Completely liquidate risky Roth IRA to pay for law school?

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chiquita2201
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Re: Completely liquidate risky Roth IRA to pay for law school?

Postby chiquita2201 » Thu Aug 11, 2011 1:18 pm

Contributions to a Roth only come out tax and penalty free if they have been in the Roth for 5+ years. Otherwise, say if you take them out before 5 years, there will be a 10% on the contribution as well as any earnings. Taxes are always only on earnings.

Puttanesca
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Re: Completely liquidate risky Roth IRA to pay for law school?

Postby Puttanesca » Thu Aug 11, 2011 1:19 pm

chiquita2201 wrote:Contributions to a Roth only come out tax and penalty free if they have been in the Roth for 5+ years. Otherwise, say if you take them out before 5 years, there will be a 10% on the contribution as well as any earnings. Taxes are always only on earnings.


I've had my Roth IRA open for about 10 years, so the 5-year thing won't be a problem for me.

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albusdumbledore
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Re: Completely liquidate risky Roth IRA to pay for law school?

Postby albusdumbledore » Thu Aug 11, 2011 1:38 pm

Puttanesca wrote:
chiquita2201 wrote:Contributions to a Roth only come out tax and penalty free if they have been in the Roth for 5+ years. Otherwise, say if you take them out before 5 years, there will be a 10% on the contribution as well as any earnings. Taxes are always only on earnings.


I've had my Roth IRA open for about 10 years, so the 5-year thing won't be a problem for me.

How's this even possible? You've been contributing to a roth since you were 12? You have to have income to contribute. Also, that's not true on the 5 year thing for contributions. You can take contributions out of a Roth at any time.

Faceplant
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Re: Completely liquidate risky Roth IRA to pay for law school?

Postby Faceplant » Thu Aug 11, 2011 1:41 pm

chiquita2201 wrote:Contributions to a Roth only come out tax and penalty free if they have been in the Roth for 5+ years. Otherwise, say if you take them out before 5 years, there will be a 10% on the contribution as well as any earnings. Taxes are always only on earnings.

pretty sure that is factually incorrect

http://www.smartmoney.com/retirement/pl ... free-7958/

the 5 years doesn't matter for a roth ira used for higher education expenses

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Tiago Splitter
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Re: Completely liquidate risky Roth IRA to pay for law school?

Postby Tiago Splitter » Thu Aug 11, 2011 2:23 pm

Faceplant wrote:
chiquita2201 wrote:Contributions to a Roth only come out tax and penalty free if they have been in the Roth for 5+ years. Otherwise, say if you take them out before 5 years, there will be a 10% on the contribution as well as any earnings. Taxes are always only on earnings.

pretty sure that is factually incorrect

http://www.smartmoney.com/retirement/pl ... free-7958/

the 5 years doesn't matter for a roth ira used for higher education expenses


To avoid taxes on a Roth distribution, you have to reach the five year mark and either age 59.5, death, disability or first time home purchase. Higher education expenses won't exempt the taxes, but will exempt the penalty, regardless of whether or not the five year mark has been reached.

But taxes are only ever assessed on earnings. Contributions always come out first and are always tax and penalty free.

Puttanesca
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Re: Completely liquidate risky Roth IRA to pay for law school?

Postby Puttanesca » Thu Aug 11, 2011 7:21 pm

albusdumbledore wrote:
Puttanesca wrote:
chiquita2201 wrote:Contributions to a Roth only come out tax and penalty free if they have been in the Roth for 5+ years. Otherwise, say if you take them out before 5 years, there will be a 10% on the contribution as well as any earnings. Taxes are always only on earnings.


I've had my Roth IRA open for about 10 years, so the 5-year thing won't be a problem for me.

How's this even possible? You've been contributing to a roth since you were 12? You have to have income to contribute. Also, that's not true on the 5 year thing for contributions. You can take contributions out of a Roth at any time.


Yeah, I've had the Roth IRA since I was 12. It was set up through my mom's business. Before I started working, she made some contributions to it.

And thanks guys for clearing up the 5-year thing. Good to know.

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glewz
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Re: Completely liquidate risky Roth IRA to pay for law school?

Postby glewz » Thu Aug 11, 2011 7:33 pm

NYC Law wrote:If you can get more than 8% in a more stable option do that, if you can't then use it for law school - but commit to repaying it as quickly as possible to make up for not having to repay loans (ie pay what you would have paid in repayments into investments/savings instead)


I agree with NYC Law, but where can you get >8%?

Faceplant
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Re: Completely liquidate risky Roth IRA to pay for law school?

Postby Faceplant » Thu Aug 11, 2011 10:27 pm

ugh!

i would use my roth iras to pay for school but they're all down 20+% in the past 90 days. I'm gonna ride this one out before i cash out. if it comes back 20% within the 120 day grace period for returning gradplus loans, i'll cash out and pay back what i can. I just can't live with myself taking that kind of a loss right now. if i have to wait it out till 2nd or 3rd year i will too. i'moan git my 20% back!

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glewz
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Re: Completely liquidate risky Roth IRA to pay for law school?

Postby glewz » Fri Aug 12, 2011 12:07 am

Faceplant wrote:ugh!

i would use my roth iras to pay for school but they're all down 20+% in the past 90 days. I'm gonna ride this one out before i cash out. if it comes back 20% within the 120 day grace period for returning gradplus loans, i'll cash out and pay back what i can. I just can't live with myself taking that kind of a loss right now. if i have to wait it out till 2nd or 3rd year i will too. i'moan git my 20% back!


Dang :\ sorry to hear that. GL - rootin for you!

Puttanesca
Posts: 443
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Re: Completely liquidate risky Roth IRA to pay for law school?

Postby Puttanesca » Fri Aug 12, 2011 12:45 am

Faceplant wrote:ugh!

i would use my roth iras to pay for school but they're all down 20+% in the past 90 days. I'm gonna ride this one out before i cash out. if it comes back 20% within the 120 day grace period for returning gradplus loans, i'll cash out and pay back what i can. I just can't live with myself taking that kind of a loss right now. if i have to wait it out till 2nd or 3rd year i will too. i'moan git my 20% back!


Damn...20%. Good luck! Maybe my investments aren't so bad then? My Q2 statement shows a rate of return of somewhere between -3 to -4%.

shoeshine
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Re: Completely liquidate risky Roth IRA to pay for law school?

Postby shoeshine » Fri Aug 12, 2011 12:50 am

Take it out for law school. There is no point in paying interest on a loan and having that money sitting around. Unless you put it in a fund that can consistently beat federal loan rates (6.9% and 7.9%) then there is no point in keeping it invested.




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