Our advice is, like the best things in life, ***free***Seems like a situation better fleshed out with an advisor rather than on a sports message board.
Our advice is, like the best things in life, ***free***Seems like a situation better fleshed out with an advisor rather than on a sports message board.
I understand it as you can contribute as usual, but the funds you pull can't go back in.
Is this not correct? If I pull $14k in contributions those are gone forever from the Roth.
I can contribute going forward, but the funds I pull will never be returned.
Is the bot wrong?
Our advice is, like the best things in life, ***free***
You received restricted shares in exchange for a loan, correct? So how much are the shares above the value of the loan? If you sold the shares, will you have capital gains to pay on them? If the margin isn't great, can you just walk away from the shares and cancel the loan? With the restrictions, do you really own anything other than a promissory note? This would make a great Dave Ramsay phone callSeeking help from financial fanatics…
I was given a loan from my company which allowed me to purchase shares in the company. I have an agreement with my employer that I don't actually make any payments while I'm employed. The shares are worth more than the loan at this point but the company controls when I can actually sell them. They are shares I own outright (but with the loan) and not stock options. If I leave the company and they don’t allow me to sell, I may need to pay off the loan myself. The loan itself is about $35k +/-.
I could keep paying the loan to the company in the terms as-is, but the payments are higher than I'd want to take on in the short term.
Here are the options I’m considering:
1) Pull from my Roth IRA contributions. I'm well below the 59-1/2 age limit but as I read it, I can pull contributions at any time tax-free and penalty-free.
2) Private/Personal loan from bank. Interest rates for this are in the 9-10% range.
3) HELOC - We have plenty of equity and great credit. Rates here are better than private loan, but still in the 7-8% range.
My questions:
A) Am I correct that I can withdraw Roth contributions without issue? (Setting investment growth issues aside).
B) What else should I consider? Which options are best?
Agreed. My original draft was just to confirm the Roth withdrawl of contributions is ok. I expanded it to see if I was not seeing the whole picture.But we also don’t know his full situation, so it’s hard to say “do this” with a high degree of confidence.
Yes. And caveat emptor always applies, incl. when 'purchase price' is zilch.But we also don’t know his full situation, so it’s hard to say “do this” with a high degree of confidence.
Thanks for stating it this way. It was helpful to see this in writing. I knew by pulling out Roth I'm sacrificing future gains, but it hits harder when you see that big number in writing.Is that really "catching up"? The funds you pull are gone. If you can pump up your contributions later that still doesn't replace what was taken. That opportunity is gone.
$35k @ 9% over 20 years is $196,000 of tax free money at the end.
Better be some good stock to beat the market even with tax implications.
Exactly right. Share value is 4-5x the balance on the loan. I've owned the shares for just shy of 2 years, so shouldn't be an short-term capital gains, as I understand it.You received restricted shares in exchange for a loan, correct? So how much are the shares above the value of the loan? If you sold the shares, will you have capital gains to pay on them? If the margin isn't great, can you just walk away from the shares and cancel the loan? With the restrictions, do you really own anything other than a promissory note? This would make a great Dave Ramsay phone call
Very nice margin indeedExactly right. Share value is 4-5x the balance on the loan. I've owned the shares for just shy of 2 years, so shouldn't be an short-term capital gains, as I understand it.
Agreed. That's why I put "catch up" in quotes.Is that really "catching up"? The funds you pull are gone. If you can pump up your contributions later that still doesn't replace what was taken. That opportunity is gone.
$35k @ 9% over 20 years is $196,000 of tax free money at the end.
Better be some good stock to beat the market even with tax implications.
Interesting. I hadn’t thought of this angle.Roth contributions can be withdrawn at any time without tax or penalty, but it's important that you've documented those contributions on previous tax returns. Some DIYers neglect to report Roth contributions, and since it doesn't affect their taxes in the given year, it can go unnoticed for a long time. If the IRS doesn't have a record of your contributions, but now they have a 1099 for a big withdrawal, you're going to have a big headache.
Thanks for this. I always wondered why that line even existed in my taxes.Roth contributions can be withdrawn at any time without tax or penalty, but it's important that you've documented those contributions on previous tax returns. Some DIYers neglect to report Roth contributions, and since it doesn't affect their taxes in the given year, it can go unnoticed for a long time. If the IRS doesn't have a record of your contributions, but now they have a 1099 for a big withdrawal, you're going to have a big headache.
Good point and easy to overlook. If your Roth contributions go back far enough make sure you are documenting your annual contributions. I ran into a situation where my brokerage didn't have records from over 10 years ago of my Roth IRA contributions enabling me to easily differentiate contributions vs. gains when I made a withdrawal. Fortunately, I didn't have the monies transferred directly from my paycheck (2 employers ago) and I still do business with the same bank. So I could track contributions from that end.Roth contributions can be withdrawn at any time without tax or penalty, but it's important that you've documented those contributions on previous tax returns. Some DIYers neglect to report Roth contributions, and since it doesn't affect their taxes in the given year, it can go unnoticed for a long time. If the IRS doesn't have a record of your contributions, but now they have a 1099 for a big withdrawal, you're going to have a big headache.
Wow, good to know. I don’t know that I’ve been documenting Roth contributions in my tax documents, either. Sounds like I need to get into that practice.Good point and easy to overlook. If your Roth contributions go back far enough make sure you are documenting your annual contributions. I ran into a situation where my brokerage didn't have records from over 10 years ago of my Roth IRA contributions enabling me to easily differentiate contributions vs. gains when I made a withdrawal. Fortunately, I didn't have the monies transferred directly from my paycheck (2 employers ago) and I still do business with the same bank. So I could track contributions from that end.
Interesting. I hadn’t thought of this angle.
Would my Roth account be enough to show documentation of contributions vs earnings?
I'm not sure about that. That'd be a good question for a CPA or certified tax preparer. It probably depends on how well it's documented by the custodian, but even with that, I think you'd probably need to file some amended returns.
I'm a Financial Advisor, so I help keep people on the right side of the law proactively, but I'm not an expert on dealing with the IRS to correct past mistakes. If you haven't documented Roth contributions in the past and decide to make a withdrawal for this situation, I would highly recommend engaging with a professional tax preparer to help you fix it.
Have you considered paying back the company in installments while you're still working for them? I mean, from what I understand, they won't accept the payments, but you could put them in an escrow account every month anyway. That way when/if you finally do leave the company, the pay down of the loan won't be nearly as burdensome.Seeking help from financial fanatics…
I was given a loan from my company which allowed me to purchase shares in the company. I have an agreement with my employer that I don't actually make any payments while I'm employed. The shares are worth more than the loan at this point but the company controls when I can actually sell them. They are shares I own outright (but with the loan) and not stock options. If I leave the company and they don’t allow me to sell, I may need to pay off the loan myself. The loan itself is about $35k +/-.
I could keep paying the loan to the company in the terms as-is, but the payments are higher than I'd want to take on in the short term.
Here are the options I’m considering:
1) Pull from my Roth IRA contributions. I'm well below the 59-1/2 age limit but as I read it, I can pull contributions at any time tax-free and penalty-free.
2) Private/Personal loan from bank. Interest rates for this are in the 9-10% range.
3) HELOC - We have plenty of equity and great credit. Rates here are better than private loan, but still in the 7-8% range.
My questions:
A) Am I correct that I can withdraw Roth contributions without issue? (Setting investment growth issues aside).
B) What else should I consider? Which options are best?