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Question about a Roth account
Posted on 6/17/14 at 4:52 pm
Posted on 6/17/14 at 4:52 pm
Will you be penalized for taking savings out early? I'm in the process of buying a home and a decent medical bill came in and I didn't want to touch the saving for home stuff so was considering taking a few grand out of my Roth to cover this bill. TIA
1
Posted on 6/17/14 at 5:32 pm to KajunKouyon
You won't be taxed for withdrawing contributions to a Roth IRA. Also, any earnings you withdraw could be exempt if you're a first time homebuyer and/or your medical expenses qualify.
LINK
LINK
Whether or not its a smart idea to withdraw from your retirement account, as opposed to your down-payment savings, is another question.
LINK
LINK
Whether or not its a smart idea to withdraw from your retirement account, as opposed to your down-payment savings, is another question.
Posted on 6/17/14 at 6:31 pm to kennypowers816
That's what I needed. Thanks 
Posted on 6/17/14 at 6:32 pm to kennypowers816
quote:
You won't be taxed for withdrawing contributions to a Roth IRA.
Correct. Provided you take out less than you put in, it is penalty-free because you already paid taxes on it (unlike a traditional IRA). Anything above that is considered an early withdrawal with certain exceptions. I don't think a medical bill is one of them, for that you'd need an HSA which I'm guessing is not in play here.
quote:
Whether or not its a smart idea to withdraw from your retirement account, as opposed to your down-payment savings, is another question.
This also, but with today's rates as low as they are it might well be a good idea to get your mortgage ASAP. Most people's retirement depends quite a bit on their mortgage terms even though that isn't formally considered to be a "retirement" account.
Posted on 6/17/14 at 9:18 pm to foshizzle
What are the penalties if you invest in a Roth but make > 185 k / yr? Which I think is this years max
Posted on 6/17/14 at 10:19 pm to Brood211
Not sure. If you click on the links I posted above, one of them is from the IRS' website (I think the 2nd link), it should have the info you're looking for.
Posted on 6/17/14 at 10:22 pm to foshizzle
quote:
I don't think a medical bill is one of them
One of the exceptions per IRS.gov:
quote:
You have unreimbursed medical expenses that are more than 10% (or 7.5% if you or your spouse was born before January 2, 1949) of your adjusted gross income (defined earlier) for the year.
Posted on 6/18/14 at 3:15 am to Brood211
quote:
What are the penalties if you invest in a Roth but make > 185 k / yr? Which I think is this years max
The penalty on excess contributions is 6% of the excess amount.
Posted on 6/18/14 at 5:31 am to foshizzle
I was looking into touching some Roth money as well to pay off 7.5% and higher student loans, but was told I could only take it out after 5 years. Is this a rule for Roth IRA's, or is that more likely just because I bought some type of long term fund in the Roth.
Posted on 6/18/14 at 7:03 am to KG6
quote:
was told I could only take it out after 5 years
This probably refers to "seasoning" and it only applies to earnings, that is, money above your contributions. The amount you've contributed can always be withdrawn without penalty, full stop. No need to delay, no seasoning period required.
However, seasoning probably doesn't apply in your case b/c you normally have to have some sort of justification like disability. Paying off student loans probably doesn't count.
You could do it with contribution money though. Whether it's a good idea to do this or not is your call, but personally a 7.5% guaranteed return (or higher) is pretty good. OTOH you'd have to balance it against how long the loan is projected to last. If you're due to pay it off fairly soon anyway it might be better to keep the money in the Roth because even though your return might be lower you get to keep it in there until you retire.
OTOH if you're looking at many years of 7.5% debt I'd carefully consider doing that.
Posted on 6/18/14 at 8:10 am to foshizzle
We're looking at paying only half of the loans (30k+) that range between 7.5% and 9%. It would take about 5 years to pay off at the rate we pay monthly. I'm not planning to pull the money out of the Roth, I just want to know that the contributions are available for emergencies since I'll be cutting down my savings significantly to pay this off.
I have mine through Merril Lynch and when I asked them, they said I can touch it after 5 years. Looking to get away from them anyway due to not having any advisors in my area, but I thought it was bad info. I cashed out a good bit of money in another fund and you could tell the guy didn't care to help me once he realized I was taking all my money out.
I have mine through Merril Lynch and when I asked them, they said I can touch it after 5 years. Looking to get away from them anyway due to not having any advisors in my area, but I thought it was bad info. I cashed out a good bit of money in another fund and you could tell the guy didn't care to help me once he realized I was taking all my money out.
Posted on 6/18/14 at 8:25 am to KG6
quote:
I just want to know that the contributions are available for emergencies
Yes, they are. In fact, it's fairly common advice that you don't need a rainy day fund at all unless you're already maxing your Roth contributions each year.
For example, suppose you have $4K available to save. It is better to save all of it in a Roth than to set aside some for a rainy day fund b/c then you get tax-free earnings on all of it, and you can still get the principal if you have to.
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