"Borrowing" strategy from IRA

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Zach82
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"Borrowing" strategy from IRA

Post by Zach82 » Fri Jan 11, 2019 9:16 pm

Hi Forum,

Fed worker here in a jam. Trying to figure a way to get some cash flow until paychecks start flowing again. :annoyed

I read this article about 60 day rollover provision. In the article it states...

"...the 60-day rollover option exists so that you can move money from one retirement account provider to another. But it can also be used as a sort of short-term “IRA loan” mechanism, because it’s possible to simply deposit the appropriate amount of money back into the same account (rather than into an IRA with a different financial institution)."


Has anyone ever done this? Any knowledgeable folks know if this is feasible?

Thanks!

Goal33
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Re: "Borrowing" strategy from IRA

Post by Goal33 » Fri Jan 11, 2019 9:23 pm

It’s doable but what happens after 60 days?

I think I’d rather use a credit card 0% balance transfer.
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arcticpineapplecorp.
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Re: "Borrowing" strategy from IRA

Post by arcticpineapplecorp. » Fri Jan 11, 2019 9:31 pm

I would use my emergency savings instead. Do you have emergency savings? I'd say this qualifies as an emergency if only temporarily (I hope so). You'd replenish the emergency fund with the back paychecks once received.

If you don't have an emergency fund, may I ask why not?

The typical advice is everyone should have at least 3-6 months (or 12-24 months if you listen to how the standard advice changed after the Great recession) of emergency savings. This is obviously not true if the demand for your skills in the marketplace is so overwhelming you'd have no gap in employment whatsoever. For most of us, we need to have money to tide us over until the paychecks roll in again.

While some say you can use an IRA (Roth especially) as an emergency fund, it's really more of a "secondary" emergency fund. As in, if I run down my emergency fund to $0 I can tap the Roth IRA in a worst case scenario. It sounds like you're jumping to that first instead of last.

If you don't have emergency savings, may I recommend that when the paychecks start again you stop contributing to IRA and instead build up your emergency savings fund?

here's a post on the subject that might help with the particulars if you have no other options:
viewtopic.php?t=137651
Last edited by arcticpineapplecorp. on Fri Jan 11, 2019 9:35 pm, edited 1 time in total.
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

Topic Author
Zach82
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Re: "Borrowing" strategy from IRA

Post by Zach82 » Fri Jan 11, 2019 9:32 pm

Hi Goal33,

Yeah...thats an option as well. However I am dealing with some unusual circumstances that may require
more credit I can get with a credit card. I am also thinking about a HELOC. Just wondering about the IRA
rollover strategy as a possible option.

Zach

Topic Author
Zach82
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Re: "Borrowing" strategy from IRA

Post by Zach82 » Fri Jan 11, 2019 9:36 pm

Hey arctic,

Going thru a divorce and lawyer fees and circumstances around spouse have wiped out my emergency funds over the last several months. Had a very nice emergency fund too. :?

Any thoughts on ROTH IRA dipping vs HELOC?

Zach

sport
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Re: "Borrowing" strategy from IRA

Post by sport » Fri Jan 11, 2019 9:37 pm

You can take money out of an IRA for 60 days once per year. However, if you do not pay it back, it becomes a permanent depletion of your retirement savings. If it is a traditional IRA, it becomes taxable income, and if you are younger than 59.5 there is a 10% penalty on top of the taxes. I know you need the money now. However, some day, you will want/be forced to retire. You will need those retirement funds. Once you retire, there is little or no way to replace them.

Choy
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Re: "Borrowing" strategy from IRA

Post by Choy » Fri Jan 11, 2019 10:08 pm

You can possibly borrow from your TSP. Here's an article with more information about it and pros and cons: https://www.washingtonpost.com/business ... b9c45502da

People always say not to borrow from your retirement, but you need to keep a roof over your head now.

Good luck.

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arcticpineapplecorp.
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Re: "Borrowing" strategy from IRA

Post by arcticpineapplecorp. » Fri Jan 11, 2019 10:14 pm

Zach82 wrote:
Fri Jan 11, 2019 9:36 pm
Hey arctic,

Going thru a divorce and lawyer fees and circumstances around spouse have wiped out my emergency funds over the last several months. Had a very nice emergency fund too. :?

Any thoughts on ROTH IRA dipping vs HELOC?

Zach
ah, sorry to hear that. Bad news on top of bad news. I do hope the shutdown ends soon. The heloc could be an option. Best to get that paid off sooner than later due to it's variable rate but not likely to change much as Powell has announced only 1 rate increase likely this year (based on current situation, anything subject to change).

I don't know what your Roth is invested in. For example, if it's in equities, what if you take out of the Roth and the market goes up before you can put the money back? You'd be missing out on gains you could have had and buying back at higher prices. If you have an option for a heloc that could be better. Interested to hear what others think.

Also, once the paychecks start flowing again, first priority is obviously to build up emergency savings so only contribute to tsp to get the match and hold off on IRA if you can't build up emergency savings at the same time.
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

samsdad
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Re: "Borrowing" strategy from IRA

Post by samsdad » Fri Jan 11, 2019 10:19 pm

Zach82 wrote:
Fri Jan 11, 2019 9:36 pm
Hey arctic,

Going thru a divorce and lawyer fees and circumstances around spouse have wiped out my emergency funds over the last several months. Had a very nice emergency fund too. :?

Any thoughts on ROTH IRA dipping vs HELOC?

Zach
Sorry to hear about your current situation. Things will get better for you, hang in there.

Topic Author
Zach82
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Re: "Borrowing" strategy from IRA

Post by Zach82 » Fri Jan 11, 2019 10:22 pm

Arctic and Samsdad,

Thanks! Really rough times and shut down like worst timing.

delamer
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Re: "Borrowing" strategy from IRA

Post by delamer » Fri Jan 11, 2019 10:29 pm

If your HELOC is already open, that is a legitimate option.

