Is using a Roth IRA for saving for a vacation in 10 years a good idea?

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Swmi8675309
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Is using a Roth IRA for saving for a vacation in 10 years a good idea?

Post by Swmi8675309 » Fri Nov 10, 2017 12:27 pm

I am setting up a savings plan for a major trip in 2027 and was thinking of using a Roth IRA.

I will be 65 then and I am thinking my principle will cover most of the cost.

Is this a solid idea?

Thanks.

Longdog
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Re: Is using a Roth IRA for saving for a vacation in 10 years a good idea?

Post by Longdog » Fri Nov 10, 2017 12:30 pm

No, it is not.
Steve

Swmi8675309
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Re: Is using a Roth IRA for saving for a vacation in 10 years a good idea?

Post by Swmi8675309 » Fri Nov 10, 2017 12:41 pm

Thanks for the prompt feedback!

May I please ask why not?

Thanks.

TravelforFun
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Re: Is using a Roth IRA for saving for a vacation in 10 years a good idea?

Post by TravelforFun » Fri Nov 10, 2017 12:46 pm

If you have a Roth, you want the money to stay in there as long as possible because all the gains are tax-free. Use other money like taxable or IRA.

TravelforFun

Longdog
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Re: Is using a Roth IRA for saving for a vacation in 10 years a good idea?

Post by Longdog » Fri Nov 10, 2017 1:45 pm

Roth "space" is the most value there is because once something is in a Roth account, there are no further tax implications. It would generally be disadvantageous to drain that account for a one-time splurge (if monies are available in other accounts). Keeping assets in a Roth account allows them to grow tax-free forever. To maximize that advantage, withdrawals from Roth accounts should be the last ones to draw from to meet expenses.
Steve

crake
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Re: Is using a Roth IRA for saving for a vacation in 10 years a good idea?

Post by crake » Fri Nov 10, 2017 1:55 pm

In the majority of cases using a Roth to invest in a one time splurge would not be advised but we do not have the OP's entire financial picture.

The OP may not have been planning to use the Roth for funding retirement. Perhaps OP has a generous pension which will be funding retirement and the Roth space would have went unused.

If the OP wasn't planning on using the Roth space and has retirement funded through other means I don't see any issue in using the Roth to save for a vacation with tax free growth.

If the question is "should I used my limited Roth space to save for retirement or for a vacation", the answer is simple, save for retirement. However, if the question is "should i save for my vacation in my taxable account or use Roth space that would have went unused", go ahead and use the Roth.

jlcnuke
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Re: Is using a Roth IRA for saving for a vacation in 10 years a good idea?

Post by jlcnuke » Fri Nov 10, 2017 2:14 pm

If the options are:
1. Fund a Roth and take the contributions out later to pay for a vacation
OR
2. Do not fund a Roth and leave that money in a savings account until you use it to pay for a vacation.

Then I'd say fund the Roth.. at least you'll have the gains in there after your vacation.

If "fund the Roth and DON'T use that money to pay for a vacation" is a legitimate alternative, then I'd go with that and leave the contributions and gains in the Roth.

heyyou
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Re: Is using a Roth IRA for saving for a vacation in 10 years a good idea?

Post by heyyou » Fri Nov 10, 2017 3:18 pm

At age 65, you may have 20 more years of compound growth in the Roth IRA especially since that is where you store your equity funds with the highest expected growth.

If you are married, eventually the surviving spouse will be paying tax as a single person on the growing RMDs from your traditional IRA after one of you is gone, so any remaining Roth holdings then are effectively more valuable by the lack of taxes due on their future withdrawals.

Consider delaying the big trip until the year after you retire, to have so little income that year so your cap gains from your taxable savings account will be in the 15% tax bracket where cap gains are not taxed. When figuring your taxes, cap gains are added to your other income at the end, so if your cap gains bump you into the 25% bracket, the overflow portion of them is taxed at 15%.

Perhaps delay SS until after the year of the big trip to keep your income lower. I don't have numbers to back up that suggestion.

Depending on the mode of traveling, can you get a deal on the price by purchasing some of the tickets, years in advance?

aristotelian
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Re: Is using a Roth IRA for saving for a vacation in 10 years a good idea?

Post by aristotelian » Fri Nov 10, 2017 3:43 pm

If you are not otherwise using your Roth, yes, for a 10 year investment it is better to save in Roth tax free than in a standard bank or brokerage account.

However, ideally you would be maxing your Roth for retirement expenses and saving for other stuff like vacations on the side.

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CABob
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Re: Is using a Roth IRA for saving for a vacation in 10 years a good idea?

Post by CABob » Fri Nov 10, 2017 3:44 pm

I think that you may be tying yourself into something that will (or may) happen in 10 years. I suggest that you invest currently in a traditional IRA, Roth IRA, and perhaps a taxable account to the extent you can. Review your progress in five years and perhaps reevaluate. Then as you approach the time of the trip plan again how to best pay for it. The funds might logically come out of any of the three types of accounts. There is no need to decide now where they will come from. The important thing is to save something someplace.
Bob

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Toons
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Re: Is using a Roth IRA for saving for a vacation in 10 years a good idea?

Post by Toons » Fri Nov 10, 2017 3:48 pm

Leave the tax free money (upon withdrawal)right where it is untouched
for as long as you can.
Tax free compounding is an essential so that you may have some Gold in your golden years :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

chevca
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Re: Is using a Roth IRA for saving for a vacation in 10 years a good idea?

Post by chevca » Fri Nov 10, 2017 8:19 pm

Seems we're really over complicating this, IMO.

Fill Roth space, because, yes. In 10 years and at age 65, figure out where is best to take the money from for the vacation.

KIS...

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