I was thinking of withdrawing money from my Roth IRA to pay cash for a nice property that I found. I hear that I would have to pay a 10% early withdrawal penalty plus the money will be taxed by the IRS as income, which I believe is 35% (both of which can be deferred for one tax year). I’m not a mathematician but I think that’s about half of the money.
I know investment property write-offs will knock this amount down some but even with a 10% knock down in write-offs, its still a lot.
Any suggestions on how I can make this move any less painful?
You are allowed to withdraw your Roth IRA contributions at any time without penalty. If you withdraw the earnings on your contributions, you will face penalties. The rules on Roth IRA withdrawals are different in that respect from other retirement investments like a 401k. You should take into account the loss of compounding on that money over time because of your withdrawal as well as the risks involved with the property compared to your risks from your Roth IRA investment, but that’s up to you.
You could also transfer the RothIRA to a self directed IRA and purchase the property in the IRA.