Craig Wear, a CFP, breaks down three ways people sabotage their Roth IRAs: over-contributing beyond the $7,000 limit triggers a 6% yearly penalty, withdrawing early on earnings before 59½ costs you, and leaving cash sitting uninvested. Index ETFs like VOO or VTI are better moves.
$7,000
6% per year
Before tax day
59½ years old
A five-year rule
Roth IRA penalties are real, and here's how to dodge them. Number one over contributing. If you go past the $7,000 annual limit, you're going to owe a 6% penalty each year it sits there, so withdraw the excess before tax day to avoid it. Number two Withdrawing early. You can pull out contributions anytime, but not your earnings. You've got to be at least 59 and a half years or older. And then there's a five year rule that you need to take into consideration as well. Number three not investing the money. Open a Roth IRA is really not enough. You need to make sure that you invest inside of it instead of just sitting there. In a cash account, you can think about index funds or exchange traded funds like VOO or VTI to grow your money.
