Okay, Iâm going to let you guys in on my career fantasy. The problem is that I donât know if itâs a fantasty that could one day become a beautiful reality or if it is just a Pipe Dream because of tax code or something else that Iâm not taking into account. Things have been going pretty well in the Roth IRA of late: Iâm making consistent gains. Now letâs suppose I can keep that up for 5 years and end up with, say, a million in that account. Someone let me know if the following is doable with that million: 1. I pull out about 500,000. If I do that, Iâll have to pay taxes on the 500,000 which will be around 25% plus Iâll have a 10% penalty. That will leave me with about 65% of the original or around $330k. 2. Leave the original $500k in the IRA and continue to build it up for retirement. 3. Trade off of the $500k. If I can swing trade even 33%, thatâs $165,000/year. So what do you think? Has it been done? Will the IRS stop me? I know I have to give some money to the IRS, but to me it would be worth it to be able to retire early.
It's possible. I know a guy who had less than $150K in his retirement account. He took it out, paid the penalties/taxes, quit his job and began trading full time. Worked his account to over 7 figures - bought some land on a big lake, had a $2mm custom place built. Sweet.
You don't pay any penalty out of a roth from withdrawing out your own after tax contributions that you made into it
What happens in year 1 of the new venture if you are down 20%? So you are down 20% plus all withdrawals you need to make to live. What happens if you are down the first 4 months of the year and cannot really make any withdrawals? $300K is not enough to live entirely off of given the trading risks.
Isn't there a retirement age, say 59 1/2 or something, that they want you to wait until before you start pulling anything out of it? I thought there was a 10% penalty if you pulled out before that?
Good point and I definitely admit I hadn't thought all the way through that. However, the way I trade is pretty steady and non-volatile: I use no margin, long only and a fixed acct %/trade. Furthermore, I use only stocks that are very steady (at least compared to the NASDAQ issues I started with). But you're right: I need to ask myself even harder q's than you posed actually and I agree 300k isn't enough. You've inspired me to look - for what it's worth of course - at some of my backtested numbers and come up with some parameters...
Yeah.. quitting your job to trade 150K left in a retirement account (probably 100K after taxes/penalties), is at minimum a huge gamble.