All Forum Posts by: Mark S.

Roth IRA

Daniel S. , congrats on putting money away for your future at your age. Believe it or not, you're in the minority (generally speaking, but obviously not on BP). You've received some mixed advice, in my opinion, here. I'll share my thoughts: 1.) You cannot take a loan from an IRA. Someone mentioned rolling it and then taking a loan; that's simply NOT an option. 2.) As others have said, you may or may not be able to take a 401(K) loan from plan at former employer. It's rare, but possible. IF you can, however, you'd most likely be volunteering for double taxation (assuming the account consists entirely of pre-tax funds): you'd pay the loan back with after-tax funds (tax #1) and then when you withdraw in retirement, you'd pay taxes again (tax #2). Probably not the best idea. 3.) Withdrawing now, regardless of whether or not you roll to an IRA first, is generally a bad idea. Between ordinary income tax + 10% IRS early withdrawal penalty, you could be giving up somewhere around 40% depending on your bracket. Can you really achieve better, offsetting returns via REI? I'm guessing not. 4.) I would find a way to use other, non-retirement funds, and probably leave these funds invested. Whether you do so in the 401(k) or rollover IRA is up to you. If you worked for a very large employer, depending on the expense ratios of funds in the plan, it is possible the 401(k) COULD BE less expensive than Vanguard or similar companies. If you worked for a smaller employer, it's almost certain the rollover is a better option. Either way, good luck.

@Ralph R., when I make that extra 1/2 payment (on a month that it falls), it is immediately credited to my principal.  They do not apply it when they feel like it.  

Example: 1/2 payment sent to auto-pay every two weeks.  January 1: 1/2 payment made and sits as I applied funds until full payment is received.  January 15: 1/2 payment made, completes a full payment, and is processed as normal.  

January 29: 1/2 payment made and is immediately applied towards principal.  

If you go that route, I would set up auto principal payments directly to the MORTGAGE COMPANY'S website, not the third party, even if it says they'll do it for free. I don't see the benefit of sending it to a third party to forward to your mortgage company. There has to be a catch somewhere. Even if there isn't, I would prefer being in control and send it directly to the mortgage company. Also, as others have said, you're likely better off to invest that money vs make principal payments. I have the debate with myself as well and decided on my own hybrid strategy: 1.) Set up auto-payments every two weeks when I get paid. This effectively makes one extra payment per year and reduces my 30 year loan to 25 years. 2.) Invest additional extra funds for growth and liquidity. This helps me sleep at night because I know #2 is the right mathematical decision, but having #1 also helps me with the psychological part of it. Hope that helps.

Not all companies require the loan to be paid back in full immediately, although MOST might. There are companies that, for a small fee, will allow you to complete auto payments even after you separate from that employer.

High yield checking accounts. There are credit unions that will pay up to 4.59% if you jump through some hoops. Similar return, much less risk. Feel free to message me if you want more details.

How do you have 15 years of REI experience and only $2,500 in the bank after JUST losing your job? Not trying to be a jerk, but something just doesn't add up there. I would say a better strategy might be to consider liquidating a property or two to raise cash to live on while you get your finances back in order. Use that cash to survive while you find another job, don't sabotage your 401(k), and rebuild once things stabilize for you.

@Peter Abualzolof, the most interesting part is when they say to choose a 30-year fixed mortgage instead of 15 due to the lower interest rate.  Since when is that true?

@Brian Campbell, why are you selling?

I got an alert that someone voted on one of my posts, so I visited and read this thread again.  A couple of points:

1.) Whether or not you can set up automated 401(k) loan payments when you leave employment depends on the plan itself.  As was stated, definitely do your homework beforehand.  

2.) Also, it was mentioned that you can take principal out of a Roth IRA tax-free after 5 years. You can actually take out CONTRIBUTIONS at any time, for any reason, tax and penalty free. It's your EARNINGS that could potentially come out tax-free after 5 years, but you must also be 59.5 to have this be considered a qualifying distribution, otherwise the 10% early withdrawal penalty would still apply.