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Started By
Message
Has anyone pulled an old IRA for first time house DP?
Posted on 3/27/15 at 8:40 am
Posted on 3/27/15 at 8:40 am
I'm only 26, have an old IRA from my first job that is kind of hanging out in an index fund. I've got plenty saved in my current roth/401 and have done some reading that this may be a decent move since I'm not contributing to it anymore. It's about 15k.
Has anyone done this? Anything to consider/watch out for?
Has anyone done this? Anything to consider/watch out for?
4
Posted on 3/27/15 at 8:50 am to STLhog
I've borrowed from my 401K before. I just don't get the Suzie Orman logic that it's such a bad deal...the rate was lower than anything I could get unsecured, and I needed capital, so I did it.
Not sure I'd do it for a house, though, considering the additional debt you'd undertake.
But on re-reading what you wrote, you just want to withdraw, so my comments probably don't relate.
Not sure I'd do it for a house, though, considering the additional debt you'd undertake.
But on re-reading what you wrote, you just want to withdraw, so my comments probably don't relate.
Posted on 3/27/15 at 8:58 am to STLhog
quote:
I'm only 26, have an old IRA from my first job that is kind of hanging out in an index fund.
That's sort of its job - until you retire.
quote:
I've got plenty saved in my current roth/401
At 26 with a Roth/401K - you are probably ahead of your peers. But, this doesn't excuse bad decisionmaking, now. At your age both good and bad decisions have exaggerated consequences 40 years from now.
quote:
It's about 15k.
Yeah, now. In 40 years, at 8%, it will be $150k.
Is any plan you have for the money worth $150k?
quote:
this may be a decent move
I've done it - and it is not a decent move. It is a necessary evil. It should be reserved only in extreme emergency to fund a legitimate, life or death, limb, or "lose my job" type emergency, not to fund the purchase of a want.
I recommend no.
This post was edited on 3/27/15 at 9:00 am
Posted on 3/27/15 at 8:59 am to STLhog
The greatest asset you're losing from doing it is time. Which is irreplaceable. I believe you can only w/d $10k from an IRA for first time home purchase to avoid penalty but not sure about 401
Posted on 3/27/15 at 9:09 am to STLhog
The best use of taking a loan from your 401k is for a very short term.
I've used it to find the close on a house 1 week before the close on my old house. Then 3 weeks after I paid the loan back.
It's hard to get a really short loan for that cheap.
I've used it to find the close on a house 1 week before the close on my old house. Then 3 weeks after I paid the loan back.
It's hard to get a really short loan for that cheap.
Posted on 3/27/15 at 9:24 am to eng08
I don't think I'm taking a "loan" against it.
Looking to withdraw a piece of it where I'm thinking it is penalty free. Or is it always considered a loan?
Is this right? My current 401/roth with my job has a loan option but the IRA I have right now only gives me full withdrawal option.
It's indexed against the S&P 500. I'm honestly worried about it crashing to crap in the next 2-3 years, where as the DP could give me legit equity. It's only 15k, or maybe 10k if that is the limit.
Looking to withdraw a piece of it where I'm thinking it is penalty free. Or is it always considered a loan?
Is this right? My current 401/roth with my job has a loan option but the IRA I have right now only gives me full withdrawal option.
It's indexed against the S&P 500. I'm honestly worried about it crashing to crap in the next 2-3 years, where as the DP could give me legit equity. It's only 15k, or maybe 10k if that is the limit.
This post was edited on 3/27/15 at 9:25 am
Posted on 3/27/15 at 9:50 am to STLhog
quote:
Looking to withdraw a piece of it where I'm thinking it is penalty free
If you withdraw it you will be losing close to a third of it to taxes.
This post was edited on 3/27/15 at 9:57 am
Posted on 3/27/15 at 9:56 am to MamouTiger65
Even if it was all Roth money and first time house payment?
It was after tax contribution...
It was after tax contribution...
Posted on 3/27/15 at 9:58 am to STLhog
Is it an IRA or Roth IRA?
If its an IRA you will pay taxes. If its a Roth, you can pull out from the base you contributed without paying taxes.
If its an IRA you will pay taxes. If its a Roth, you can pull out from the base you contributed without paying taxes.
Posted on 3/27/15 at 10:03 am to MamouTiger65
This goes into detail about it. You may qualify to not be taxed or penalized for it.
The rules for taking a distribution from a Roth IRA to finance a first-time home purchase are slightly different than those for a traditional IRA. Remember that a withdrawal taken from a Roth IRA for the purchase of a first home is considered a qualified distribution after the account has been open for five tax-years. As such, any distribution taken from a Roth for that purpose and under those conditions will be both income tax- and penalty-free.
