Raiding Roth IRA

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juventussoccr
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Raiding Roth IRA

Post by juventussoccr »

Hello everyone, this is my first post here, but I've been lurking around here for a few months. So here goes my situation.

I'm getting married in December of this year and the total estimated cost, including honeymoon is going to be around 9k. As of right now, I only have a month's worth of expenses in a savings account, while I also have a roth ira at Vanguard around 14k.

I also have an engagement ring debt, at 0% interest, which I will have paid off in June of next year. I also have student loans of 45k with rates varying from 2.48% to 5.8%. However, I currently don't have any credit card debt.

So my dilemma is that my parents and my fiance's parents are not going to be able contribute anything to our wedding. We only have 1k saved up so far for it and we've been cutting back everywhere and I don't know whether we can come up with the funds. Would it be okay to raid my Roth for the wedding? Thanks in advance for any advice.
mjdo242
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Post by mjdo242 »

Have you considered other options to cut the costs of the wedding? Maybe not having a church wedding or setting a later date for more time to save money. It sounds like you're young and haven't had a lot of time to build savings. But to answer your question, you can take out the contributions of your Roth, not your earnings. I wouldn't recommend it though. I use my Roth for retirement and save money in a bank account for short term expenses. Good luck and congratulations!
gsmith
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Post by gsmith »

Would it be okay to raid my Roth for the wedding? Thanks in advance for any advice.
Only you can decide this; the forum can only make you aware of the opportunity costs.

You don't mention your age, but if your young, every dollar you spend now will cost you thousands at retirement thanks to compounding.
You'll be losing tax advantaged space you will likely never get back.
You'll be losing an savings fund that's judgement proof.

I would trade most... ok all my money for happiness because I can always make more.
However, I would make sure what I spent would only be to impress and build a life with her, and no one else.

What does he/she think? Would she rather sacrifice now for a better retirement down the road?
letsgobobby
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Post by letsgobobby »

welcome. but.

$9k wedding that you don't have.
only a 1 month emergency fund.
$45k student loan debt.
engagement rink debt of who knows how much.

This is not a very good start. The problem isn't the debt; it's the ease with which you've accumulated it based on your wants and perhaps your fiance's wants and perhaps societal expectations, but none of it needs.

Only you can decide. Me? I would return the ring. I would cancel the wedding and have a small ceremony with a cake at City Hall. I would save and never raid the Roth and build an emergency fund as fast as you can.

When you have more money in 2 years or 10, you can invite everyone for a real ceremony and do it without going broke.
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leeks
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Post by leeks »

+1

I doubt you could convince your fiance to return the ring without damaging the relationship, but it's an idea.

A surprising number of couples I know have done a city hall wedding with a simple low-cost celebration afterward (hosted at someone's house, with different friends bringing snacks, champagne, cake, and flowers). I helped host one of these once and I have fond memories of that day as the best of all the weddings I have ever attended. That couple is still happily married. A good party really does not have to cost much money or all the stress of a fussy event, it can be simply about gathering loved ones together.

In each case, the couple planned to have a large celebration later (like they would wait a year until after they had bought a house and saved up). Some of them did eventually have a bigger celebration. Others now see no need for the expense. I think they did all eventually take a honeymoon of some kind.
GammaPoint
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Post by GammaPoint »

Hi,

Only you can decide if it's "okay" for you to raid the ROTH, but pretty much the only way I'd want to raid my ROTH is if I needed the money to save my or my fiancee's life. I would much prefer to do a city hall wedding personally. But your fiancee may not feel the same way. If having a big-ish wedding was super important to my fiancee and was a really big deal to her then I would consider it, but I'd try to find every possible way of not doing it.
sport
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Post by sport »

In a nutshell: Don't buy things you cannot afford. It's as simple as that.

Jeff
flowerbuyer
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Post by flowerbuyer »

If you use your $1,000 savings and raid your Roth IRA to pay for your wedding, you are, in a way, starting your marriage off with an $8,000 debt. Personally, I think it would be better to scale down the wedding. Keep it very , very simple. Start saving and have a party for your first or second anniversary.

