Every tax-deferred retirement plan has a 10% penalty for withdrawing the money before retirement age. That would include a 401(k) or 403(b) plan at work, as well as a Roth and traditional IRAs. However, your money is tax deductible and grows tax-free until withdrawal.
Investing money in stocks and bonds through a broker (or online broker, etc) does not have any penalties for withdrawing money. You will likely pay more income tax over your working life, but that means you pay less tax whenever you withdraw the money.
(The "withdrawal of excess contributions" from your current Roth does not have a 10% penalty because the money never belonged there in the first place.)
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One more illustration. Not to blow your mind, but because there really are lots of different options that have different pluses and minuses.
Let's say you withdraw $12,000 from the Roth and decide to invest it in a mutual fund. That's $12,000 on deposit. Simple.
On the other hand, let's say you withdraw $12,000 from the Roth and decide to maximize your 401(k) or 403(b) contribution for 11 months. Assume you are in the 25% tax bracket and a state with moderate taxes (5% or so).
You will put in $1500 x 11 = $16,500 on deposit in the retirement account. But that only drops your take home pay by $1050, which you make up from the Roth money for those 11 months ($1050 x 11 = $11,550).
So with the mutual fund, you start with $12,000 on deposit, but with the retirement plan at work, you start with $16,500 on deposit.
Assuming you leave the money alone for 30 years and have an average rate of return of 6%,
$12,000 turns into $69,000
$16,500 turns into $95,000.
The trade off for the tax savings and potential for larger gains is the 10% penalty for early withdrawals.
