Hello all,
In the past 12 months, my expenses have significantly increased due to health issues with my mother and becoming a caregiver. I’m on the job hunt for better pay, I’ve been working on ways to reduce spending, and my traditional savings are running low. I’m 40 years old and have a fair bit of money saved in my Roth IRA. Rather than build up credit card debt while working on better pay / less expenses, would it be better to get a personal loan, withdraw from my Roth IRA, or obtain some other form of credit? Thanks in advance
Sorry to hear about your mother’s situation. Some additional information would be helpful for decisions.
1.How much do you think you will need?
2. How much current debt do you have?
3. Does your mother have equity in a house? If so, a home loan or a HELOC is a consideration.
4. What is your current credit score. The score will affect personal loan rates.
5. Do you have a 401k? A hardship withdrawal may be an option.
6.How much do you have in the Roth IRA and how much were the contributions. The contributions can be withdrawn without penalty. The growth will be subject to taxes and a 10% penalty.
My only debt is for my car – Monthly payments of about $370, current balance is about $12,600, and the loan has anAPR of 7.7%
Does your mother have equity in a house? If so, a home loan or a HELOC is a consideration.
My mother owns two properties, but the deeds also have my name or my sisters’ name on them. I’m not sure if any line of credit would affect her later on for Medicaid, since those properties are currently protected assets and we certainly want to keep them!
What is your current credit score. The score will affect personal loan rates.
My credit score is 778
Do you have a 401k? A hardship withdrawal may be an option.
My primary investment is the Roth IRA, and I have some in the Florida Retirement System. Cashing out from the FRS now would essentially incur a 30% penalty (including taxes).
6.How much do you have in the Roth IRA and how much were the contributions. The contributions can be withdrawn without penalty. The growth will be subject to taxes and a 10% penalty.
I have roughly $140k in my Roth at Vanguard. On their website, it looks like my contributions (purchases) beyond my initial balance is about $52k. So are you saying that it’s possible to withdraw that $52k without penalty from Vanguard? Would it still be subject to taxes?
Yes, you can always withdraw your Roth IRA contributions without penalty and without taxes. That doesn’t make it a good idea, but you can do it.
My gut feeling is that the best answer involves the properties your mother owns. Since you’re in this position to take care of her, it doesn’t make sense that you should jeopardize your own retirement just so that you can save her properties. But having you or a sibling on the deed is going to complicate things. Whoever told her that was a good idea probably didn’t do her any favors.
As per @rathbert2k, look at your mother’s properties. There will of course be fees in addition to the interest rate with either a home equity loan or a HELOC.
Withdrawing some of your Roth IRA contributions is reasonable If your forecast retirement income is greater than your likely retirement expenses. Use a retirement calculator to figure out what your retirement income may be based on your past yearly IRA contributions, your Florida Retirement System projected income and your estimated Social Security.
When I needed to withdraw money on 2 occassions, Clark mentioned 2 different ways I could do it. One is a 72T withdrawal.
Rule 72(t) allows penalty-free withdrawals from IRA accounts and other tax-advantaged retirement accounts like 401(k) and 403(b) plans. It is issued by the Internal Revenue Service.
This rule allows account holders to benefit from their retirement savings before retirement age through early withdrawal without the otherwise required 10% penalty. The IRS still subjects the withdrawals to the account holder’s normal income tax rate.
I also took advantage of a SOLO 401-K. This was because I owned a small business (a farm) and needed $50,000 on a short term loan.
A one-participant 401(k) plan is sometimes called a:
The one-participant 401(k) plan isn’t a new type of 401(k) plan. It’s a traditional 401(k) plan covering a business owner with no employees, or that person and his or her spouse. These plans have the same rules and requirements as any other 401(k) plan.
In that plan I had a company create my 401K and I transferred money to them. I could then borrow 50% or a max of $50,000. I had a payment schedule for something like 3 years and had to start paying the money back the next month. The 5% interest I was assessed went back into my 401K so I paid myself the interest. If I had not made something like 3 monthly payments in a row, IRS would have called it an early witdrawal and I would have had penalties. But I just had the automatic debit set up from checking and made every payment. The setup fee for the 401 plan was something like $200 as it was a pretty simple plan with just boilerplate.
Clark has talked about these in the past. Perhaps it is time again.