Have a small wedding in a park, or in someone's home. Serve coffee and cake.
stan1
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Post by stan1 »

Could you delay the honeymoon until your second, third or even tenth anniversary? Instead of going on a trip take a day or two off after the wedding and visit your favorite places near where you live. Memories are built with the time you spend together. There are many ways to do that without spending money.
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hand
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Post by hand »

I am in general agreement with most of the prior posts - long term financial stability, not to mention long term happiness are dependent on being able to differentiate between needs and wants and having the willpower to spend within (or below) your means. From the limited information you've provided, it is not clear you are on this path.

That being said, a wedding is a one-time event and taking on debt / raiding your retirement account do not have to set the tone for the rest of your life. If you are young, have strong earning prospects and are confident that after the wedding you - and your wife - will be able to live substantially below your means, taking from your Roth might not be a horrible decision.

Personally, I wouldn't go into debt for a ring or a wedding (or raid retirement accounts), but if you've done the math , understand the long term costs of your decisions (9k today at 6% for 30 years = 54k at retirement), and you and your fiancee are comfortable with the trade-off, there are worse ways to spend the money. If 30 years from now you're sure you'd rather have the memories than the money, and you know you won't need the money before then for food or housing or kids, go ahead.



P.S. Weddings, houses, and wives, not to mention life in general, are often significantly more expensive than you initially plan for!
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Exige
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Post by Exige »

We had to set ours a little over a year out and made a budget of 250 a month each savings to pay for ours and continued to let family in on the plans and what we were doing and a lot of people stepped up to help out.

We also planning on skipping a honeymoon till our 1 year anniversary however my dad surprised us and is floating the bill. But pushing the honeymoon back for finance reasons is not such a bad idea. Maybe do something local for a weekend etc?
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bigROI
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Post by bigROI »

Elope - less stress and you can still have a relaxed reception later on to collect gifts and party. Starting a life together by raiding retirement is not a wise thing. If you cannot elope just have a small ceremony that cost a few hundred with the close family. Take a mini honey moon after the wedding then when you have caught back up take the big one, maybe after the reception. Honestly most people cant wait for the ceremony to be done so they can eat and drink and party.
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jh
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Post by jh »

...
Last edited by jh on Sat May 07, 2011 6:03 pm, edited 1 time in total.
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Watty
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Post by Watty »

At the risk of making everyone cringe, as Suzy Orman would say, "You are denied!"

The pros and cons of raiding the Roth are one thing, but to me the biggest issue is that from what I can see your financial situation won't allow you to rebuild the Roth or an emergency fund. You really need to have at least three months expenses saved up in an emergency fund as a bare minimum and more than six months is very desirable.

When you said;
We only have 1k saved up so far for it and we've been cutting back everywhere and I don't know whether we can come up with the funds.....
That tells me that your budget is already pushing at the limit since with seven months to save you can't save up most of the additional $8,000 that you need in addition to the $1,000 you have already saved. Even without a catastrophe, something like a expensive car repair could put you in credit card debt that could last for years.

Now is a good time to sit down and talk with your fiancée and develop your relationship by talking about money and what is important. You can still have a very nice wedding and honeymoon for a lot less than half that price. If you want to get some ideas about how to save money on the wedding then post a description of your budget and I am sure you will get lots of good ideas (and probably a few snarkey ones too :lol: , ignore those)

If you were planning on taking the Honeymoon in December that is a very expensive time to travel because of the holidays. By late January you could get some very reasonable travel deals.

If you really want to spend the $9,000 on a wedding and Honeymoon then the way to do it is for both of you to get a second job and work evenings and weekends to save it up over the next seven months. This is very doable. If saving up that much money for the wedding isn't worth working the extra hours, then that should be a sign that it isn't worth spending that much on the wedding.

Greg
Mysteryhunt
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Post by Mysteryhunt »

The roth money will double at a minimum once a decade in theory and is completely 100% tax free. Will the other expenditures perform as well?

