Should I cash out my Roth IRA to pay my mother's property tax debt, to avoid foreclosure on her home?
@foreverBroke - Ok, here are the questions - Is mom's house paid for in full? If there's any mortgage, is it current? If not, what are the numbers? Is it underwater, i.e. owe more that it's worth?  Will the tax department talk to you and negotiate? Maybe let you make payments over time? If you have that kind of cash flow, the slower payment may keep you from killing your savings.  We don't know your age. I do know that the early years savings, often around the first 8-12 years, are the funds that turn into half your final retirement savings due to compounding.  Obviously, this a tough time emotionally, what I don't want is for you to make a financial move that is a temporary fix. Not knowing the rest of the story limits my answer. If my mom needed my help I'd want to understand the whole picture.  Not that I'm a fan, but have you considered a reverse mortgage? It may be a way to keep the house but give up the equity, or some of it, on her moving out or passing. You're crazy to cash out your Roth or take on 401k loan, as that is addressing a short-term problem without doing anything about the longer-term issue. Just don't do it. Through no fault of her own, your mom is insolvent. It happens to people all of the time, and the solution is chapter 7 bankruptcy.  The only thing that I would do with my money in this situation is help her with bankruptcy attorney fees if needed, and maybe bid on it at auction, if the house in in good shape. "First, I'm really sorry to hear about your mother. My wife was recently diagnosed with Stage 4 cancer, so I know that there is a possibility that your mind is in ""survival"" mode, trying to preserve as much as you can in the way of things that you can effect (that's how I've been feeling recently). Having a loved one with cancer is really tough because there is absolutely, positively nothing tangible that you can do to change the fact that they have cancer. You will have to ask yourself some questions: How important is it that your mom can stay in her house? Moving could add some unneeded stress. How may years have you been contributing to your 401k? If you have 30 years left, you could have enough time to recover some of your losses from reducing the amount of money you have given up for your mom. Will your mom be able to pay you back for paying the taxes over time, or would this be a 'gift'? Have her doctors told her that she ""... has N months left...""? What is the next step after you are able to pay her taxes and save the house?  Someone close to me recently told me that ""There is no point in trying to save for someone for the future, if you can't sustain them until they get to that future. What will happen to your mom if she loses her house? Will it make it easier or harder for her to recover if she can stay? To paraphrase someone famous, ""you can't take a loan out for your retirement, but you could take a loan out for this event."" At any rate, good luck. My thoughts are with you and your mother." If it turns out that you do want to help pay the tax bill (after answering all the questions above), I say cash out those funds. You are apparently very young with a long work life ahead (lucky you). Step aside from the actual money part of it for a moment. What does your Mom want? What do you really want to do about this? Is it from love that you want to help but are afraid it's a bad financial decision? Or is it from a feeling of duty and you deep down don't really want to spend your savings on Mom's tax bill. - If you really do want to help and you have the wherewithall to do so, then do it. Otherwise don't. You can recover financially. - I myself have had my retirement savings go to nearly zero 3 times. The first time I recovered pretty easily. The second time, not so easily. I'm just starting on the recovery path for the 3rd time at age 58 and I highly doubt I ever will recover this time. I didn't cash out on purpose but the stock market was not friendly. - My main point is to figure out truly what you want.
"I am not saying it is fair, or that only they get to say ""this sucks"" I am saying that you should not be envious of them.    Also, try to remember that the programs like the one they made use of don't just help that family.  Foreclosures drive down property values.  Sure it sucks to see them basically get rewarded for an. . . . optimistic gamble shall we say. . . but they are not the only ones that benefited.  Their neighbors, some of whom likely are honest people who took a cautious path to home ownership, now will not have their homes decrease in value due to sister.  She gets an unfair reward, but it also helps avoid her neighbors getting unfairly dinged.  Not to mention that it is safer to have homes occupied, and they tend to be less likely to fall into disrepair.       Also,  try to remember that every house that does go back to the bank means one more family of renters.  Banks tend to sit on homes, often for way way longer than they should, leaving that house empty, while the former tenants try to rent.  Pour more renters into the pool while banks sit on unsold vacant homes and landlords can be more picky and charge more for rent.   But in the end. . . .man your rent sucks." "The bottom line is you broke the law.  While this is pretty much victimless, it is none the less a violation of the law and should be avoided in the future.  I would have not agreed to this as a parent and it sets a bad precedent.  As such I would avoid trading and move the money into cash until you turn 18.   Once you turn 18 you should transfer the money into an account of your own.  From there you may proceed as you wish. As far as paying taxes, of course you need to pay them.  Your mother did this as a favor to you and by doing such you caused her tax bill to rise.  As a gesture of goodwill you should at least provide her with half of the profits, not the 15% you propose.  