Holland Column

Retirement & Financial Planning

Holland Financial

Should I, or Shouldn’t I, Liquidate My ROTH?

I’d like to remind my readers that I love to get your questions, so keep them coming!

I heard from “Susan,” a woman in New Smyrna Beach, who is trying to decide whether or not to liquidate her ROTH IRA. This is what I know about Susan. She is 65, recently retired, married, has Individual Retirement Accounts (IRAs) and a $20,000 ROTH IRA (which she’s owned for over 5 years); she and her husband own a home worth $250,000 and they have a mortgage of $100,000. Her problem, however, is that she doesn’t have any cash in case of emergencies.

I commend Susan for planning ahead! You might know from my previous columns that I am a big believer in maintaining a hardy emergency account. You never know when the car will break down, the refrigerator will quit, or you’ll be required to meet large deductibles not covered by your insurance policies.

My recommendation could be for, or against, liquidation of Susan’s ROTH account. A ROTH can serve as a supplemental emergency fund without liquidating it, as long as the cash is not needed immediately. Should an emergency arise, and Susan can wait a week or two to receive her funds, the ROTH doesn’t really have to be converted to cash beforehand. However, and this is a big however, if the ROTH monies are invested in the stock market, the value of the ROTH account can, and will, fluctuate. It wasn’t too many years ago that the stock market plunged 40%. If that were to happen when Susan needed money from her ROTH account, the current $20,000 value could sink to just $12,000! If this potential volatility is a concern to Susan, I would recommend that she liquidate part or all of the account and deposit the money in her bank. She won’t be earning much interest, but she will feel more confident that the full amount will be there if she needs it. Plus, she will have quick and easy access to the funds.

Another option for Susan might be to consider the equity in her home for potential cash. She could apply for a traditional refinance, a reverse mortgage loan or reverse mortgage line of credit. She would still have to pay homeowners insurance, property taxes and home maintenance, but she would gain access to the additional cash these products could afford. What’s great about Susan’s situation is that she doesn’t have to take money from her regular IRAs because she has other options available. Those IRA accounts can continue to work hard for her until she absolutely needs to pull from them, or until she has to take required minimum distributions at age 70 1/2.

It was good to hear from Susan. She’s taking stock of what she has, thinking about the future and asking great questions. Do these things and you, too, will PlanStronger™!


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