn anything you don't see posted on the site.

 

[respro]

Thanks Frixxxx, I'm going to talk to my CPA to hash out the tax situation and I'll make a decision from there. I will let everyone know how it all works out.
Respro