IRA Early Withdrawal vs Brokerage

Hi everyone,

My understanding is that if you trade stocks for a gain, you pay the capital gains taxes on those gains yearly.

So, let's say that a brokerage account starts with $10,000, and doubles yearly (100% annual compounding interest) while paying yearly 30% capital gains tax....

Year 0: $10,000

Year 1: $10,000 + ($10,000 * .7) = $17000

Year 2: $17000 + ($17,000 * .7) = $28900

Year 3: $28900 + ($28900 * .7) = $49130

Year 4: $49130 + ($49130 * .7) = $83521

Year 5: $83521 + ($83521 * .7) = $141985.7

NOTE: Quicker math...

10000 * 1.7 ^ 5 = $141985.7

Now let's compare this to a Roth IRA, that would grow un-taxed..

Year 0: $10,000

Year 1: $10000 * 2 = $20000

Year 2: $20000 * 2 = $40000

Year 3: $40,000 * 2 = $80,000

Year 4: $80,000 * 2 = $160,000

Year 5: $160,000 * 2 = $320,000

That's obviously way more money, but would require waiting until age 59.5 in order to withdraw tax-free and penalty-free.

Now let's say we do an early withdrawal after year 5 with taxes of 30% and a penalty of 10%...

($310,000 * (.7 - .1)) + $10000 = $196,000

So, an early withdrawal from a ROTH IRA would still yield WAY more money than a normal brokerage account. Is this correct, or am I missing something?

Submitted April 18, 2017 at 06:05PM by bak2skewl http://ift.tt/2oLa0iR