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When I was 22, my employer opened and began matching up to 5% of my salary in a new ROTH IRA, but they did not allow me to roll my old ROTH IRA into the new one.

Are you sure it's a Roth IRA, and not a Roth 401(k)? The only type of IRA that an employer can offer is a SIMPLE IRA, and that is not allowed to be a Roth IRA. On the other hand, employers are allowed to offer 401(k)s that allow Roth accounts. So if your employer offers a retirement plan with a Roth option, it's likely to be a 401(k). Please note: All of the matching contributions by the employer are pre-tax contributions, so you will be paying taxes on any withdrawals of those matching contributions.

Since starting employment, I have only deposited into the matching account. Currently I have around $8500 in my old, non-matching ROTH and about $20,000 in the matching ROTH. My taxable income is $60,000 and I don't live in a state with income taxes. I think I have a few options, but I need help deciding what benefits the most.

Congratulations on putting yourself on a good path at such a young age!

That said - you need to be more clear when you are referring to the types of accounts that you have. Your "old non-matching Roth" is apparently a Roth IRA, although that's not totally clear. As discussed above, your "new matching Roth" is probably a 401(k) with both Roth and Traditional accounts - the Roth account for your contributions and any growth of those contributions, and the Traditional for your employer's matching contributions, plus any growth on those. The reason you need to be clear about what types of accounts they are is that there are different rules for each type of account, what you are proposing could have different impacts, or different options, depending on what type of account it really is. And some things that are allowable for one type of account can actually result in penalties in the other type of account.

1. Take the tax penalty of 10% and increased income taxes on the old ROTH and reinvest in individual stocks (currently have about $22k in individual stocks). The way that I understand it, I will automatically pay $850, then the remaining $7650 would be added to my income and taxed (at 12%, so another $900 or so). This option makes more sense to me because I will have the opportunity to see more growth in individual stocks than in mutual funds.

Presuming that this account really is a Roth IRA, why aren't you just buying individual stocks in the IRA? Individual stocks are allowable holdings for IRAs.

If the problem is that your IRA custodian only offers mutual funds, I would suggest moving the IRA to a different custodian that offers commission-free stock trades, like Fidelity, Schwab, Merrill Edge or TD Ameritrade, as examples. (Vanguard, while it has some great mutual funds and ETFs, hasn't jumped on the 'no commission' bandwagon. Since you can generally buy Vanguard ETFs commission free at other brokerages, you can still get Vanguard products without having a Vanguard account.)

If the issue is that it's not really a Roth IRA (maybe because it's actually your prior employer's plan) then I would suggest actually rolling the account over into a Roth IRA. You should look for a commission free broker, and you may even be able to find one that will give you a bonus for opening an account.

If the issue that is preventing you from buying individual stocks is something else, please explain what the issue is.

Additionally, you should be aware that you can always take out your original contributions to a Roth IRA without paying any taxes or penalties. (Please note: Because of this option, some people choose to use part of their Roth IRA as their emergency fund.) You are only charged taxes and penalties when you prematurely withdraw earnings from a Roth, and don't meet an exception. You can get more information on the exceptions from IRS Pub 590-B

2. Leave the money in my non-matching ROTH until I leave my current employer (4 years from now), where I I can rollover my matching ROTH into my non-matching ROTH. My non-matching ROTH won't grow that much, but I also won't take the hit for early withdrawals.

It's perfectly reasonable to roll money from a prior employer's retirement plan into an IRA. But, as previously mentioned, the employer's matching contributions, and earnings/growth on those matches, are pre-tax (Traditional) funds. So if you roll that money into your Roth IRA, you will have to pay taxes at your marginal rate on that money. If you don't want to pay that tax, then you will need to roll those funds into a Traditional IRA, not a Roth IRA.

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