Trading out of Roth IRA while young

[optionsgambler]

I am 24 years old and have run my roth ira up a large amount day trading. Now that account holds the vast majority of my wealth.

I'd like to start trading from there full time and was wondering the implications I will face when I inevitably have to withdraw. From my understanding, I will have to pay a 10% penalty on earnings + taxes. Are there any alternatives or is this the only way to withdraw?

 

[Scataphagos]

"...An investor who uses a Roth IRA must defer taking any distributions until at least age 59 1/2 to achieve this completely tax-free status...." So, you could only "accumulate" until 59 1/2, not "live off the earnings" prior to that.

Search "Roth IRA Rule" for full details.

 

[piezoe]

I am 24 years old and have run my roth ira up a large amount day trading. Now that account holds the vast majority of my wealth.

I'd like to start trading from there full time and was wondering the implications I will face when I inevitably have to withdraw. From my understanding, I will have to pay a 10% penalty on earnings + taxes. Are there any alternatives or is this the only way to withdraw?

Unless your living and other expenses are met from another source this cannot not work. Although one can trade both options and equities in a Roth Account, an excellent thing for an experienced trader to do, I am a little surprised your broker will let you day trade in a Roth. Not a good idea! You are only 24. Markets may always go up over the long haul, but markets can, and will, go down within time frames that are too long for you to psychologically absorb the drawdown. Anyone can make money in a strong bull market. It's when things go sour that real skill and experience is required. And you won't be able to short in a Roth, legally, because you can only hold positions in a Roth that have defined maximum loss. Furthermore those few who can make consistent money day trading, typically do so on margin because they need to trade in large size. You cannot trade on margin in a Roth.

 

[DaveV]

... From my understanding, I will have to pay a 10% penalty on earnings + taxes. Are there any alternatives or is this the only way to withdraw?

Just to clarify, your only have to pay the penalty on the earnings. You can withdraw any portion of your initial contribution at any time without penalty.
Also, there are ways around the earnings withdrawal penalty, such as to pay college tuition (for yourself, spouse or child), or health insurance premiums while unemployed.

Also watch out for the Roth 5 year minimum withdrawal rule.

 

[Girija]

I am 24 years old and have run my roth ira up a large amount day trading. Now that account holds the vast majority of my wealth.

I'd like to start trading from there full time and was wondering the implications I will face when I inevitably have to withdraw. From my understanding, I will have to pay a 10% penalty on earnings + taxes. Are there any alternatives or is this the only way to withdraw?

I will say you did something wonderful that most 24 yr Olds don't even think about. Just keep the status quo and continue to build that. Along the way trade on a Ira too and don't worry about withdrawal now. You will retire in peace.

 

[TimtheEnchanter]

I am 24 years old and have run my roth ira up a large amount day trading. Now that account holds the vast majority of my wealth.

I'd like to start trading from there full time and was wondering the implications I will face when I inevitably have to withdraw. From my understanding, I will have to pay a 10% penalty on earnings + taxes. Are there any alternatives or is this the only way to withdraw?

In a Roth IRA, after 5-years of setting it up, you can take original money out of it at any time, not accumulated profits or interest. You can do any kind of trading in a Roth other than short stocks.

 

[xandman]

This is one way to think about what your doing.

Try to think back why you started a Roth. You wanted the to save for retirement. Is that retirement now "fully funded" based on realistic return assumptions?

If yes, then go ahead and take out the surplus to fund your trading business. You will have to take the penalty and tax on earnings.

If no, your talking about a sub-optimal amount and not a windfall. Keep working on it.

 

[xandman]

Here is another way.

One of the greatest joys in life is to be young and stupid at least once. Follow your passion.

Move it all to a taxable account. Take the tax and penalty hit on the accumulated gains(only). There is no way around that.

 

[murray t turtle]

I am 24 years old and have run my roth ira up a large amount day trading. Now that account holds the vast majority of my wealth.

I'd like to start trading from there full time and was wondering the implications I will face when I inevitably have to withdraw. From my understanding, I will have to pay a 10% penalty on earnings + taxes. Are there any alternatives or is this the only way to withdraw?

%%
Plenty of ways to reach your goals;
get some part time income/part time business........ A good CPA will answer a question over the phone. I never did borrow off my IRA/roth because i've done enough stupid stuff.LOL

 

[Dustin]

I am 24 years old and have run my roth ira up a large amount day trading. Now that account holds the vast majority of my wealth.

I'd like to start trading from there full time and was wondering the implications I will face when I inevitably have to withdraw. From my understanding, I will have to pay a 10% penalty on earnings + taxes. Are there any alternatives or is this the only way to withdraw?

Good job so far. I'd take a trading stake out and pay the tax+penalty. Leave the rest of the Roth in QQQ forever, and trade the new account for living expenses from now on.

Be aware that money has fallen from the sky since Jan 2020, this isn't normal. The market will die down someday (hopefully not too soon), and things will get boring and hard to trade again. The cycles always happen eventually.