Withdraw from IRA

[brennon]

My wife and I are on BS2, with £2000 in our EF. We have about $5,000 sitting in an investment account in a Roth IRA. Would it be wise to pull that, pay the taxes, and put it toward BS2, or to leave it there and invest it?

Thanks!

[mek42]

If it is a Roth, you should be able to withdraw the principal with no taxes or penalties because you've already been taxed on it. Having said that, I have about the same amount in my Roth and decided not to touch it. First, it can be part of the serious emergency plan above and beyond the baby EF. Second, what if you get discouraged and give up on the whole DR plan in six months? Then you're effectively also out the $5k you had worked hard to save up, which will, perversely, probably act as resistance against trying the plan later on. Next, by the time you are sure that the DR plan is a permanant lifestyle change, you should, hopefully, be close enough to being done with BS2 that that $5k won't make a difference.

Speaking of differences, how much difference will it make in terms of time? How many years of extra income that you could put towards BS2 is that $5k?

Now, if you were out of BS2 right now, how long would it take you to replenish that $5K above and beyond the 15% of income you'll be putting towards retirement?

Lastly, in my opinion (DR would likely disagree with this) you can use that $5k to get some experience with investments. If you have some losses, you should easily be able to make them up and the lessons you learn will be invaluable later when you have more money to manage. Maybe you want to try your hand at something other than mutual funds. If you're totally new to investing, divide the amount into 5 parts. The first four in funds as DR suggests and then take the rest to manage directly, but only if you're willing to put in the time and effort to learn enough to understand the investment. Maybe this experience will teach you that mutual funds are the way to go, maybe you'll learn that you enjoy investing and have a new hobby.

I hope things go well for you and am looking forward to hearing more from you.

[Greebo]

I'm with Mek. Leave what's in there alone - stop making new contributions. Taking money out of the Roth means giving up an INCREDIBLE benefit in the future - even if you're not paying taxes on what you take out, it's not a good financial practice to sell the future to buy the present, and since you've already got the money in the ROth, taking it out would be doing just that.

[brennon]

Speaking of differences, how much difference will it make in terms of time? How many years of extra income that you could put towards BS2 is that $5k?

I'm not quite sure what you mean there. Would you mind rephrasing that?

Now, if you were out of BS2 right now, how long would it take you to replenish that $5K above and beyond the 15% of income you'll be putting towards retirement?

Above and beyond the 15%? A while... I'm not sure about that, as I'm not sure what our salaries will be like then. I know it wouldn't be quick!

Thanks for your reply!

[Greebo]

I'm not quite sure what you mean there. Would you mind rephrasing that?

He wants to know how long it will take you to pay down $5,000 of debt normally, without pulling money out of the Roth.

Above and beyond the 15%? A while... I'm not sure about that, as I'm not sure what our salaries will be like then. I know it wouldn't be quick!

I don't think you need to worry about that yet - you're still in BS2. You've got a while before you should resume investing again and if you're following the DR plan in order, and taking his advice on money management, by the time you get there you'll have a much better sense of what your money is doing and will be doing.