Lending Club Blog

You should fund your IRA, even if you might need the money

When I first opened my IRA, I spent a lot of time making the decision about whether or not I should maximize it. I don’t have a steady income, being a student, and I was worried that I would need that money at some point but not be allowed to touch it. In essence, IRA money isn’t liquid. If something bad happened, I thought I would be like an idiot kid trying to reach into a chokepoint candy jar and not realizing he can turn it upside down–inches away from the candy, but unable to get it out.

Fortunately, the creators of IRAs planned for this. IRAs allow penalty-free early withdrawals if the owner really needs money. IRA early withdrawals can be taken out without a penalty in cases where there are significant life events. Some of these events include:

    • Medical necessity
    • Buying a house
    • Paying for school
    • Health insurance

Additionally, you can set up a 72t early IRA distribution, although from my understanding this is something that doesn’t make sense to do when you are young.

One other thing to remember is that if you have a Roth IRA, you are allowed to withdraw your principal money tax-free. Your principal is the money that you actually deposited, not the interest you make on your deposits.

At Lending Club, we want you to fund your IRA. It’ll make your retirement much more comfortable. Even if you really need the money and you can’t take it out tax- free, you’ll only have to pay a 10% penalty—while that might be a lot, it isn’t going to kill you.

Monday, September 17th, 2007 at 11:43 am

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