Ira Withdrawal House Purchase

October 16th, 2009

Question: Should I contribute more to a PRE-TAX invest. acct like 401K or into a POST-TAX invest. acct like Roth IRA?

The fees for my POST-TAX(income tax) Roth IRA is only $12 a month for 6 free investments and I have wide range of ETFs and stocks to choose from. I can take money out but with some penalities and or none at all based on the rules. I anticipate making a huge withdrawal to pay for a house.

The fee for my PRE-TAX(income tax) is .50 for every $1K but I have a small range of funds that I can invest in. I can’t take the money out of this account until i retire. There are certain rules that allow me to take the money out for things such as purchasing a house, but I would have to pay that money back. So it’s like taking a loan out on my own money.

What would be more beneficial for me?

Answer: You may want to rethink the idea of taking anything out of a 401(k) because if you leave the job, the money needs to be back there ASAP–there are penalties, etc. associated with that.

As for a Roth IRA, I prefer maxing out IRAs whenever possible because you have more choices and freedom with an IRA than a 401(k). IF your employer offers something in matching for a 401(k) it’s probably worth contributing to max out what he’ll put in as it’s effectively free money.

I think you need to read this, though, as if I’m following you, I think you may believe you can pull money from either kind of account for a house without worries–there are conditions in both cases:

http://www.kiplinger.com/columns/starting/archive/2006/st0309.htm

Good luck!

SYLVIA”Ira’s Mom” GALLEN SIGN UP AT HER SITE SHES CRAFTY