The Short: Have CC Debt of $5,000. Have Roth Contributions of $2,100. Roth is currently valued at $2,027 due to market downturn. Roth has earned ~127 in dividends since inception. Can I withdraw the full $2,027 without penalty? Or would I only be able to withdraw $1,900 ($2,027 - $127)?

After reading here, I opened a Roth IRA in January of 2021 and began to fund it. I had contributed $2,100 before beginning a new job mid-February that offered a 401k with a 3% match (interestingly enough, they make the 3% match whether or not I contribute). Since then, I have not contributed to my Roth, and instead have been contributing 6% to my 401k.

Since then I have also incurred some CC debt, roughly 7.5k. This was a result of poor financial choices as a result of lifestyle. Ended a long term relationship, depressive/freedom spending, started a new relationship (fat and happy spending), but I have since ~July got that under control and have been paying down the debt which currently stands at $5k.

I read on here, that if you have savings and have high interest CC debt, it is wise to take the savings and pay down the high interest CC debt, as worst case scenario and emergency comes up down the line, and you end using your savings then CC for the remainder. But in the meantime, you've saved on interest.

Income: Roughly $1,600 post taxes, biweekly.

My emergency fund is $3000 as my current, and future, monthly expenses are fairly low:

Car Insurance: $144
Storage Unit: $127 (Ended the relationship, have lots of household items and furniture, some of which I've already sold or given away.)
Gas: $120 (will be less as I've just been given work from home capabilities/permission)
Food: $200 (90% at home cooking, but keto is expensive)
Rent: $600
Subscriptions: ~$50
Phone: $0 Paid for by company
Total: $1,241 not including CC payments.

The plan would be to withdraw my Roth contributions, use that and my emergency fund to pay off CC debt immediately, and then, as rapidly as possible, rebuild my emergency fund to ~6k, and then begin saving for a real estate downturn.

Any help is appreciated.

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DaemonTargaryen2024 t1_iuio6wp wrote on October 31, 2022 at 4:55 PM

Yes without tax or penalty because your contributions were $2,100.

>Can I withdraw the full $2,027 without penalty?

Dividends are meaningless for this conversation. Roth contributions are tax and penalty free, anything above the contributions are the earnings which are taxed and penalized until reaching 59.5.

>Roth has earned ~127 in dividends since inception.
>
>Can I withdraw the full $2,027 without penalty? Or would I only be able to withdraw $1,900 ($2,027 - $127)?

I would generally recommend against using a retirement account to pay for current expenses. This will be tax/penalty free but it sets a bad precedent and also handicaps your future retirement security.

Also recommend against even thinking about what and how you'll invest, until you sort out your debt, spending, and budget. Use the wiki and prime directive here to get a handle on budgeting 101, that should be your priority at the moment.

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punkfreak75 OP t1_iuir62x wrote on October 31, 2022 at 5:15 PM

Thank you!

You answered my question clearly. It makes sense that earnings are anything above contributions. I was mostly unsure about whether I would have to take in dividends into the calculation of the current depreciated value, but as you stated, that is not the case.

And I agree, it is generally recommended against using a retirement account to pay for current expenses. However, I am funding, above the match, my 401k and will increase that as my income increases. I get bi-annual raises and will be earning my professional certification in the next year which will greatly increase my earning potential.

Lastly, is my above budget not appropriate? I know most here would say they would cut subscriptions as they are luxuries, but these are gym, strava, and hulu, my only luxuries that keep me content and healthy.

DaemonTargaryen2024 t1_iuis6ss wrote on October 31, 2022 at 5:22 PM

Yup spot on about the Roth, dividends not a factor either way really.

I mention budget because of the CC debt and your saying you made poor financial lifestyle decisions. If you've worked through those already then you should be good.

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[deleted] t1_iuioppm wrote on October 31, 2022 at 4:59 PM

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