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Your to a Roth IRA will never be taxed again so you can withdraw them at any time.(This is why some people get started with a Roth IRA since they can also use it as a quasi-emergency fund if needed.) However, any earnings generated on top of those contributions would be subject to tax and penalties if withdrawn before age 59 and 1/2.The longer period of time it would have had to grow, the more painful the loss of investment growth is.Here are two examples assuming a 7% annual growth rate.Example 1: ,000 Over 20 Years If you withdrew ,000 as in our above example that could have been invested for 20 years before retirement, you’re missing out on a lot of growth.Over 20 years at 7% that ,000 would have grown to about ,700. Example 2: ,000 Over 10 Years Likewise if you withdrew an even larger amount at ,000 and only had 10 years until retirement, the pain is still significant. Paying early withdrawal penalties of 10% just doesn’t make sense.

The early withdrawal penalty and income taxes you pay are just the beginning of the costs of using your retirement account to pay off debt.The Traditional 401k is just like the Traditional IRA in terms of early withdrawal penalties and income tax.(The only difference outside of that is your 401k is tied to your employment and has a higher annual contribution limit.) Whether you are withdrawing early or during retirement, you’ll pay income tax on the full withdrawal.Whether you are withdrawing early or during retirement, you’ll pay income tax on the full withdrawal.You end up with just 65% of the withdrawal; a terrible price to pay to try and pay off some debt.

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