Fifteen percent would be the ""I am an ungrateful son"" minimum, and I would seriously consider giving all of the profits to her." "Roth is currently not an option, unless you can manage to document income. At 6, this would be difficult but not impossible. My daughter was babysitting at 10, that's when we started her Roth.  The 529 is the only option listed that offers the protection of not permitting an 18 year old to ""blow the money."" But only if you maintain ownership with the child as beneficiary. The downside of the 529 is the limited investment options, extra layer of fees, and the potential to pay tax if the money is withdrawn without child going to college. As you noted, since it's his money already, you should not be the owner of the account. That would be stealing.  The regular account, a UGMA, is his money, but you have to act as custodian. A minor can't trade his own stock account. In that account, you can easily manage it to take advantage of the kiddie tax structure. The first $1000 of realized gains go untaxed, the next $1000 is at his rate, 10%. Above this, is taxed at your rate, with the chance for long tern capital gains at a 15% rate.  When he actually has income, you can deposit the lesser of up to the full income or $5500 into a Roth. This was how we shifted this kind of gift money to my daughter's Roth IRA. $2000 income from sitting permitted her to deposit $2000 in funds to the Roth. The income must be documented, but the dollars don't actually need to be the exact dollars earned. This money grows tax free and the deposits may be withdrawn without penalty. The gains are tax free if taken after age 59-1/2.  Please comment if you'd like me to expand on any piece of this answer." It depends how you do it.  If you roll it from your 401k directly to a Roth then you will have to pay the taxes.  The contributions to the 401k are tax deferred.  Meaning you do not owe taxes on the money until you collect it.  Roth contributions are post tax but the gains are not taxed so long as they are disbursed under acceptable conditions according to the regulations. If you roll it directly from the 401k to a regular tax deferred IRA you should be able to do that with out penalties or taxes.  You will still have to pay the taxes at disbursement. If you have the money disbursed to you directly then you will have to pay the penalties, fees, and taxes.  Your contributions to an IRA will then be subject to limitations based on the IRA.  It will literally be exactly like you are taking money from your pocket to invest in the IRA.   Your company should give you the option of a rollover check.  This check will be made out to you but it will not be able to be deposited in a regular account or cashed.  It will only be redeemable for deposit into a retirement account that meets the regulatory requirements of the 401k rollover criteria.  I believe the check I received a few years ago was only good for 60 days.  I recall that after 60 days that check was void and I would receive a standard disbursement and would be subject to fees and penalties.  I am not sure if that was the policy of T.Rowe Price or if that is part of the regulation. You can take out the contributions to your Roth tax and penalty free.  That's the good thing. Anything above the amount you contributed that you withdraw early will cost you ordinary income tax (which is higher than capital gains tax) plus a 10 percent penalty on that amount. So if you have $15,000 in the account and $5,000 is gains and you withdraw $11,000, then you owe tax and penalty on $1,000.  The penalty is 10% and your taxes (high taxes!) are added to that.  Pretty bad deal. If you kept it in a normal account and paid capital gains tax, you just pay 15% (or whatever) on your gains and you get to offset income tax with your losses via tax loss harvesting. So back to your question: your idea works even better than you suggested if you only withdraw up to the amount that you contributed (you pay no tax!).  Take out any of the gains and you will be penalized more than you would if you just paid capital gains on them.  Leave those in until you are old enough to take them out penalty and tax free. To me, contributing to a Roth, making a bunch of gains on it, and withdrawing only the contribution part whenever you want seems to make good sense. I can probably rent the house out for about $1,600. If sell now I can get 180k at the most. My mortgage will be $1,800 with tax and insurance. If I use the 180k to pay off the house, I can refinance the loan for a lower interest rate too. I think I know what I want to do but just need a second opinion. Thanks btw "Yes. A most emphatic yes.  I suggest you look at your 2014 return and project what 2015 will look like. I'd convert enough to ""top off"" the 15% bracket. Note, if you overshoot it, and in April 2016, see that you are say $5K into the 25% rate, you can just recharacterize the amount you went over and nail the bracket to the dollar.  If you have the time and patience, you can convert into 2 different Roth accounts. One account for one asset class, say large cap stocks/funds, the other, cash/bonds. In April, keep the account that outperformed, and only recharacterize the lagger. Roth Roulette is my name for this strategy. It's risk free, and has the potential to boost the value of your conversions.  Edit - To be clear, you are permitted to recharacterize (undo) any or all of the converted amount. You actually have until tax time (4/15 or so) plus the 6 month extension. You can recharacterize for any reason - A personal anecdote - I manage my mother in law's money. She is well under the 25% bracket cutoff. Each year I convert, and each April, recharacterize just enough to be at the top of the 15% bracket. Over $100K has been shifted from Traditional IRA to Roth by now. Taxed at 15% so her daughters will 'not' pay 25% when they withdraw. $10K in tax saved from uncle sam, for my effort of filling out paper twice a year for 12 years now. Well worth my effort." I would wait, and invest that money in a Roth IRA. Because taxes are paid on the contributions to a Roth IRA, you can withdraw the contributions at any time, tax and penalty-free. In addition, you can withdraw contributions and earning to purchase your first home.