IRA vs TSP

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There is no sure thing in the market to be able to come out ahead after a 10% penalty.
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If you're trying to provide a sure thing, i couldnt agree with you more; the stock market is definitely not the place to be for "sure things".

Your correction withstanding, I think it can be presumed now that i'm no longer necessarily recommending someone use an IRA as an emergency fund. So it begs the question; are you arguing with yourself or just Pete?

Lets talk about emergency funds for a moment shall we? Probably everyone should have "some" means of getting to a small pot of cash through some form of relatively liquid investment? What do i have? I actually have ~ 5K in a money market fund, and about another 11K in a Utility Mutual Fund (which is doing quite well despite your doomsday forcast of the market (ticker BULIX)). Neither of those are emergency funds per se, but they are monies i can get to easily if i had to.

Personally, i dont like using IRAs for anything but retirement, and frankly, the world would have to come to a near end for me to break one for another reason. BUT i can tell you that based on the length i've had them now (well over 5 years), the 10% penality would be relatively inconsequential, at least compared to the hypothetical that I had them in taxable accounts. Remember the poor stock market return would also affect the hypothetical taxable account.
 
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Wow that was a quick change after being so animate that :

If he owned it at least 5 years before he needed it,I just explained previously why he'd still come out ahead.

Good luck man.

MT

azanon wrote:
There is no sure thing in the market to be able to come out ahead after a 10% penalty.
Click to expand...

If you're trying to provide a sure thing, i couldnt agree with you more; the stock market is definitely not the place to be for "sure things".

Your correction withstanding, I think it can be presumed now that i'm no longer necessarily recommending someone use an IRA as an emergency fund. So it begs the question; are you arguing with yourself or just Pete?

Lets talk about emergency funds for a moment shall we? Probably everyone should have "some" means of getting to a small pot of cash through some form of relatively liquid investment? What do i have? I actually have ~ 5K in a money market fund, and about another 11K in a Utility Mutual Fund (which is doing quite well despite your doomsday forcast of the market (ticker BULIX)). Neither of those are emergency funds per se, but they are monies i can get to easily if i had to.

Personally, i dont like using IRAs for anything but retirement, and frankly, the world would have to come to a near end for me to break one for another reason. BUT i can tell you that based on the length i've had them now (well over 5 years), the 10% penality would be relatively inconsequential, at least compared to the hypothetical that I had them in taxable accounts. Remember the poor stock market return would also affect the hypothetical taxable account.
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I guess i'm just saying if it comes to the end of the month, and you have both an underfunded IRA and underfunded "emergency fund"; choosing to contribute to either is a wise move or said another way, you could do much worse with that "extra" money. I know in my experience since i've always viewed IRAs as "off-limits", i tend to find solutions to "emergencies" while preserving my IRAs. Heck, sometime, that might even mean a low interest loan. But you know what? Ones things for sure, if you consistently make that "mistake", your future will be secure.
 
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Wow that was a quick change after being so animate that :

If he owned it at least 5 years before he needed it,I just explained previously why he'd still come out ahead.

Good luck man.
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The only change i see resides as a figment of your imagination. That statement is still true. What i said following is true. Sorry you incorrectly saw the added post as contradictory.

Trying to see where you went wrong, my only guess is that you saw the above statement as an endorsement for doing so. I dont see how you would have made that mistake given that sometimes people need their emergency fund sooner than 5 years.

It was just a matter of fact statement to take as you will
 
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Lets boil all my arguments down to one position:

You can always do far worse than funding your IRA.

That's it. In my experience, everyone will still have their hand out the next month if they weren't paid the previous one.
 
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Whew, thank God, someone besides myself this time. :P

May I suggest that "if" you need an emergency fund, why not just use your TSP? The interest is usually around 5% so if you consider this a "penalty", you save 5%. Correct? I like to keep things simple, so I may be missing something. Granted you have to pay it back, but it is just an emergency fund.

Also, I beg to differ on not always making money on the market. Even in down years, there are always at least 3 times a year to make money by "buying" dips. This is where my "stystem" comes into play. Buying and selling these dips affords the opportunity to make about 4% profit on each buy. So if you keep your money in G fund the rest of time, that's about 16% profit even in downtrending years.

I know you don't believe me MT, but keep an eye on my account. :^
 
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Using your ira as a emergency fund is a slipper slope.
 
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MarketTimer wrote:
Penalties on Earnings from Contributions
Unless an exception applies, most distributions from a Roth IRA before the owner reaches age 59 1/2 will be subject to an "early withdrawal penalty" of 10% on the amount of the distribution.
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Read your title- Penalties on EARNINGS from contributions

I'm telling you, and every finance book I've ever read states that you CAN withdraw your contributions at any time. BUT, ***NOT*** the earnings on those contributions.

Remember, in your example 1, Jim is paying taxes on his earnings.

You still haven't shown me where the IRS states that you can not withdraw your contibutions minus earnings without incurring a penalty. The burden of proof is upon you since you are challenging it. Better yet, call a tax advisor then get back to me. ;)

earnings earnings earnings earnings earnings earnings

We are speaking about earnings!
 
