How to prudently withdraw invested money?

September 14, 2014 4:57 PM

I am looking for guidance on how to go about withdrawing from investment accounts well before retirement. I know the generic advice is that you should be steadily socking away your retirement savings, not spending it, but I need access to cash at the moment. If you can direct me to resources (web articles, books, etc.) on the wisest course to follow when cashing out investments, I would love to hear about them.

Background: I am 30 years-old and have assets worth $120,000 from a combination of savings and inheritance. At the moment, only $2,500 of that is in cash. Generally, I think it’s wise to have some liquid funds on hand should some kind of emergency strike. I won’t have much income at my new job for a few weeks yet and anticipate more expenses during that time. Additionally, I would eventually like to help my partner pay down her student loans.

Those are my reasons for wishing to withdraw from my investments. The main question I am facing is: How to go about choosing which investments to convert to cash? I have an asset allocation plan, so I guess I should use that to figure out what investments to retain. The tricky thing is that my assets are allocated to different accounts and the bonds are all in my Roth IRA accounts, which are more difficult to access.

Additionally, I am not clear on how to withdraw from my Roth IRA. I believe I am allowed to withdraw the principal I put in, but I don’t know how much that is exactly. Any advice on figuring that out? Would Vanguard be able to tell me this, or am I in trouble? I certainly wouldn’t want to guess and guess wrong.

If you could direct me to any information that would address my questions and concerns, I would be most appreciative. I know there must be a lot out there, but I am drawing a blank of what terms to search for. Throw-away e-mail: [e-mail].

posted by anonymous to Work & Money (6 answers total)

Try doing it as a two step process. first figure out your new asset allocation, including liquid assets/rainy day fund as one of your categories. This will tell you how much you want to move from stocks/bonds etc. in a liquid account such as money market fund.

second, you decide how to move the money - it doesn't have to be direct. For example. you probably don't want to take any money out of your Roth where it gets tax-protected growth. However, you can over-sell stocks from another account and then move some Roth money from bonds to stocks to get the right over-all percentages.
posted by metahawk at 5:33 PM on September 14, 2014

To figure out how much you've contributed to a Roth IRA with Vanguard, click on the Roth IRA link from the overview page. Then you can click the "More" drop down menu in the detail box and go "View contribution summary". You should then be able to go through year by year and figure out how much of what is in your Roth is contributions.

I'm rooting around the interface and if you select a sell option from the page you got to the view contribution summary it'll show you a page that says: "1. Where's the money coming from?" and "2. Where's the money going?" And one of the options for where the money is going is to send you a check. There is also a FAQ on this that seems useful:

The IRS does not allow you to borrow money from an IRA. However, you can gain short-term access to your IRA funds by requesting a withdrawal from your IRA and making a contribution as an Indirect Rollover within 60 days. Select "Buy and Sell" and follow the online instructions.

An indirect rollover must be re-deposited back into the same IRA for the same amount within 60 days. If you hold the money longer, it will be subject to taxes and penalties. You can make only one rollover per IRA every 365 days.

So, if you can manage it, get the money back in within 60 days and it'll be like you didn't raid it at all.
posted by foxfirefey at 5:33 PM on September 14, 2014 [1 favorite]

Before you actually withdraw any money, figure out the tax penalty that you'll incur. Then make sure you set aside enough cash to pay the taxes when you file your income tax return. You may need to consult with a tax professional for advice. The company that handles your retirement account may not necessarily know the exact tax implications of the early withdrawal.
posted by alex1965 at 6:49 PM on September 14, 2014

This article might be helpful.
posted by The Deej at 7:19 PM on September 14, 2014

Yes, Vanguard should be able to tell you this. There are going to be some tax penalties for withdrawing early from your Roth IRA, so make sure you understand those and withdraw the absolute minimum.
posted by Jacqueline at 7:43 PM on September 14, 2014

If I'm reading this correctly, some of your savings are in a Vanguard IRA and some are in another (taxable? 401k?) account or accounts. In general, if you have enough funds in a non-IRA, non-401k investment account you should withdraw from those first. That will leave you with a higher percentage of bonds (in the IRA) than you had originally since you'll be selling stocks. To get back to your original allocation, you can just go to vanguard and exchange some of your bonds for whatever other type of asset you need to replace, all within the IRA. If you do this you will need to pay taxes on any gains you realize from selling the stocks in the taxable account - the rate will depend on how long you've had the investments - so make sure that you withdraw enough to pay that additional tax at the end of the year.

On preview, some people are mentioning tax penalties from withdrawing from your Roth IRA. Just to clarify, as long as you're only withdrawing the principal (foxfirefey explained how to find this) you won't need to worry about taxes if you choose to go that route.
posted by exutima at 7:54 PM on September 14, 2014 [2 favorites]