Although dubbed a penalty, does a Roth-IRA early withdrawal "penalty" effectively lower the short term capital gains rate to 10% instead of linked to your actual income bracket?
As the early withdrawal is levied only the amount withdrawn, it doesn't matter how long a position was opened inside the IRA, long term investment gains, short term investment gains, anything, is taxed at 10% on withdrawal.
Is my understanding correct?
Any other non-retirement account I would fund would also be with post-taxed money. Opening a Roth-IRA with any of those funds (although limited to a maximum contribution per year) and gaining more from the exact same investment strategies effectively lowers the capital gains tax rate from 28%, 35% whatever all the way down to 10%, and even then only on the year that the withdrawal occurs