I’ve mentioned that we put all of our retirement savings in Shane’s Roth 401k at his work. Sometimes, someone will comment that it’s better to just put enough in the 401k to get the full employer’s match, and put the rest in the IRA. I never really tried to figure out why, though.
You can contribute $5,000 per year to an Individual Retirement Account. You can contribute up to $16,500 to a 401k in 2010.
I’m in the really early stages of researching IRAs.
But wanna know something that I wish I knew a little earlier? First-time homebuyers can withdraw up to $10,000 from an IRA to use toward a down payment on a house. If your spouse also is a first-time homebuyer, s/he can also withdraw $10k from an IRA — so yep that’s $20k.
So what’s the catch? Well, you’re decreasing your potential retirement earnings. That $10k could have multiplied several times over by the time you’d withdraw it as a retiree.
If you’re merely withdrawing your Roth IRA contributions, you don’t have to pay tax or penalties on that — but if you wanted to withdraw the earnings as well, it’s a little different. There’s some more complicated stipulations on various IRAs and how you do it. So do your own research.
Some people argue that owning a house free and clear is an important part of the overall retirement financial life. It’s harder to retire if you still have a mortgage, ya know?
We are setting up an IRA now, in case we want to withdraw some money to use toward our down payment.
We might not use any of the IRA for a down payment at all. I don’t think we will.
But we think it would be a good idea to make the funds available to us and decide on that option later. Or if some huge calamity strikes and we exhaust our emergency savings and we need some additional backup, it would be nice to be able to tap our IRA contributions without the same kind of penalties that we’d face with the 401k. It IS our money, after all.
We will do all we can to save up 10% + closing costs the regular way — just saving money and selling stuff we no longer want.
So, we’re decreasing Shane’s 401k contributions from 15% down to 6%. That’s enough to get the full company match, which effectively is 3%. The other 9% will go into an IRA. We don’t yet know if we’ll want another Roth option or if we’d do traditional with it.
Do you have an IRA? How did you pick it? And have you used IRA contributions toward a house? Thoughts on this?