28 y/o, feeling stressed after transferring $7k into 2024 Roth IRA contribution

[victoryforever]

I have about $40k in liquid funds in a HYSA earning 4.35% interest. Currently have no debt - no school debt, CC debt, car loan, no mortgage, etc. Making around $75k a year. Net worth about $65k including 401k and Roth IRA.

Anyway, I have been maxing out my Roth IRA in 2022 and 2023 and currently have around $14,750. I recently scheduled a transfer of $7,000 from my HYSA to my Roth IRA for the 2024 contribution period. I have no idea why I think that because my savings account decreased by $7,000 and I now have $30k in there, it won't be enough of an emergency fund or I won't have enough to buy an investment property which is my goal eventually. I know everyone says always max out your Roth IRA and I always do, but sometimes I wonder if what if I don't make it to 59 1/2 and invested for nothing.

Just wanted to rant, I will continue maxing out my Roth IRA every year. Just feels weird. Maybe I'm just weird lol.

 

[addraornun]

@victoryforever Don’t mean to intrude on your rant but just a heads up there’s lots of ways to access that money before 59.5. Worth looking into

 

[nikkid]

@addraornun 72T / SEPP - Best to hire a pro to calculate if you employer/administrator does not.

Roth Conversion ladders - Takes some planning

Roth contributions

 

[victoryforever]

@addraornun Can you please elaborate on this? I think I read somewhere I could withdraw any of my contributions, just not the gains w/o getting penalized correct?

 

[wqzu]

@victoryforever All your Roth money (minus gains) can be Withdrawn at any time

 

[happyami]

@wqzu This is the most applicable advice for OP to this specific situation.

@OP - Make sure you keep records of this deposit as your financial institution probably won’t make finding this out easy as years go by. Additionally if you move that Roth IRA to another financial institution they’ll have no way to know what was the initial deposit versus growth. So it’s up to you to carry the burden of proof. The easiest way that I’ve found is simply printing out next month’s statement and keep it somewhere or download the PDF version and store it in the cloud.

 

[lisneige]

@happyami This is a great callout. I’ve moved my Roth account since I opened it and can’t find statements. Went back through old emails and bank statements to try and piece together what my contributions are. No intent to withdrawal money, but trying to keep better track of what Ive put in

 

[victoryforever]

@happyami I didn’t think of that. I will definitely be doing that. Thank you for the advice!

 

[wilkesandrea]

@wqzu How does this work in practice? I haven’t had a need yet, but I wondered about this. Once the cash in a Roth is used to buy equity/etfs, it’s no longer cash. To be able to withdraw on the contributions, you’d need to sell some positions right?

How would you be able to differentiate what’s a contribution and what’s a profit once the position is closed for cash?

 

[resurrectionist]

@wilkesandrea Anything you contributed is not earnings. Everything else is. Contributions are always withdrawn first. Dollars are dollars in the IRA, doesn't matter what investments they were in.

 

[wilkesandrea]

@resurrectionist Gotcha, so in other words if you contributed and purchased $6,000 worth of ETFs, and made a gain of $4,000 (total account value $10,000), it doesn’t matter what or how you sold the assets if you want to pull out let’s say $5,000.

You’d sell $5,000 worth of Roth assets to pull out, which is within your $6,000 contributions correct?

Sorry it makes more sense in my head when walking through a scenario with numbers lol

 

[resurrectionist]

@wilkesandrea Yep! The IRA is a black box. The rules just govern contributions and withdrawals from the box.

 

[pentecostr]

@victoryforever Op, unlike a 401k, you can withdraw your original contributions to a Roth IRA without incurring any taxes or penalties. Money going into a Roth Ira is being funded with after-tax dollars.

Therefore, the original contribution amount is not inaccessible to you. You can withdraw those funds at any point in time.

I hope this gives you more peace of mind.

Do keep in mind that any gains will be taxed, and there will be a penalty applied if those gains/earnings are withdrawn earlier than age 59 1/2.

 

[jeru123]

@victoryforever You can buy an investment property through an IRA. There’s many vehicles. Think of it as “market for now, gains for free/new investments later”

 

[ez_fx]

@jeru123 Buying property in IRA is very bad idea 99.5% of the time

 

[fredg61]

@ez_fx Is it because of tax?

 

[j1991]

@jeru123 This is not a great idea.

 

[resjudicata]

@victoryforever I use my Roth like a savings account

 

[happyami]

@victoryforever In addition to other responses - 72(t) SEPP

 

[stillbelieve]

@victoryforever There’s a lot you can do with it. You’re correct about withdrawing without penalty as long as it doesn’t include gains, you can also use it as collateral on a house, bunch of things