Cost Of Opportunity

Travis wants to cash out a Roth IRA for a house down payment, but Dave thinks that will have a big-time opportunity cost.

QUESTION: Travis and his wife are paying off their debt and renting right now. They were given a $20,000 Roth IRA from her parents and he was thinking of using that for their house down payment. Bad idea, says Dave.

ANSWER: I wouldn’t cash out a Roth IRA to buy a house, ever. You have to look at the opportunity cost here. What you are in is a tax-free situation. Just have a little patience and you’ll get your house, and you don’t have to destroy your investment plan in order to get the house. We always think of these things as trade-offs, and they are not. It’s just a matter of delay.