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Pulled money from Roth, borrow to put it back?

Posted: Thu Jun 10, 2021 11:34 am
by Oddball
I pulled $35k from a Roth account to help with a down payment for a property with the plan of opening an HELOC on a different property to pay back the Roth, basically the Roth funds were going to be used as a bridge loan.

Due to timing of closing on the new house and change in status for the HELOC property, I can no long do the HELOC and am short ~$25k cash to pay back the full $35k. I have about 5 weeks to pay back the Roth funds as after that the 60 day window is closed.

I plan to retire in 15-20 years, so the Roth funds will be in the account for at least that long. The $35k in Roth funds is ~1/4 of our Roth accounts, and a bit less than 10% of our retirement savings.

If I take a personal loan it will likely be ~7-8% APR on the $25k I will borrow and pay it back over 4-5 years. Besides mortgages on properties (2 investment 1 primary) and $15k in student loans at 2.75%, we have no other debt.

I could also just not replace the Roth funds as there are no taxes due on what I pulled out. Part of me really wants to pay it back as that was the original plan, but the HELOC would of course been a lower APR and I could pay it off at whatever pace I wanted, a personal loan seems to an installment payment.

So, do not pay it back, or take a loan at 7-8% to pay it back, or any other ideas?

Re: Pulled money from Roth, borrow to put it back?

Posted: Thu Jun 10, 2021 11:48 am
by Wiggums
Missing the 60-day deadline means that you will not be able to return the money to the account, and you may also be taxed on the withdrawal. If you keep the funds out of the account for more than 60 days, the withdrawal is considered as a distribution. Once again, if it consists only of principal, there will be no tax consequences. However, if the withdrawal includes earnings and you have not yet reached age 59 1/2, you'll have to pay income tax, plus a 10 percent penalty on the money. If you have already contributed the yearly maximum to your Roth and you miss the 60-day rollover deadline, you cannot put the money back into your Roth as a contribution. The IRS will not allow you to exceed the contribution limit for the year.

Re: Pulled money from Roth, borrow to put it back?

Posted: Thu Jun 10, 2021 11:49 am
by michaeljc70
Do you currently max out your Roth? I wouldn't pay 7%+ to put the money back in the Roth. It isn't that much money anyway. You cannot borrow using some other means for a lower rate? I can borrow on margin for 1.6%.

Re: Pulled money from Roth, borrow to put it back?

Posted: Thu Jun 10, 2021 11:52 am
by RickBoglehead
You should not borrow to pay back the Roth.

In the future, you shouldn't consider retirement accounts as a bank. They're for retirement. Consider them hands off. Consider this a valuable lesson in what not to do.