Author Topic: Best way to get cash from accounts?  (Read 452 times)

Cowspot28

  • 5 O'Clock Shadow
  • *
  • Posts: 40
Best way to get cash from accounts?
« on: February 21, 2021, 07:32:50 PM »
Hi,

I am in the process of buying a home and may not have enough physical cash for the transaction. This is a cash flow problem only as I have money in other accounts. Whatís the best way to get cash from accounts all invested in VTSAX: brokerage or Roth IRA (more than 5 years maturation)? Also, I may not have enough cash on hand for my 2020 traditional IRA. Does it make sense to pull from another account, or can I delay my taxes past April?

Thanks!

Sibley

  • Walrus Stache
  • *******
  • Posts: 5450
  • Location: Northwest Indiana
Re: Best way to get cash from accounts?
« Reply #1 on: February 21, 2021, 07:40:12 PM »
You can file an extension on your taxes, however the tax is due by tax day. And I'm not aware of an extension in the IRA timeframes.

If you have taxable investments, you can sell those, with the related tax consequences of course. You could pull cash from retirement accounts but there are penalties and taxes you'd likely be responsible for paying.

Cowspot28

  • 5 O'Clock Shadow
  • *
  • Posts: 40
Re: Best way to get cash from accounts?
« Reply #2 on: February 22, 2021, 03:42:11 AM »
Thanks for your response. I guess thatís what Iím trying to figure out: financially what makes better sense to do? I thought you can always take contributions without penalty from a Roth IRA. Iím confused about the earnings, but I think those are also tax/penalty free since itís been more than 5 years since I put the money in. Withdrawals from the brokerage account will have LTCG to pay at 10%. Does it make more sense to use the Roth then?

I will likely have a positive tax return this year due to credits/unemployment related to COVID. Itís just a matter of whether logistically I can fund a traditional IRA after the due date if I do file an extension and also if it makes financial  sense to do so if I were to take that money from either my Roth or brokerage account.

yachi

  • Pencil Stache
  • ****
  • Posts: 792
Re: Best way to get cash from accounts?
« Reply #3 on: February 22, 2021, 08:59:29 AM »
0. Any uninvested dividends in your brokerage - you probably have this brokerage selected to reinvest dividends, but you can change it for future needs.  You already pay taxes on these dividends, so it's not bad to leave them uninvested so you can send them to an IRA or use for other expenses.
1. Roth IRA contributions (no tax or penalty) - limited to however much you've put into your Roth IRA over the years.
2. Roth IRA earnings withdrawal for first time homebuyer (no tax or penalty) - limited to 10K, and you must qualify as a first time homebuyer.
3. VTSAX in brokerage - you pay tax on the difference between what you paid and what you sell it for, based on the oldest purchases.  If you're showing a gain of 50%, you'll only pay taxes on 1/3 or what you withdrawal:
      $150 sold, $100 paid = $50 gain

It's probably to your benefit to sell VTSAX in your brokerage account to fund your traditional IRA because tax on your brokerage account is limited to your gains only, and tax tables for capital gains are lower than for income.*  But there are exceptions, and you'll have to do the math if you're using your 2020 traditional IRA contribution to lower your income to qualify for things like the EITC, or child tax credit, or ACA health care benefits.

alcon835

  • Bristles
  • ***
  • Posts: 449
Re: Best way to get cash from accounts?
« Reply #4 on: February 22, 2021, 11:10:38 AM »
...from a Roth IRA. Iím confused about the earnings, but I think those are also tax/penalty free since itís been more than 5 years since I put the money in.

Yes, you are confused about that. The 5-year rule is about backdoor contributions through an IRA. you can't touch growth/earnings until 59.5.

From the Roth IRA, you can pull you contributions tax free, but not any growth, dividends, earnings, etc. The 5-year rule does not apply to either of the above.

As @yachi mentioned, if you qualify as a first time home owner, you can pull out 10,000 from your Roth IRA without penalty.

Withdrawing from a taxable brokerage is fine, but you'll be taxed on any gains on what you sell.

Cowspot28

  • 5 O'Clock Shadow
  • *
  • Posts: 40
Re: Best way to get cash from accounts?
« Reply #5 on: February 22, 2021, 11:47:46 AM »
Thanks to everyone. I appreciate your help. This community is so valuable to me!

terran

  • Magnum Stache
  • ******
  • Posts: 3534
Re: Best way to get cash from accounts?
« Reply #6 on: February 22, 2021, 12:40:09 PM »
You could consider a margin loan as described in the most recent MMM blog post: https://www.mrmoneymustache.com/2021/01/29/margin-loan-ibkr-review/