IRA early withdraw to fund another. (Update)

So, increase wife's contribution and use the IRA distribution to cover the decrease in take home?

Maybe I'm missing something, but I honestly don't think this is a bad idea, as long as they take out enough cash to pay the taxes as well.

The only thing I can see going wrong is if the wife terms employment within a month or two if doing this.

I agree with you, but I also sit on the same side of the desk.

Interested to hear the advisor's logic to decline this option.

I will update when I hear something.

Unless this advisor also moonlights as a marriage counselor and knows something I dont, then I just dont get the logic from a financial aspect.

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Last week the wifes employer announces they will match up to 15k of any contribution for the remainder of the year

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You mean he is taking out 15k to make up his wife's shortened about of income right?? Is the employer really going to match outside of her paycheck? Never heard of that.

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Is the match vested 100% from day one?

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Ah...maybe this is the answer.

If it vests over say, 5 years, this scheme is a lot less attractive.

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Is the employer really going to match outside of her paycheck? Never heard of that.

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My understanding (and I believe the OPs as well) is that the wife would increase her pretax contributions from her paycheck and the husband would cover the decrease in take home pay with the IRA money.

I don't think you can put after tax dollars in a 401k. Could be wrong though.

Advisor called me this morning. He was clueless. Said 1)he does not advise that clients take early withdrawals from thier plans and 2)he cautions against funding/supplementing a spouses plan before his/her own. Both were red flags according to him.

Thats all I really needed to here to know this guy is lost. I can let the first thing go, but I pressed him on the second. I asked why he cautions against supplementing the spouses plan (as in this case) and he said because the client could lose that in a divorce.

I just let it go and told him thanks for calling. I dont have time to deal with this. I was hoping he would show me an angle we didnt explore here.

After I ended our conversation, I gave my client a call and advised him to switch advisors.

Can the couple obtain a personal loan from a bank or credit union, does his plan allow loans and he could pay it back next year? I'm still getting 0% offers from credit card issuers for up to 18-months, that would work as well with the obvious caveat of analyzing the upfront fee, etc.

If I have the following facts right, stop and do a little investigation before making a decision:

1. Wife's company usually matches "a high amount" of employees 401(k) accounts but did not match at all in 2012..

2. "Last week" the company announced they will match up to 15k of any contribution for the remainder of the year.


Wife's company had to be in a financial bind earlier this year because of not matching the contributions, and the company is now telling employees it will "match up to 15k of any contribution for the remainder of the year".

With the announced new match for the remainder of 2012, one of two possible scenarios are:

1. The company made such a turnaround in it's financial picture that it is now able to make this "too good to be true" match.

OR

2. The company is struggling to survive and by "matching" 15k of employee deferrals, it temporarily gets company off the hook with a horrible cash flow problem. $15,000.00 less per employee for paychecks from now through 12-31-12 would help any company with cash flow.


401(k) plans have government red tape a mile long associated with them on the employer's end. I wonder if the company made the required reporting as to altering the match percentage as it did at the beginning of 2012. Also, did the company again make the proper reporting to IRS to alter again their match percentage for the balance of 2012, and is it even legal for a company to do this? Trying to decipher 401(k) reporting requirements, match rules and regulations can make one nauseated reading them on IRS.gov.

Companies can do wonderful things with "constructive accounting" to make their financial picture bright...the situation just seems odd to me and personally, that would be the first hurdle I see in this matter.

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So I guess by his reasoning, married couples should never join finances in any way.

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Me too. I actually assumed that there was something we were all overlooking.

Oh well, at least your client learned something new

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I'm definitely not defending word for word what the advisor told his client, however, after years and years of seeing rock solid couples (you've seen them...you would NEVER suspect in a million years that certain couples would part ways) split and have awful battles with community property issues, I could definitely see where keeping retirement accounts separate would be beneficial, not just for such things as divorce but also for the death of one the spouses especially where children not belonging to both spouses are involved.

By co-mingling retirement accounts, then having to later separate those funds could result in unnecessary income taxes just to settle up community property or estate issues.

By not explaining to his client the reasoning, I could definitely see where some might consider the advisor's thoughts "silly".