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MarketTimer wrote:
A,

When erroneous information of that importance is promulgated. HECK YES!

Pete is using his ROTH as his emergency fund. That means if he taps it he will have to pay a 10% penalty. That would be a costly error...since 10% is pretty hard to get right now.

By the way I was anwering your question to begin with. Maybe you should do your own research. Because I am not going to answer you again. But based on the bad info that trickled down - GOOD LUCK MATE.

:^MT
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As long as he doesn't tap his EARNINGS, he will be alright.
 
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MarketTimer wrote:
Pete,

I beg you man do not listen to these people on this board - do not use your IRA as your emergency fund.

They can hammer me all they want but you are going to lose some dough if you take their advice.

God bless.

MT



Pete1 wrote:
I believe Roth contributions can be withdrawn penalty free the day after deposit if need be. Hence, I maintain a smaller emergency fund (roughly2 months of current expenditures). I try to carryover 240 hours of annual leave and of course, do not abuse sick leave (my sick leave goal is to accumulate6months). I have a single credit card (10K limit @ 6.75%) which I pay off monthly.
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We will "hammer" you until you prove your point.;)

CALL THE IRS!:D
 
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The rules for penalty-free, tax-free distributions from a Roth IRA account are fairly complex. First, some terminology: a Roth account is built from contributions (made annually in cash) and conversions (from a traditinal IRA); earnings are any amounts in the account beyond what was contributed or converted. The rule are as follows:
  • Contributions can be withdrawn tax-free and penalty-free at any time.
  • There is 5-year clock 'A'. Clock 'A' starts on the first day of the first tax year in which any Roth IRA is opened and funded.
  • Earnings can be withdrawn tax-free and penalty-free after Clock 'A' hits 5 years and a qualifying event (such as turning 59.5, disability, etc.) occurs.
  • Additional 5-year clocks 'B', 'C', etc. start running for each traditional IRA that is converted to a Roth IRA. Each clock applies just to that conversion.
  • If you are under age 59.5 when a particular conversion is done, and you withdraw any conversion monies before the clock associated with that particular conversion hits 5 years, you are hit with a 10% penalty on the withdrawn conversion monies. If you are over age 59.5 when you did the conversion, no penalty no matter how soon you withdraw the monies from that conversion.
  • The order of withdrawals (distributions) has been established to help investors. When a withdrawal is made, it is deemed to come from contributions first. After all contributions have been withdrawn, subsequent withdrawals are considered to come from conversions. After all conversions have been withdrawn, then withdrawals come from earnings. I believe the conversions are taken in chronological order.
  • All Roth IRA accounts are aggregated for the purpose of applying the ordering rules to a withdrawal.
Any questions Marketimer? I chose to just bold instead of yell, if that's ok. Source: http://invest-faq.com/articles/ret-plan-roth-ira.html
 
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We are speaking about earnings!
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Exactly, and I specifically said contributions in my original statements (I said that in another thread here, but dont remember where it was). That he has to go and yell while being wrong makes it all the worse, not to mention accuse me of giving out misinformation. I finally found a few minutes this afternoon to check into what i had been taught; as i was giving him the benefit of the doubt that maybe I was wrong. Come to find out i was right in the first place, as can be clearly seen in my post above.
 
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Hi Folks,

Everybody take a deep breath......................now let it out......................deep breath.................now let it out. :) Yes, it has always been my understanding that contributions to a Roth IRA can be withdrawn penalty free at anytime. I agree with the others who are asserting that it is the earnings on the account that are subject to a 10% penalty. There is an interesting article over on RothIRA.com by the Motley Fools. They are very clear that being able to withdraw your contributions (not earnings) is a huge advantage of the Roth verses the conventioanl IRA. Peace to all.
 
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Pete1 wrote:
Hi Folks,

Everybody take a deep breath......................now let it out......................deep breath.................now let it out. :) Yes, it has always been my understanding that contributions to a Roth IRA can be withdrawn penalty free at anytime. I agree with the others who are asserting that it is the earnings on the account that are subject to a 10% penalty. There is an interesting article over on RothIRA.com by the Motley Fools. They are very clear that being able to withdraw your contributions (not earnings) is a huge advantage of the Roth verses the conventioanl IRA. Peace to all.
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Of course you can!!!:cool:

Us amateur inverstors aren't as look as we dumb!!!;)
 
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Everybody take a deep breath......................now let it out......................deep breath.................now let it out.
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Just doing a little victory dance after getting yelled at. It would have been a crime had I not done so. The positive's in all this is that folks like MT discovered a new way to reduce his tax bill, so we're all winners here.
 
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azanon wrote:
Everybody take a deep breath......................now let it out......................deep breath.................now let it out.
Click to expand...

Just doing a little victory dance after getting yelled at. It would have been a crime had I not done so. The positive's in all this is that folks like MT discovered a new way to reduce his tax bill, so we're all winners here.
Click to expand...


Where's he at??? Did we scare him off???;)

Come back, MT!:^
 
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Hey, leave MT alone, he's all mine.....................:P
 
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