Use Roth contributions for land purchase?

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Use Roth contributions for land purchase?

Post by Drewman » Tue Jun 21, 2016 9:23 pm

We have some neighboring land we want to purchase with cash but we are $15K short. We could pull from our ROTH contributions to do this. Do you think this is wise? The land will not be improved. It has mature timber that we could harvest by select cutting.

our finances:
200K left on 350K mortgage 2years into 30. - reduced to minimum last month as we were paying extra to save more cash.
his: 403B with 60K with 10% contribution plus 4% match
her:state defined benefit plan
Roth has 22K of which 20k is contributions - the ROTH was maxed when employer sponsored IRA had ER of >1.5% but since dropped to around 0.5% and ROTH is only getting 200/month each. Future ROTH contributions will likely be used as vehicle for kids college and once cash saved back up will resume maxing out.
If we pull from our ROTH contributions we would have $3 months cash reserves in checking account after the cash purchase.

We believe our young age 31 and 29 makes this feasible. It seems like it will not impact our retirement as we were planning on using ROTH contributions for kids college and we would still have time to save as kids are 3 and 1.


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Re: Use Roth contributions for land purchase?

Post by Slick8503 » Wed Jun 22, 2016 3:54 am

Today's mortgage rates may be lower than what you are currently paying. It may make sense to do a cash out refi and use the proceeds to fund the land purchase. IMO, this would be a better option than losing some of the benefit of a Roth account.

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Re: Use Roth contributions for land purchase?

Post by dratkinson » Wed Jun 22, 2016 10:57 am

I'm assuming your Roth is a 401k, but doesn't matter.

Do not touch your Roth (401k or IRA) until you retire. Do not use it to buy land. Do not use it to pay for the kid's education. Your kids can get a loan to pay for college, you can't get a loan to pay for retirement.

The Roth IRA is the holy grail of investing accounts: tax-free growth/withdrawals, and no RMDs. (Roll your Roth 401k into your Roth IRA to turn of its RMDs.) As such, withdrawing contributions from any Roth is stealing eggs from the nest of the golden goose sitting on your retirement nest egg.

The only people qualified to make this decision for you are your retired self. So let's ask them.

"Yes, we voluntarily gave up $160K (punch into a financial calculator: 35-years [current age 31/29] of market growth [7%] on $15K) because we didn't want to take out a ST loan at ST interest. What were we thinking?"

Take care of your retired selves by maximizing your investing opportunities every year. Your kids can work or get a loan for college.
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

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