Debt For a Wheelchair-Accessible Van?
Chris says his 15-year-old daughter fell and broke her back. She's now paralyzed from the waist down. They need a wheelchair-accessible van but don't have the money. Should he use his retirement to buy this van?
QUESTION: Chris in Phoenix says his 15-year-old daughter fell and broke her back. She’s now paralyzed from the waist down. He and his wife are now facing changes financially due to the accident and have exhausted their liquid assets. They need a wheelchair-accessible van but don’t have the money. Should he use his retirement to buy this van?
ANSWER: You’re not going to get $30,000 because you’re going to have to give up 40% of that in taxes and penalties. You’re only going to get about $18,000. They’ll withhold only 20%, but your taxes will be your tax rate, which will be the 30% range with this withdrawal plus a 10% penalty, so a total of 40%. They’re not going to withhold all of it, but you’re going to have it due next April. You have a $12,000 tax bill created by a $30,000 withdrawal. Just count on that. The net effect is only $18,000. In a sense, you’re saying, “Would I borrow money at 40% interest to buy a wheelchair van?” because that’s what you’re doing.
I’ve got a niece who has CP and has been wheelchair-bound most of her life. We’ve had wheelchair vans in the family, so I’ve watched them with that, and I’ve got a couple of friends who are adults who operate in the same situation just to get around and drive themselves. I know they’re a) ridiculously expensive, and b) they wear out. They get ragged after a while. It’s almost like you’ve got to constantly be setting money aside to replace and fix the thing once you’ve gotten it.
The question is can you pull this off for $18,000, and are you willing to give up $12,000 of your $30,000 to get there? If you are, I probably would do it. There are almost no cases I’m going to go along with that, but I’m going to do that before I borrow money in your situation.