12/12/2005

Advice from Nashville's leading Financial Aid Advisor Dave Ramsey

 
Dave Says
By Dave Ramsey
Author of:
Financial Peace and
The Total Money Makeover

"Use part of retirement fund for down payment?"


Dear Dave –



I can use $10,000 of my retirement fund penalty-free for a first-time home purchase. Is this a wise plan?

Ted via email



Dear Ted –



Anyone can do this if they’ve had a Roth IRA for five years. Very few people have had a Roth IRA for five years, so unless you’ve already funded it this year you haven’t put $10,000 into it. The only way you can take it out is if you put it in, and that’s in actual dollars – you cannot take out any of your investment portion.

But you’re asking if taking the money out now is a smart plan. Let’s play with some numbers. At age 26, if you leave the $10,000 in there and save up for the house – which I recommend doing for a mortgage down payment, anyway – by age 66 you’ll have about $1,200,000 extra that’s all tax-free. 

I know what my answer is, Ted. It’s not a good plan.

- Dave

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