The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: kw12 on April 09, 2016, 04:23:57 PM
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Would it make sense to put our house savings $ into our Betterment Roth IRAs, even if home purchase would take place less than 5 years after opening the Roth IRA? I realize we would not be able to withdraw any earnings, without penalty, but we would just be withdrawing the contributions. If we did this, what would be the best stock/bond allocation? OR would it make sense to start a different type of account w/ Betterment, or with another company, and put the money into that? I'm just hoping to find a better option than leaving a large(ish) chunk of money in a lame, low-interest savings account. :)
Relevant details:
• Married, filing jointly (2 dependents). We could potentially put 11k/yr into the IRAs (though, it's unlikely that we'd be able to do that.)
• 0% tax bracket
• Home purchase would be 2-5 years from now
• Purchase price would be 70k or less
• Yes, I've run the numbers, and it would actually make sense to buy vs. renting for the time period that we'll be living in this town. :)
• Employment is not super stable, currently, but we would keep 3+ months of expenses in our local checking/savings
Thanks for any input you can provide!
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That's great. Purchasing your own house is exciting.
Will you get a mortgage with 20% down (i.e. $14,000)?
If the price of the stock drops, how much are you willing to lose (i.e. 5%, 10%, 20%, etc.)?
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No. Do not do this.
Two reasons:
1) Any money you will need within a year or two (or really under 5 years) do not invest unless you can afford to lose a good percentage of it to short term volatility. Put it into a savings account earning the highest interest you can find. Do not play the odds with money needed "soon." A savings account may not earn much, but it is SAFE and you will not lose a dime of your potential down-payment. A few years worth of chilling in a saving account earning 1% is worth the cost of not losing 5-25% if you hit a funny bounce in the market just when you needed to draw out the money...
2) You are robbing your Roth (and the very small space you are allowed to fill each year) by using it as a short term holding account. Once you pull out that money, that space is gone - wasted. You can't go back and refill, and you're costing yourself time/money in the market in a tax-deferred/free account. It's a poor use for it. Max it (or a traditional) each year and leave that money alone to grow.
And you say employment is not super stable? You're not really set up to buy a house until it is anyway. Sock away money in the Roths for long term, save what you can for the house separately and make sure you've got a nice cushion for emergencies.
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That's great. Purchasing your own house is exciting.
Will you get a mortgage with 20% down (i.e. $14,000)?
If the price of the stock drops, how much are you willing to lose (i.e. 5%, 10%, 20%, etc.)?
There's no solid plan, right now... hopefully, 20% down, plus plenty of cushion for furnishings/repairs/etc. That's why the timeline is fuzzy. It all depends on how fast we can save, and what deals become available. If we could buy something for, say, 20k & put 10k of repairs into it, we'd be up for that, too.
No. Do not do this.
Two reasons:
1) Any money you will need within a year or two (or really under 5 years) do not invest unless you can afford to lose a good percentage of it to short term volatility. Put it into a savings account earning the highest interest you can find. Do not play the odds with money needed "soon." A savings account may not earn much, but it is SAFE and you will not lose a dime of your potential down-payment. A few years worth of chilling in a saving account earning 1% is worth the cost of not losing 5-25% if you hit a funny bounce in the market just when you needed to draw out the money...
2) You are robbing your Roth (and the very small space you are allowed to fill each year) by using it as a short term holding account. Once you pull out that money, that space is gone - wasted. You can't go back and refill, and you're costing yourself time/money in the market in a tax-deferred/free account. It's a poor use for it. Max it (or a traditional) each year and leave that money alone to grow.
And you say employment is not super stable? You're not really set up to buy a house until it is anyway. Sock away money in the Roths for long term, save what you can for the house separately and make sure you've got a nice cushion for emergencies.
Good points. Didn't think about point 2 very much... Although, realistically, we would not be able to max that out & save for a house with our current income level. We are definitely not in Mr. Money Mustache's target demographic, income-wise. :D However, I like the ideas in the blog, and the mindset of people in the forums, so I enjoy reading here.
In response to your last question:
My husband & I both grew up in self-employed, small-business-owning, very variable (and sometimes very low) income families, so that is what we're used to working with. :) He currently works as a sub-contractor, and brings in $2400/mo, which more than covers our basic expenses. That work could end in the next couple of months, but he would almost definitely be able to find work making that much, (or even less, but still enough for our expenses), well before our emergency funds ran out. The idea of buying a house without a steady, guaranteed salary is that our bare minimum expenses would drop, making it even better for our situation. And then, if the income did increase a lot, we'd pay off the house sooner, and have even lower housing costs each month.