Author Topic: Withdraw from Roth IRA for house downpayment?  (Read 2283 times)

jpeizie

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Withdraw from Roth IRA for house downpayment?
« on: November 14, 2015, 07:42:03 AM »
Hi Mustachian experts,

We're currently renters and have been saving some money. In about 6 months, I expect to be moving to a high cost of living area and won't have enough savings for a 20% house downpayment unless we pull out a pretty good chunk of the principle in our Roth IRA's. We've lived in this area before and had always been renters but the good ol' rent vs. buy caculators say we'll come out ahead if we stay put for at least 5 years, which we probably will.

Some other info about us: We do have some money in a regular taxable brokerage account, which we would use first, and I've also got a 401(k) so it's not like doing this would leave us with no retirement savings. We're in our mid-30's.

So... would you do it? Why or why not?

AnEDO

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Re: Withdraw from Roth IRA for house downpayment?
« Reply #1 on: November 14, 2015, 07:58:24 AM »
You may or may not come out ahead after 5 years.  A house has a lot of extra expenses.  I think of a house as a lifestyle choice rather than an investment(unless someone is paying you to live there).  Your investments are what increase your freedom in life.   I wouldn't touch my investments to buy a house any more than I would to buy a car.  If you really want to buy a house, you might consider putting 10% down rather than 20.  Check to see how it may affect your mortgage rate if you go that route.  You will have to pay PMI which would be around 80-100/month until you have 20% equity.  Here is a different take on home ownership:  http://www.gocurrycracker.com/renters-for-life/         

InvestandChill

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Re: Withdraw from Roth IRA for house downpayment?
« Reply #2 on: November 14, 2015, 11:03:59 PM »
Hi AnEDO,

I would do it if I had intimate knowledge of the neighborhood that I were buying into. I also have a high risk tolerance, so please take my opinion with a grain of salt. Office spaces being built in the area? Hospitals? Schools? Stadiums? I would consider all of these pieces of info.

You mentioned that you are moving to this new HCOL so you may not have a very good awareness of the neighborhood and all the nuances that can only be achieved with living there 2-3 years at the least. You've lived in the area before but I don't have a sense of how long ago that was.

robbinew

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Re: Withdraw from Roth IRA for house downpayment?
« Reply #3 on: November 17, 2015, 12:49:14 PM »
If you are first time home buyers, you can take out Roth IRA gains without early withdrawal penalties.  If your IRA has rocketed upward over the last few years, it might not be the worst idea.  I did this prior to the last market crash and got lucky.  But if you can go with 10% down and  aggressively pay it down to get rid of PMI, that' probably better.

Bearded Man

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Re: Withdraw from Roth IRA for house downpayment?
« Reply #4 on: November 17, 2015, 04:38:12 PM »
I almost cashed out my entire ROTH IRA at the time to pay cash for my first house. One of the best decisions I've ever made. The house has gone up 250% in value since I bought it, and I lived in it nearly free for 2.5 years, AND, it's been a rental for coming on 3 years now, paying me dividends monthly, no vacancies. I would never speculate in the stock market without having a paid off place to live first.

If you do nothing else in life other than all but cut your cost of housing, you can coast the rest of your life.

Another Reader

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Re: Withdraw from Roth IRA for house downpayment?
« Reply #5 on: November 17, 2015, 05:42:34 PM »
Rent vs buy calculators do not consider the lost opportunity cost of taking money out of your retirement savings.  At your age, time is not as much on your side.  I would not do this.

If you are moving to the HCOL area, your salaries should increase, or it's not worth moving.  I would start living very frugally now and carry that over to the HCOL area.  Rent until you can afford to buy without tapping your retirement savings.

Goldielocks

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Re: Withdraw from Roth IRA for house downpayment?
« Reply #6 on: November 17, 2015, 07:25:50 PM »
Unless you were a very late starter in the workforce, and plan on making a huge salary in future....


First, secure a MINIMUM retirement fund for yourself at age 65..  e.g., do you have $200k NOW that you will not touch in your retirement fund?  This should grow to $500k or better, and generate $20k in income during retirement.


Now, with that out of the way, you have choices. 

If you have more money than that, you can choose to keep in retirement for earlier FIRE or larger income in retirement, and find another way for house accommodation (financing or renting), or you can choose to use it on housing.

 It's your life.   Just don't get trapped in the "forever home" or "Buy the most house you can afford" commentary.  It's a TRAP.