Also you can get a lot of wedding/vacation for 1k, think cruise/elopement or vegas.
JinxDaddy
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Post by JinxDaddy »

Congrats on the upcoming wedding first off. Good luck and all that. I hope you and the soon-to-be-spouse are on the same page financially. Have you two talked in depth about all aspects of your personal finances, investing, etc.? Your marriage will be so much solid and successful if you two agree and know each others values.

Some key boglehead advice is to live within your means. If neither your parents or hers can help pay for it and you're taking out loans and raiding retirement funds to pay for it... you need to consider that you should have a smaller, more intimate wedding. People may want a fairytale wedding...but consider the reality of your situation and how this will impact you for years.
gkaplan
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Post by gkaplan »

I don't think he liked out advice. He hasn't checked back.
Gordon
scubadiver
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Post by scubadiver »

juventussoccr,

Welcome to the forum and congratulations on your engagement.

First, I would NOT recommend asking your fiance to return the engagement ring. Did you make a poor decision spending so much money that it's going to take you well over a year to pay the ring off? Yes. Is the damage to your relationship caused by undoing that decision worth the financial benefit? No. Your situation is not so dire as to warrant such a draconian step IMHO. Some people on this forum talk tough, but they are not the ones who would be asking their fiance to return her ring. (I ran this one by my wife and she was horrified that someone would even consider such an action.)

Regarding the wedding....ugh. Where do I begin? Honestly you are not even remotely in a financial situation where you can afford to spend 9K on a honeymoon & wedding. I understand that you can raid your ROTH to pay for this and I would strongly encourage you not to. Here's why....

Suppose you had only 9K to spend and you had to allocate this money across the following three expenditures: (1) Buying a home, (2) Costs associated with the birth and rearing of children (however much you think this will cost, trust me, it will be more than that) and (3) Entertaining a bunch of people that, for some reason, you only see at weddings and funerals. If you and your fiance were to prioritize these expenditures, where does (3) fall? Keep in mind that (1) and (2) will cost you way more thank 9K. We had 2K in out of pocket expenses alone from the hospital bill for the birth of our daughter. Let's not even get started on the income my wife gave up during maternity leave and later when she became a stay at home mom.

Now keep this in mind - every penny you spend on (3) now will be one less penny that you have for (1) and (2) down the road....and in my opinion, the fincial picture that you have painted indicates to me that you are going to need every penny you can get. Consider the 45K in student loan debt. How much are the payments on that? $300 a month? More? You're really going to wish you didn't have that payment when you go to buy a home.

I would urge you and your fiance to consider the long term impact of the wedding expenses on other life events in the future and decide how you wish to prioritize the associated expensees. I appreciate the social and family pressure's you must feel to have a more expensive wedding. Unless those people are kicking in cash to pay for it though, they don't have a say in the matter. This includes your parens. In fact it especially includes your parents.

Ok, enough preaching.

Best wishes,
Scubadiver
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kpanghmc
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Post by kpanghmc »

I don't want to encourage you to spend money you don't have, but just remember that you will recoup some of your costs from your wedding gifts. If you're planning on having, say, 150 people at your wedding who give an average of $50 / head, the total net cost of the wedding is only $1,500. Keep that in mind when you're crunching the numbers.
Kevin
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juventussoccr
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Post by juventussoccr »

Thanks guys, I talked to her and we're delaying the honeymoon till the end of the summer or fall so that knocks off around 1k. I know it was stupid of me to even think about taking it out of my roth ira. I guess it was just the emotions and just looking at all of our expenses. Anyway, I'm not going to take anything out and just start saving as much as we can.
I know my fiance is getting a job in the summer as a summer school teacher so that will help a lot. Thanks again.
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White Coat Investor
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Post by White Coat Investor »

I like the idea of making her pay for the wedding ring by buying it on credit/debt that will become half hers on the wedding day. Good thinking!