But also remember that under the Roth distribution ordering rules, the first money out will be annual contribution money, which is never taxed or penalized. Next out would be conversion money, and that also would not be taxed or penalized provided it has been in the Roth for five tax-years. And last out would be earnings. Therefore, because of these distribution rules, that means the only money taken from a Roth IRA that might pose a problem would be either earnings or conversion money that has been in the Roth for less than five tax-years.
What happens if you take earnings or conversion money before the necessary five tax-years have run? Well, in the case of earnings, you still meet the exception to avoid the early withdrawal penalty, but you don't meet the criteria for a tax-free withdrawal from a Roth IRA. Accordingly, just as you would for a withdrawal from a traditional IRA, you must pay an ordinary income tax on the distribution.
LINK
The rules for taking a distribution from a Roth IRA to finance a first-time home purchase are slightly different than those for a traditional IRA. Remember that a withdrawal taken from a Roth IRA for the purchase of a first home is considered a qualified distribution after the account has been open for five tax-years. As such, any distribution taken from a Roth for that purpose and under those conditions will be both income tax- and penalty-free.
But also remember that under the Roth distribution ordering rules, the first money out will be annual contribution money, which is never taxed or penalized. Next out would be conversion money, and that also would not be taxed or penalized provided it has been in the Roth for five tax-years. And last out would be earnings. Therefore, because of these distribution rules, that means the only money taken from a Roth IRA that might pose a problem would be either earnings or conversion money that has been in the Roth for less than five tax-years.
What happens if you take earnings or conversion money before the necessary five tax-years have run? Well, in the case of earnings, you still meet the exception to avoid the early withdrawal penalty, but you don't meet the criteria for a tax-free withdrawal from a Roth IRA. Accordingly, just as you would for a withdrawal from a traditional IRA, you must pay an ordinary income tax on the distribution.
LINK
This post was edited on 3/27/15 at 10:04 am
Posted on 3/27/15 at 10:10 am to MamouTiger65
Thanks for the information. I'm waiting to meet with a person at USAA, they can probably break it down pretty simply, just thought I'd go into it more prepared than not.
Posted on 3/27/15 at 10:17 am to STLhog
quote:
I'm honestly worried about it crashing to crap in the next 2-3 years
You're 26 - WTF are you worried about a potential crash in 2 to 3 years, after which the market will recover and soar higher?
quote:
where as the DP could give me legit equity. It's
If you have to incur taxes and/or penalties in this transaction, you'll actually lose ground. Even if you don't, you won't "gain" any equity - just transfer it from the account to your house.
quote:
It's only 15k, or maybe 10k if that is the limit.
You keep being dismissive of this amount - this is significant at your age, precisely because of the time value and compounding interest.
You seem concerned about the vehicle, a S&P 500 index fund, which is about a low risk an equity investment can be - you have a MASSIVE time window - roughly 35 to 40 years - and, like I said, "only $15k" becomes "only $150k" in your 60s.
If you can, find another way, do it. If this is the only way to do it, recognize this is not a "good move", but rather a "necessary evil". You cannot replace time in the market, and while a house is a decent investment, most on here would recommend leveraging as much as possible, and invest the rest. Sounds like you're going against that conventional wisdom.
Good luck with it - I still recommend "No" (and I zeroed out - twice - it has put me about 10 years behind my schedule. You say "only $15K" - I'm thinking, "Only 8 to 10 years").
This post was edited on 3/27/15 at 10:36 am
Posted on 3/27/15 at 10:28 am to Ace Midnight
Lots of misinformation in here.
You can withdraw your Roth IRA contributions at any time, tax and penalty free. You just can't withdraw earnings.
If you need the cash for a down payment on a home, go for it as long as you have full faith in your ability to save for your retirement. It doesn't sound like that 15k is going to make the difference for you, the way you framed it in your initial post, so why not?
You can withdraw your Roth IRA contributions at any time, tax and penalty free. You just can't withdraw earnings.
If you need the cash for a down payment on a home, go for it as long as you have full faith in your ability to save for your retirement. It doesn't sound like that 15k is going to make the difference for you, the way you framed it in your initial post, so why not?
Posted on 3/27/15 at 12:14 pm to tigerfan4120
quote:
If you need the cash for a down payment on a home, go for it as long as you have full faith in your ability to save for your retirement. It doesn't sound like that 15k is going to make the difference for you, the way you framed it in your initial post, so why not?
this is what I would say. Its not a great move, but its not terrible. you are taking out an investment to use for another investment.
The best advice is to let your retirement sit working for your retirement, and work to save for a home separately. But that can be tough to do.
You have wife and kids? If not, don't buy a house.
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