So I just started a new job this year and may buy a house around the end of the year. My job doesn’t allow me to contribute to a 401k this year. I live in a HCOL area. Here”s the numbers:
Age: 42
Expected house price: $700,000
Gross Income: $115,00
20% down payment: $140,000
Current cash: $85,000 (so I need another $55,000 plus figure another $15-20,000 for additional costs associated with the purchase).
Taxable account: $395,000 - most investments are up 50% or more over the cost basis, all long term capital gains
Roth IRA: $170,000
457: $355,000
I also have a pension from my previous job that will pay about $26,000/year beginning at 50.
So, my first thought is to save cash this year, then get the rest by selling taxable investments. I’ll have to pay LTCG at 15% plus California income tax at 9.3%. My other option would be to pull from my Roth, since this will likely be my highest tax bracket year ever. Next year I can max out my 401k and begin contributing to either a Roth or tradIRA (whichever makes the most sense based on my bracket).
I’ve always thought of my Roth as something I wouldn’t touch until I had spent down my taxable funds, but if I end up needing $30,000, that works out to $15,000 in LTCG and an additional ~$4,000 in taxes. That’s not the end of the world, but it has got me thinking that this year might be a good year to pull from my Roth. In retirement my tax rate will be lower, so my LTCG taxes from my taxable investments will be less, even with another 10+ years of returns.
Tell me why pulling from my Roth is a horrible idea.