The IRA will work, as long as you are confident that you’ll pay it back once you get your backpay.
Last edited by delamer on Fri Jan 11, 2019 10:44 pm, edited 1 time in total.

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ResearchMed
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Re: "Borrowing" strategy from IRA

Post by ResearchMed » Fri Jan 11, 2019 10:34 pm

Zach82 wrote:
Fri Jan 11, 2019 10:22 pm
Arctic and Samsdad,

Thanks! Really rough times and shut down like worst timing.
So sorry that all of this is happening at the same time.
Not getting paid... really absurd as well as unfortunate.

We've made use of the "60 day loan" aspect of IRA's.
Until a few years ago, it was "once per year per IRA", but it was recently changed to "once per year per SS#", because otherwise, by opening new IRA's if needed, one could almost keep doing this throughout the year :twisted:

However, do note that there is NO flexibility about the 60 day window, so plan to get the money back more like 55 days to be safe.
Otherwise, you'll pay regular taxes on the full amount, plus the 10% penalty. So you risk losing the tax-deferred space plus that penalty.

Using a HELOC probably makes more sense. It's not interest free, but usually HELOCs aren't really high interest. And it's annualized, so each month is just a fraction.
That 10% penalty if you miss the 60 day deadline is a hit even if you miss by just a few days.

Good luck!

RM
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Zach82
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Re: "Borrowing" strategy from IRA

Post by Zach82 » Fri Jan 11, 2019 10:52 pm

Hi ResearchMed,

Any idea what the turn around time is to get the funds from Vanguard for the 60 day loan strategy?

Zach

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ResearchMed
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Re: "Borrowing" strategy from IRA

Post by ResearchMed » Fri Jan 11, 2019 11:04 pm

Zach82 wrote:
Fri Jan 11, 2019 10:52 pm
Hi ResearchMed,

Any idea what the turn around time is to get the funds from Vanguard for the 60 day loan strategy?

Zach
Unfortunately, no.
We did that with Schwab, and there's a branch within minutes of our house. So we called up, and the next day, they had a check waiting for us.

You might want to call Vanguard.
We've found things to be a bit slow with 403b accounts, but not so much for IRA's.
However, we haven't done too much with either, at Vanguard, other than regular purchase/sale of mutual funds. We don't have a taxable account there, so it's really just for "future retirement", although that is getting much closer.

They can probably transfer the money electronically (= fast?) if you've got a linked bank account. (That's my guess; I don't know for sure.)

Again, hope it all goes well!

RM
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whodidntante
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Re: "Borrowing" strategy from IRA

Post by whodidntante » Fri Jan 11, 2019 11:42 pm

It's true that you can have the money outside of the IRA for 60 days. That might be enough. Who knows? By the time you move it around, it's be 50 something days at best.

Other ideas:
Some banks are offering signature loans to impacted federal workers, and loan skip a payment programs.
Take a TSP loan if possible.
Open a new card with a 0% purchase APR, and use some well discussed and fully legal super up and up techniques to get 0% APR cash or just put your expenses on it like a normal person.
Beg from family or friends who work for reliable, well funded employers like corporations.
Temporary job or business, if you're furloughed.
Sell stuff you don't want anymore.
Sell your car and buy a cheaper one or wait until you have a paying job again.
HELOC, baby!
Start a blog about being a furloughed federal worker.

nguy44
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Re: "Borrowing" strategy from IRA

Post by nguy44 » Fri Jan 11, 2019 11:52 pm

Talk to your financial institutions first, regarding options. Two of mine are offering special loan assistance to furloughed federal workers.

Cranberry
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Re: "Borrowing" strategy from IRA

Post by Cranberry » Sat Jan 12, 2019 9:03 am

If you have a spouse, perhaps you could use the spouse's IRA to repay yours, thus turning 60 days into 120. If I were doing this, I would go so far as to open an IRA account at some institution where I could walk in around day 55, make a deposit, and walk out with the receipt in hand.

retiredjg
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Re: "Borrowing" strategy from IRA

Post by retiredjg » Sat Jan 12, 2019 9:22 am

Regarding IRA vs Roth IRA....I would take the money out of Roth IRA (contributions only, not earnings).

If things continue to go sideways, taking money out of Roth IRA will not dig you any deeper into a financial hole than you are now. And maybe you will get the money back in w/in 60 days. If so, all will be good. If not, at least it does not add to your financial burden when you can least afford it.

If you take the money out of IRA and don't get it back in w/in 60 days, you will owe tax and a 10% penalty. Your solution will end up making your problem even worse. I would not risk that.

If you use the HELOC, you will pay interest and it will not be deductible. Maybe that's ok. Maybe not.

Getting money from Vanguard takes 2 business days if you already have your checking/savings account linked to your Vanguard account. You just make a withdrawal. There is no special method of getting money out for a "60 day loan".

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ResearchMed
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Re: "Borrowing" strategy from IRA

Post by ResearchMed » Sat Jan 12, 2019 10:17 am

Cranberry wrote:
Sat Jan 12, 2019 9:03 am
If you have a spouse, perhaps you could use the spouse's IRA to repay yours, thus turning 60 days into 120. If I were doing this, I would go so far as to open an IRA account at some institution where I could walk in around day 55, make a deposit, and walk out with the receipt in hand.
A good strategy in general, but OP needs this money due to a divorce...

RM
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Topic Author
Zach82
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Re: "Borrowing" strategy from IRA

Post by Zach82 » Sun Jan 13, 2019 8:09 pm

Thanks to all who replied! Taking it all in...

Will talk with bank tomorrow to go over all options so I am clear on details.

Thanks again!


Zach

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