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safe Liquid investment for IRA

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jsdonaldson3
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safe Liquid investment for IRA  Reply with quote  

Hello all! I have an IRA administered by TD Ameritrade. I am 25 years old. I have right at 10,000 in this account as I plan to use this money for a first time home purchase sometime within the next year. right now the money is just sitting stagnant in the account. rather than let it sit I wanted to put it in a vehicle where is could at least be making a little interest. I want to maintain my liquidity in case a property becomes available that I want to jump on. I've looked into the money market ETF'S such as Pimcos MINT, Barclays BIL, and I shares SHV. but I've heard the fees associated with these investments will take take a big chunk out of any returns. any suggestions or recommendations? thanks!
Post Mon Feb 27, 2017 4:49 pm
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oldguy
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quote:
I plan to use this money for a first time home purchase sometime within the next year. right now the money is just sitting stagnant in the account. rather than let it sit I wanted to put it in a vehicle where is could at least be making a little interest.


Risk: Risk and Return are directly proportional. You can either have "safe storage" of money, or a good return on your money, but you can never have both. So you are right to store your money at 0% for next year's uses.
However, I don't follow that rule. I have an SP500 account that averages about 11%/yr over a longterm (30 years). When a bought rental houses, I never used my SP500 money if I could avoid it, I tried to get as close to zero down payment as possible - I often refi'd one house to rasie money for a DP on a new house. Same with cars - whenever we needed a new car, I left our money in the SP500 account and borrowed for the car. (borrow at 4% and invest it at 11%).

Compounding: Your $10,000, invested at 11%/yr and left for 30 years is about $230,000. About $1,100,000 at age 70 1/2 when you have to start selling some each year.
Another example - if you invest $5000 per year at 11%, if will be $1,100,000 in 30 years.
So if you buy a house next year at zero down, that extra $10,000 added to your loan at 4% adds about $48/m to your payment ($17,000 over 30 yrs) - and by doing that you earn an extra $230,000.

Book: This book ($15) does a really nice job of explaining investing - The Little Book of Common Sense Investing by John Bogel. I did that method for over 40 years.

IRA: I wouldn't cash out the IRA unless you have to. You'll pay the pre-59 1/2 penalty of $1000 and you'll pay the 6% MT Tax plus the Fed Tax (20% ?). So you'll only get about $6400 after taxes.
Post Mon Feb 27, 2017 8:35 pm
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jsdonaldson3
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thanks for the reply! I really appreciate the advice. I definitely see where you are coming from. Yea the only reason I saved using my IRA was because of the exception for first time home buyers which states that you can use up to 10,000 from an IRA for a first time home purchase with no penalties. it is however taxed as regular income for the year it is used. I definitely I'm going to try an get into a place with as little DP as possible. trying to leverage myself by using other people's money to build equity. I'll definitely pick up a copy of that book and give it a read!
Post Mon Feb 27, 2017 9:14 pm
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jsdonaldson3
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I also suppose even if left in my account I could borrow against my IRA
Post Mon Feb 27, 2017 9:15 pm
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yotux
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IRA  Reply with quote  

Not sure why you are taking money from the IRA you are going to loss at least 30% after taxes and penalties.

I would put funds in a money market account since you may purchase sooner than later....
Post Wed Mar 01, 2017 5:17 pm
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jsdonaldson3
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Not sure why you are taking money from the IRA you are going to loss at least 30% after taxes and penalties.



"exception for first time home buyers which states that you can use up to 10,000 from an IRA for a first time home purchase with no penalties."
[/quote]

here's a link the IRS website

https://www.irs.gov/taxtopics/tc557.html[url]

not a lot of people seem to know about the exemption for First time home purchases which makes me wonder how long it has been a thing[/quote][/url][/list]
Post Thu Mar 02, 2017 2:02 am
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braje
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You can take contribution from a Roth, penalty fee, but not the earnings. That said I think you should leave the Roth money for retirement.
Post Thu Mar 02, 2017 3:47 am
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