Dollars and Diagrams

Avoid Temptation

Roth IRA

I had a conversation with a middle-aged man who had not yet reached the magical age of 59 ½ who was making about $200k per year.

He had a good financial plan.  By all accounts, he was on track.

He decided that he wanted to purchase a nice condo.  He had good credit.  The ability to borrow money for a mortgage at 3%. However, he decided that he wanted to liquidate his IRA to purchase this condo so he would have a lower mortgage payment.

The single 35% tax bracket starts at $209,425 in 2021.

  • $200,000 distribution
    • 35% Federal Tax Bracket
    • 5% State Tax
    • 10% Pre 59 ½ Penalty

He is going to pay 50% in taxes and penalties ($100,000) – WOW!  These same funds were on track to be withdrawn in retirement at no worse 12% federal and 5 state (17% total). Why pay 50% taxes & penalties when you can borrow money at 3%? AVOID TEMPTATION!

Our biggest job as financial planners is to help people avoid the big mistakes.

IMPORTANT INFORMATION

Information in this material is for general information only and not intended as investment, tax or legal advice. Please consult the appropriate professionals for specific information regarding your individual situation prior to making any financial decision.

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