Seriously though, do the wedding on the cheap and get to work on those loans. You'll be surprised the dent you can make in those loans with you both working hard for a few years.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
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juventussoccr
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Post by juventussoccr »

Well by the time we get married, the ring debt will be under 1k so it's not that much. The thing that's been getting me since I graduated have been student loans. I went to George Washington University and I don't regret going there, but man the student loans I have from that place are crazy. That's where my extra money has been going the past few years so trust me, I'll be glad when those are paid off.
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leeks
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Post by leeks »

juventussoccr wrote: I know it was stupid of me to even think about taking it out of my roth ira.
Don't be so hard on yourself! You knew the idea didn't feel quite right and that's why you came to post on this forum. That is a good sign.
leonard
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Post by leonard »

It's a Roth IRA - not a Roth IWA.

If every time something comes up, you will be looking to raid your Roth, you need to get out of that mind set. That money is for retirement. So, max out your Roth for as long as it makes sense for tax reasons. Rebalance it to your target asset allocation once per year.

Other than the above bookkeeping, pretend it doesn't exist so as to remove tempation.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.
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Watty
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Post by Watty »

Well by the time we get married, the ring debt will be under 1k so it's not that much.
By itself it might me managable but for a "trick question" look at it as a percentage of your net worth.

The reason that it is a trick question is that with the student loan you probably have a negative net worth so the percentage of you net worth question really dosn't have a good answer.

Reducing your net worth by another $9K for the wedding reduceds your net worth even farther.

Greg
hat301
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Post by hat301 »

Two words: cubic zirconia. 99% as beautiful as a diamond for 1% of the price. I'm sure she'll go along with it once she understands how much better of a value it is :wink:
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celia
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Re: Raiding Roth IRA

Post by celia »

juventussoccr wrote:So my dilemma is that my parents and my fiance's parents are not going to be able contribute anything to our wedding. We only have 1k saved up so far for it and we've been cutting back everywhere and I don't know whether we can come up with the funds. Would it be okay to raid my Roth for the wedding? Thanks in advance for any advice.
You may or may not realize that many of the things that are ingrained in you are things you learned from your parents. The odds are good that neither of your parents have much in savings either. If you can recognize this and make the effort to change your financial habits, you'll be amazed at the goals you can reach.

You took an excellent first step in coming to this forum.

Rather than raiding your Roth, why don't you temporarily cut back on contributions to it. Don't stop the contributions all together, but only put in half of the amount you're used for a year or two.
expat
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Post by expat »

Get married at City Hall.
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schnoodlemom
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Post by schnoodlemom »

Congrats on your decision to delay the honeymoon! We did this and didn't regret it, at all. We had a weekend getaway to a bed & breakfast locally right after the wedding and then two years later an extended vacation when I was pregnant with our first. Both are very special memories. All the best to you and your fiancee!
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interplanetjanet
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Post by interplanetjanet »

hat301 wrote:Two words: cubic zirconia. 99% as beautiful as a diamond for 1% of the price. I'm sure she'll go along with it once she understands how much better of a value it is :wink:
I really like moissanite. It's more like 10% of the price of diamond, but has a beautiful sparkle and sheen. Like many people, I have a big problem with the exploitation that goes on in many parts of the world as a consequence of the diamond industry. CZ can be pretty nice, too, if well done - though I like the "fire" of moissanite better.

-Janet [for sheer gaudiness you can't beat nanopatterned photonic crystal, though]
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juventussoccr
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Post by juventussoccr »

You may or may not realize that many of the things that are ingrained in you are things you learned from your parents. The odds are good that neither of your parents have much in savings either. If you can recognize this and make the effort to change your financial habits, you'll be amazed at the goals you can reach.
Yeah, basically my parents are loaded with credit card debt. I have been trying to help them over the years, but they refuse to listen.

That's why I got rid of my credit card debt years ago and have been paying my student loans down steadily (They used to be a lot higher than 45k thanks to George Washington University :)).

Anyway, I just turned 26, my 401k is around 14k as well, just became licensed as a CPA so things are looking up.

Thanks again everyone.
jmbkb4
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Post by jmbkb4 »

I would not raid my Roth for a wedding or honeymoon under any circumstances.

You should either cut costs or push back the dates while you save....
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