To piggy back off my thread on real estate forum about HELOC, I'm wondering if this is an option for me.

I rolled over a roth 401k into a roth ira back in 2016, about $40k worth. it's grown 3x since then. I don't know how much of that $40k was contribution vs growth at that time, but I only need about $25k (out of about $40k total, the other 15k I got a 0% for 21 month deal which I will utilize.)

Is it advisable to use my roth ira to fund this without taking on debt? Wife is only working half time right now, otherwise I'd just go through with a 10% heloc and deal with the payments. But since her income is lower, not having any payment on half of our project is enticing. Obviously I'm missing out on potential growth of this roth which could easily surpass 10%.

Thoughts?

Hopefully you've kept a record of every contribution to your Roth. I dealt with this a few years ago and haggled with the IRS for over a year until they finally let me off the hook. I didn't keep a record of my Roth contributions (dating back to 1999) but provided a full trade history to show profit/loss.

I did something incorrect when I filed my taxes for that year. Correctly reporting the withdraw as a withdrawal of contributions is the key.

Your 401 custodian should have forwarded the basis to your new custodian. And unless something has changed you have to withdraw first in money, meaning you'll be taxed if you're under 59 1/2.

I've moved my Roth around and while the basis got moved with it to track the gains, they didn't transfer the contribution information. That is in you to keep track of for the most part.

I would be very hesitant to take money from the Roth IRA since you can't really ever play catch up to put that money back in and depending on your retirement time horizon that could have a massive opportunity cost even compared to taking a high interest loan at today's rates.

The key differentiators of Roth are earnings never taxed and you can withdraw contributions penalty free. Everyone should be maxing Roth as soon as possible because of the flexibility it provides. It's basically a savings acct with tax benefits. Only limiter is you can't put the principal back in. Once you remove contribs, they are gone forever. So don't make a habit of dipping into the well. It's there if you need it, but it's not a slush fund.

The mechanics are: when you withdraw contribs only, your IRA provider will cut a form 1099-R for the amount withdrawn and should report the taxable amount as $0.

62strat said:

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OldArmyCT said:

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Your 401 custodian should have forwarded the basis to your new custodian. And unless something has changed you have to withdraw first in money, meaning you'll be taxed if you're under 59 1/2.

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taxed on Roth?

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Yes, taxes on the earnings plus penalties.

I took a loan from my 401k and am paying it back with interest. 1. I'm basically paying myself back
2. The interest is more than what the average market rate of return is.


I'd much rather do this than pay the withdraw penalties or take a loan from a bank. At least I'm paying myself with interest and dollar cost averaging back into the market.

You can do this every 5 years.

I withdrew my entire Roth basis a few years ago. No penalties.

94chem said:

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I withdrew my entire Roth basis a few years ago. No penalties.

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is there away to specifically pull your contributions?

If I'm interpreting someone's post above correctly, withdrawals pull from gains first?

Interesting. I turn 59 and 1/2 in about 2 and 1/2 hours. Don't expect to need the money anytime soon, but it will be nice to have that option penalty free.

to me the tax free growth aspect is too valuable to mess with outside of true emergency, would try to find any other way to borrow the funds hopefully at a lower rate
there's still cards that do 12 month 0%APR on purchases/balance transfers if there's a way to work that

EliteZags said:

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to me the tax free growth aspect is too valuable to mess with outside of true emergency, would try to find any other way to borrow the funds hopefully at a lower rate
there's still cards that do 12 month 0%APR on purchases/balance transfers if there's a way to work that

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This is my same thought. Would be the last money I touch

I know one guy who took a 401k loan out before the epoc crash in 2008 and made a killing "paying himself back" with cheap priced stocks... The problem is 3 out of 4 times it doesn't work out that way and you end up buying the stocks back as you repay the loan at 5-25% higher prices.

Imagine taking a 401k loan out last summer when spx was 4500 and paying yourself back today buying in at 5000+

I also know a guy who "owns his house outright" and loves to tell everyone, but he did that by taking a 401k loan out when SPX was closer to 4000, and he hates his job but can't quit it because he would owe the full 401k loan a month after he leaves.

I just did some math assuming I took a 5y 401k loan 5 years ago and paid it off this month. Prime was 5.5% back then so I'll assume the 401k loan would have been at 6.5% so the monthly payment would have been $978.31. Using historical data for SPX by the time you finished paying this back you would have had 10% less shares resulting in a missed market opportunity of over $9000 which effectively means you could have taken a 50k loan at 12% back then and come out ahead.